Teaching Kids about Money – Part 1
Posted by Gail | Filed under Kids & Money
Today begins a series of blogs on teaching kids about money. I’ll be posting these on Thursdays over the next eight weeks. I look forward to your comments. And if at the end there’s something I’ve missed, I know you’ll drop me a line and let me know. Enjoy!
Funny Money: Before money was made of bills and coins, what was used as currency?
It’s one of those universal truths about kids: Get them in a store and they are transformed into beggars who can spew the rationale for why you should give them what they want just as well as the most persistent telemarketer. Every shopping trip leads to inevitable pleas of, “Mom, can I have this?”
We like to blame the commercials on television. Some believe it’s because kids are overindulged. Or maybe habit and routine are the culprits. Think about it. When was the last time you went into a store without buying something? Maybe it’s only natural that children copy our retail routines.
When everything is magically acquired by swiping a card and pushing some buttons, how are kids to understand that there isn’t an endless fountain of purchasing power available? In today’s time-pressured, material world sometimes it’s easier just to give in to our kids’ all-too-frequent demands than to explain the big picture. Easier, but not smarter. Children who are shown how to be responsible about money early on will be much more likely to stay in good financial shape down the road.
So how do you get started? You’ve got to give ‘em some money. Before children can learn to manage money they need to be able to get their hands on the stuff. The debate about allowance – how much children should receive and who should manage it – rages. But the reality is that kids can’t learn about money if they have no money to work with. Money management is a concrete skill. Yes, there are some abstract concepts you’ll eventually have to cover – like compound interest – but it all starts with pennies, nickels, dimes and quarters.
I define an allowance as the money you normally spend on your child put in your child’s hands so (s)he can learn to manage it. Given regularly, an allowance not only provides kids with the bucks they need to experiment with saving and spending, it also gives them the responsibility for keeping their money safe and using it wisely. Over time, even a modest allowance will get kids thinking about the value of money and how to make their dollars go further.
The alternative to an allowance, and a trap for most parents, is the dole system. That’s when your kid asks for some cash and you dole it out. Since the dole system has no limit, there is no reason for a child to set priorities or make a decision on relative value. In fact, if you ask a child on the dole system if he wants an allowance, ten to one he will choose to remain on the much more lucrative system he has. After all, while he will have to put up with some lecturing and lamenting from his parents, he’ll likely get just about anything he wants.
Another downside to the dole system is that you remove all control from your child. You get to decide which of his requests are valid enough for consideration and your child feels like a beggar. Your child learns The Gimme’s Game really well and you grow resentful of the constant requests for cash. “But Mom, I only need two dollars.” “Gee Dad, it only costs five dollars.” “Can I have another quarter? Another dollar? Another $100?”
If you’re currently on the dole system and don’t fully appreciate what it’s costing you, consider keeping track of all money you hand over to your kid in a month. Yup, write it down. Never mind whining about what a pain it is to do this, DO IT and prove to yourself exactly how much money your kids are or are not getting each month. You may be surprised at how large his allowance is!
Next: Starting an Allowance
Funny Money Answer: Conch shells, ivory, clay, live animals and grain. As long as it was divisible and scarce, it could be money.
February 19, 2009 at 7:08 am
A-MEN! I give our children $1/year of their age less $1 per week. The $1 goes directly into their bank accounts (okay, it actually adds up to $10/month for them, but it was easier than figuring out $4 one month, $5 another and I like round numbers). I find it has taken the stress off the trip to the grocery store and the “Ooh Mom, look at this, ohhh, I’ve always wanted one of those” moments. I admit, if my children haven’t brought their money with them to the store, I will pony up knowing they have to pay me back as soon as we walk through the front door at home. If it’s not a necessity, just a cool new shirt or pack of gum, they pay. Yes, even the 9 year old pays for some of her own clothing. I know it’s usually on something she won’t wear past a week, but if she desparately wants it then she’s got to pay.
I’m proud to say we’re off the ‘dole’ system, even though my husband thinks we give them too much (from a guy who gets suckered into buying everything at the store for them if I’m not there to remind him of their allowances). I look forward to Gail’s rationale tomorrow of how much so I can show him that one dollar per year of age per week is just fine…since it’ll hopefully stop when they turn 15 and get part-time jobs!
