There comes a point in every parent’s life when his or her child asks for money. There may be an upcoming class trip that needs financing, an outing to the mall that requires a bit of pocket change, or perhaps they long to join the same competitive economic union their peers belong to (also known as “Everybody else get an allowance, so I want one too.”)
Regardless of the reason, financial experts say it’s never too early to begin teaching your child about fiscal responsibility. By creating a small economy in your home, showing them how money works and what it takes to earn it, you will not only help your child learn about the value of a dollar, but also instill healthy financial habits that will hopefully last a lifetime.
• Watch your words: Avoid saying, “I have to go to work because we have to eat.” This sends the message that work and money are the enemies. In order to help your children establish a healthy relationship with money, they must respect it—not resent it. Instead, say you go to work to provide your family with the things they need. It’s simple. It’s direct. And it’s the truth.
• Let them see you conduct financial transactions. It may be easier to go to the grocery store or bank without them, but don’t avoid the teachable moment. Children are like sponges and they learn by watching you comparison shop, put money in savings and other small tasks that add up to big life lessons. Consider keeping your kids in the financial loop, not out of it.
• Establish a “Fair Pay” Act: When the time comes to consider an allowance for your children, make sure they understand that daily responsibilities (e.g. making their bed, cleaning their room, helping care for a pet, etc.) do not result in a monetary reward. These jobs are their contribution to the family and not something for which they receive compensation.
• Allowances are earned, not given: Children are not salaried employees, but wage earners. Avoid the temptation to give them a weekly allowance for any and all work performed. Expect accountability and proof of a job well done before handing over cash.
• Responsible rewards: Make sure the job is commensurate to the pay and create a system in which chores correspond to the child performing them. There are a number of lists on the web showing what children can reasonably handle at various ages and create a pay scale based upon those suggestions.
• More money? More work: Create a system in which children can be “promoted” as they grow so they earn more responsibility, bigger jobs and receive more money. Reward children when they go above and beyond the call of duty so they may get a taste of what “can” be theirs in years to come.
• Spend wisely: Make sure they learn how to responsibly manage their money by saving some, giving some and spending some. If they are doing the first two, do not micromanage the third. Allow them to make some mistakes; after all, it’s the best way to learn.