February 19, 2009 at 7:49 am
Gail:
What will be the best age to start them up on an allowance ? My baby is just 14 months right now, and although we have started RESPs and a Savings account, I would like to know when do kids actually figure that you need money to buy things. Is it 3 years old, is it 4 years old? Any feedback is always well appreciated !
Thanks
Emiliano
February 19, 2009 at 8:27 am
I think an allowance is a great teaching tool. I grew up without an allowance so as soon as I got money (babysitting, job etc) I blew every cent. I never saved my paychecks. Often I was broke before the next payday, and I was making around $200+ every 2 weeks in high school.
Mind you I paid for EVERYTHNG myself. My lunches, personal care items, clothes, bus fare. I wish I would have had someone sit down and talk about money with me and encourage me to save and balance my spending. My dad is good with his money (so tight he squeeks) and my mom is terrible with hers. They divorced when I was 11 so I didn’t learn the best habits from my mother. Dad never talked about money. It took making some big mistakes to educate me. I understood the importance of paying my bills on time – and I always did, but I had no savings. I ran into trouble once my money was joint with another person.
My struggle now is deciding how to handle money with my 3 yr old. Whenever he is given money we put it in his piggy bank and he is learning that he can save for a special toy he might like. He recently made his 1st purchase with his own money that he saved and he was so proud of himself. I don’t give him an allowance yet. I think it’s more important to put that money in his RESP. What does a 3 yr old need money for on a regular basis? Should I wait until he starts school?
I also struggle with money being reward based. I don’t want him to think that he only has to help out in our home if he wants money. As part of the family, he needs to help out too. He feeds the dogs and makes his bed. He picks up his toys. Maybe extra things he does can be reward based?
What worked well for you? Did you get an allowance? Was it based on chores?
I have an “only child” and I don’t want him to be a spoiled kid. I totally get that kids need currency to learn to manage money, but how to give it to them & when is so confusing.
February 19, 2009 at 8:27 am
I’m interested in seeing posts of others as I’ve been taking some heat from friends for giving my kids $25/week (they are 10 and 12). I haven’t made it contingent on chores, beyond what they are expected to do as part of our family. I don’t feel it is too much since it has significantly cut down what I spend on them for just about everything – I am saving money!
The $25 gets divided into “quick cash”, “spending” and “savings”. $5 goes to quick cash (which is what I really feel I am giving them for allowance) that they can spend on whatever they want – slurpees, crap from the dollar store, whatever… $10/week goes into spending; they can accumulate this for clothing (their tastes were getting too expensive for me!), electronics, entertainment like concerts, itunes. Finally, $10/week goes toward savings. This is intended for big purchases like bikes, skiis. However, they haven’t yet set a goal for this cash beyond a bank account, so I may try to encourage some investing… They are both aware of their RESP account which we contribute to monthly, and they both received foster children for their birthdays when they were 6, (kids of a similar age through world vision), so they see long term savings and charity happening in their name.
I am looking forward to the weekly blog for kids and money. I’d like to hone their money education as my lessons didn’t occur until adulthood!
February 19, 2009 at 8:44 am
My girls are 7 and 4 and they each get an allowance. My oldest is getting $7 per week (dollars in age per week), but my youngest is only getting $2 per week, as she will officially start her $5 per week when she is 5 (next month). My oldest divides her allowance into three piggy banks (my youngest will start when she is 5). Ten percent to Savings (pay yourself first rule), ten percent to charity (of her choice), and the rest to spending (her choice). I pay out in coins to help them count money, and understand the percentages concept (seeing that 10% of $7 is 70 cents). I’ve told them that as members of the family, they are responsible for helping around the house for basics, like making their beds, cleaning up after dinner, helping to set the table, etc. My oldest wants so badly to get a DS, but I’ve told her that she will have to pay for it. So we go into the stores and look at prices, and she understands that she has a bit to go yet to save for it, but she is not impressed at the prices, plus having to buy the games on top of that. I think that having them start early realizing where their money goes will only help in the future. I will take my oldest to open up a bank account soon (so far the money is rolled and in her room because she likes to see it), but I’m convincing her to try to put it in the bank to watch it grow (will put it in an ING account). I remember when I was in public school, in Grade 5, we went to the bank as a field trip and opened up our own accounts and the great feeling I got from having my OWN bank account. I also started my RRSP’s when I was 18 – putting money away from my summer job. I hope to instill these ideas into my girls. Thanks for these blogs, Gail!
February 19, 2009 at 8:46 am
Oh yeah, forgot to add, in Canada, our first currency was trading in beaver pelts. That’s one of the main reasons the beaver is the animal of choice on our nickels.
February 19, 2009 at 10:31 am
Brenda, thanks for that funny tidbit! Never knew that. Sounds like you’re doing a great job, as are many other people here.
Gail, I too, would be interested in what age you recommend to start kids on an allowance!
February 19, 2009 at 10:47 am
Tara:
To me, the amount of the allowance depends on the prupose of the money. If it is just silly money (junk and outings), it should be low. If it is intended to clothe them, it should be higher. If it costs you less and teaches them the value of money and choices, what ever amount you choose fulfills the purpose. I’ll admit that my clothing allowance is less than $50/month…
As a kid:
I remember the ‘Caisse populaire’ (kinda like a credit union) coming to the school so students could put money towards their saving account. I don’t remember much on the details.
February 19, 2009 at 10:52 am
Gail:
I do tend to buy something every time I go to the store… why else would I go to the store unless it is because I need something? I understand what you mean, don’t get me wrong. Usually, by the time I enter the store I know what I want and the price I am willing to pay (and their advertised price).
February 19, 2009 at 10:59 am
Tara – at first I thought you were being very generous with $25 per week, but then since it doesn’t include you buying clothing than it made more sense and I don’t think your friends should give you grief!
Marie – sometimes it’s better to spend less on children’s clothes, depending on their age and propensity to outgrow clothes and shoes. Also there are plenty of people who enjoy going into a store without the intention of purchasing things – I for instance go to futureshop once a week and usually only buy something once a month… but every once in a while in my weekly just looking around trip…. ka-ching goes the register!
February 19, 2009 at 11:10 am
Geoff:
I meant that my own grown up allowance in my budget is less than $50/mo. I will admit that I avoid stores (unless I need something) because it makes me want to buy stuff or makes me aware of stuff that would be nice to have and… ka-ching goes the register! It frustrates me to browse because it brings up ‘wants’.
February 19, 2009 at 11:31 am
WHEN????
I know my 11 year old is smart and frugal enough to save and budget for his wants as well as his needs, but my 7 year old has no concept of tomorrow!
I have an automatic deposit into their high interest savings account to the amount of $20 each per month. It is officially their allowance, I am hoping that because it is in their account first (like a paycheque) that they need to put some thought into it before they can spend. They need to think about their potential purchases, withdraw the money and it has to last the month because their accounts only allow one free withdraw a month!
I can’t quite separate all their expenses from mine yet…. I feel responsible for adequately clothing, feeding and giving a stimulating environment to them, so I feel I should be the one paying for that so far. Of course, if they want ANOTHER pair of runners when they have a perfectly good pair already, then that is their own splurge! I am also hard in that I will pay for dental check-ups and cleanings, but if they need fillings, they better have saved up for the filling (it’s one way to make sure they are brushing the best they can).
It looks like the oldest is in need of a serious set of braces…. I can’t excpect him to pay for those on his own, so it’s mommy and daddy (we are the genetic reason he has such crooked teeth!).
My oldest is saving up for a big purchase, and he isn’t geting there fast enough with the allowance so he has a paper route and mows lawns in the neighbourhood in the summer (he is an enterprising 11 year old). But like I said the seven year old lives for today, hopefully the lightbulb will go on for him soon, he already knows there are some things that he doesn’t have the money for, but he doesn’t want anything bad enough to really make a goal of it yet.
February 19, 2009 at 11:43 am
SQ, what are you doing asking about allowances and children?
Marie, your last sentence raises a fantastic point, or food-for-thought point (“…It frustrates me to browse because it brings up ‘wants’.”). That could easily be the source of the problem for people with consumer debt (or even no debt). By looking around, it does create this “want” list and humans being humans, that line between wants and needs can become so easily blurred. So that being said, why succomb to temptation in the first place? It makes more sense to go to a store when a specific need is there (or to compare prices) – e.g. only go into a furniture store when a piece of furniture is needed. Now this may mean missing out on sales or closeouts, but saving on an unneeded item still results in having an item that is not needed! Here’s an analogy: if you’re married, would you go to a singles event? You could make the argument that you’re just looking at what people are doing these days, or see how people dress, or some other excuse, but the question is why would you even be there in the first place?! Even with good intentions, it would only result in temptation!
As for everyone’s question regarding children allowances, I suggest some patience. As Gail pointed out in the beginning, this is 1 of 8 postings, so I have no doubt she’ll answer questions like how early or how much?
February 19, 2009 at 11:59 am
As a kid my sister and I got an allowance equal to our age… Which I thought was terribly unfair when our allowances stopped when I was 11 because I’d been getting 11 dollars a week while my sister had been getting 15 dollars a week. She went off and got a job and I was 11.
Still, I think I turned out alright… Except I save like a squirrel during rough times and spend like a bunny during good times. At least I’m 50% there, right?
February 19, 2009 at 12:03 pm
Today is my little one’s 4th birthday, and we are planning on starting an allowance now. I am thinking $0.50 per year of age. I know that’s half the going rate, but I’m worred that $16 / month would just mean a lot of cheap toys I don’t like or candy I don’t want her to have. By keeping the amount smaller I’m trying to reduce that, at least a bit. Although I’m willing to adjust it if it’s not working.
I’m looking forward to your next installment, Gail!
February 19, 2009 at 12:18 pm
For everyone who is asking “at what age do you start the allowance?” – my answer is that you’ll know when the time is right! That is, when you get tired of hearing them ask for money or things!
My kids are late teenagers now, but I started their allowances when I got tired of hearing “I need $10 for pizza/hot dog/whatever lunch day at school.” (so annoying when you are trying to follow a budget). I got tired of it, started giving my oldest an allowance and told him to pay for the special lunch if he wanted it or save the money for something else. I didn’t have Gail then and I didn’t give him any guidance. Next thing you know, he was saving his money for video games and didn’t want, need or miss the pizza lunch – and brought a sandwich instead.
February 19, 2009 at 1:08 pm
Amber, that makes sense. The larger amounts seem better suited for older children who will want to save up for things like video games or clothing.
February 19, 2009 at 1:12 pm
Erran, first of all your analogy with the singles party is hilarious, hahaha, that’s too funny, comparing shopping for stuff with “browsing” for a fling, haha. But you’re right that just being in a store makes you want stuff. I am so more satisfied with what I have when I’m staying out of the stores.
To answer your question, while I don’t have kids, my partner’s brother, who has a young son, has been wondering lately when to start an allowance. Since my partner nor his bro were raised with allowances, he has been seeking advice from others, and actually turned to me for advice, but obviously i don’t know the answer either.
February 19, 2009 at 1:21 pm
I guess were different than most as i was a stay at home mom with three kids age 3 5 and 7 and we started a paper route. Just the local paper. Pd about 40.00 month That was there spending saving everything money. My eldest got her first job at 14 so she quit the paper route then the money was split between 2 instead. I guess im lucky cause they never cared about name brand clothing, wore uniforms in high school and are very consious about their money. They alll now at ages 17 20 and 22 have ING savings account the 2 older ones tax free and they basically buy their own clothes and have been doing so for years now. I buy underwear socks and wintercoats and thats all. The paper route taught them so much. When we went to the store what they wanted with my money and with their own money were two totally different things. Taught me a valuable lesson also. If they REALLY want it they will buy it with their own money.
February 19, 2009 at 2:15 pm
Since I started watching Til Debt Do Us Part I started my daughter on an allowance.. She’s 10 years old and I’ve noticed a BIG difference in the way she views money since she has had to work with buying the things she “wants” with her own money. She really thinks long and hard about it before spending her money as she says she prefers to see her savings account grow.. I just love that! Recently, she wanted to purchase a pair of UGG boots that everyone seems to have. I told her that since she already had a good pair of winter boots she would have to get this herself. So, after looking at the store and seeing how much the original UGG’s cost she decided on the “faux” pair finding it after 3 store visits at 50% off. She only paid $25.00 and said that Gail would be proud of her lol… I was too
So now she has advised me that she is saving up for a car for when she is 17 and able to drive… Thank you Gail for your show and helping to teach our kids – I only wish I had that when I was younger… I know that it wouldn’t have taken my 30+ years to figure out what my daughter already knows at age 10! 
February 19, 2009 at 3:53 pm
I never had an allowance. I was on the “dole” system growing up. I’d like to think I didn’t abuse it!
Even at a young age, I had some concept of money being finite. I remember being about 7 years old and watching my mom write a cheque for my ballet lessons that was about $300. At 7 years old, $300 is an ENORMOUS amount of money. I pretty much decided right then and there that I didn’t really need ballet lessons and that mom and dad could spend that money on other stuff for me. 
My husband wasn’t on an allowance either. His parents encouraged him to get a part-time job when he was a teenager to pay for the things he wanted. He’s been working since he was about 14 and he has a great handle on his money.
Now that we have a little one, my husband and I discuss how to teach her about money. Right now, we’ve agreed on the following:
- allowance = age in years
- pay the allowance every two weeks, like our paycheques so when we get paid, she gets paid
- allowance will be split into Splurging, Planned Spending, and Savings
- allowance will end when she gets a part-time job since the job should pay more than her allowance
As for when we start the allowance, we’ll just wait and see. It will probably happen when she turns 5 but you never know.
February 19, 2009 at 5:21 pm
Unfortunately, my parents didn’t invest a lot of time or effort in teaching me about money and I had to learn the hard way. At the very least, it’s important that you learned, regardless of age.
Respectfully,
Josef
February 19, 2009 at 8:32 pm
Agree about browsing. I only go to stores when ’stuff’ is really needed.
as for allowances, I gave my three kids a certain amount at the beginning of each year. They were to set up budgets of what they will need, like hockey equipment/music lessons/hair cut avgs. etc. Then husband sits down with them and makes up a budget. They actually do not get the money until the budget is made. Then we deposit it into the bank for them. They also know they can download ITUNES and use my credit card but they inturn pay me the money they used. Funny, one of my sons did not cut his hair for a long time because he was saving for a new cool coat. This system has really worked.
February 20, 2009 at 3:08 pm
Tara, I do the same thing. My boys are 12 and 15. I give them $20 per week. It is not contingent on doing chores, although they are expeceted to help out around the house as necessary. My father almost had a heart attack. Do you realize that’s $160 per month, he said. I said yep, I can add. However, they must put away $3 each week to their Xmas fund. That’s my thing because I’m always blown away by how much kids seem to expect to get loads for Xmas but give you a blank look when you ask what they bought for everyone. Over the past 2 years, it has taught them how to enjoy giving gifts. I no longer pay for cell phone cards, any games or hot lunches they may want to buy at school. At first, they thought they had loads of money but as expenses came up, they learned that it’s only a number and it has to be spread out, saved up and valued.
February 21, 2009 at 2:27 am
I started the boys on allowance when they each turned 5. I also opened up bank accounts for them and got them debit cards. A couple of reasons for the debit cards. First, they never saw me using cash (this was before the jars, which by the way have had a very interesting effect on the boys) and second, I didn’t like them having cash when they were younger because they could lose it. I carried their bank cards and if they wanted something, it was up to them. The only problem with the bank card system, is that when you use the bank machine for deposits, the funds are held so the child can’t go out spending right away. It is amazing how cheap they are when its their own money!!!
February 21, 2009 at 11:47 am
So what age do you start allowance?
February 23, 2009 at 1:24 pm
Erin, you’ll know because they’ll start asking for money.