Kids And Spending
At what age should I start teaching my children about money?
At whatever age they start asking questions about money, you don't want to rush things. You want to do it in an age-appropriate way. I always say I'm a pulling parent, not a pushing parent, 'cause you want to keep your kids young. But you know, a financial question could be... you're out with your kids and the kids want to go to McDonald's for lunch, and you say, "Oh, I don't have any money today," and they say, "Well, you can just go to the machine and get some." And this just freaks parents out, because they say to their kids, "Do you think I'm made of money?" Well, of course they do, because they've seen you pushin' the buttons ever since they've been two years old. So you just do a little lesson, you say to them, "You know, the bank really is like a big piggy bank for Mom and Dad, and just like your piggy bank is sometimes empty after you buy something before you put more money in, sometimes our piggy bank is empty until we put our paychecks in. And so when we put our paychecks in, then we'll have money in the bank, and that's what we get money out of the machine." Very simple explanation. Kid now knows band equals piggy bank, and you don't have to explain how the Federal Reserve System works.
How can I teach my children how to save money?
The easiest way to teach your kids how to save money is, first of all, have them have a goal. It's really hard for anyone, whether kids or adults, to just save because it's a good thing to do. We know that, but we have to have something that we're saving for. So for a grownup, it's for college for the kids or for retirement or for a vacation. Kids need smaller goals and much shorter-term goals. It could be a little Hot Wheels racer. It could be a Beanie Babies figure. Pokemon cards. Whatever they like to collect. But if they have a goal, that's a really good thing for them, because then they know they're saving small amounts of money now, but they can put it towards something later, and that's a good thing for them to learn. As long as it's short-term for smaller kids.Also, if you offer to match what they put aside, that's a really good way to get them to save, especially when things become a little more expensive. Have them save for their own iPod. Don't buy it for them. Have them save for it, but offer to match what they put away. It really is a good lesson, not just in saving, but also shopping around for which iPod they really want. So give them incentives, and give them goals.
How can I determine the right amount of allowance to give my children?
I always recommend that people start an allowance when a child is around six or seven years old, and the reason I recommend that age is because thats when they start learning about money in school. They start having a better mental sense of how much money is really worth, so they know that a dollar equals four quarters, equals ten dimes. When kids are younger than that they dont always make that connection. So if your going to start an allowance at that age I recommend that you start with a weekly allowance thats equal to half a childs age. That would be the base allowance. Now I know some people recommend a dollar a week per year of age, so that would be six dollars for a six year old or seven dollars for a seven year old. What I find is that parents of kids that young think thats a little bit too much. They don't want to give their kids, their six year old, six dollars a week. So the half-age rule works very well for kids this age. As the kids get older, (depending on where you live - if you live in New York City, versus somewhere in the middle of the country that is less expensive you might want to give a little more) you can change this allowance accordingly.
How can I use my child's allowance as a tool to teach her to be money smart?
The critical thing about an allowance is that it's not just extra money a child get on top of everything else you the parent spend on him or her. What goes along with the allowance is financial responsibilies, finacial jobs or finacial chores. So, the kids have certain responsibilities with that money. They know for a very young child they can be purchasing their own collectibles; whatever that collectible happens to be. When kids are in middle school they should be paying for their own snacks with their friends after school and their own entertainment. They shouldn't be hitting you up for twenty dollars everytime they go to the mall. That should becoming out of their allowance. A teenager could be responsible for a clothing allowance, purchasing their own clothes, so that they have a stake in making purchases. That's what the allowance is all about - that they have to make decision as to what their priorities are, because that's what adults have to do with their money.
What should I do when my children ask for expensive things?
I think parents have to keep in mind that they don't have to buy their kids everything that the kid wants, especially if it's expensive clothes or gear. I think that parents don't have enough confidence in themselves and they think that kids are only going to listen to their peers or they're going to listen to the media. But if Mom and Dad say no, we're not going to do this, then the kids actually listen to you. The younger they are when they hear you say no the better it is. But it's "no" with a reason. No, we don't really need a new video game system right now, because the one you have is fine. No, I'm not going to spend all that much money on a pair of jeans because then I don't have enough to spend on tops or shoes or other things that go into my clothing budget or my back-to-school budget. They need to hear you give your rationale for spending decisions. The second thing is, they need to have a stake in these things. If they want to buy an expensive pair of jeans and it's coming out of their clothing budget then they're going to think, oh dear, do I really want to spend 15 bucks? if I have $30 to spend that's half my budget. I only have $15 left to buy tops, maybe I don't want to do that. Or again, if they want an iPod, have them save for the iPod. So you'll say, I'll pay a portion of it, but if you want this you have to buy it on your own, so that they have skin in the game - a stake in this. They will spend unlimited amounts of money as long as it's yours; when their money is on the line it is a totally different ball game.
How can I help my teenage children learn good money habits?
One way to help your teenagers is to expand the allowance, continue expanding it from the allowance that you were giving them when they were young. So, when they're teenagers they can have a clothing allowance. Perhaps you give them that once in the fall and once in the spring, so they're making decisions with bigger pockets of money. Then of course, they really should get a job. They really should be earning their own income at some point, and they should have certain responsibilities with that income. So it's not just money they can spend on whatever they want. Perhaps they have to pay for their senior year expenses - the prom, the class ring, that sort of thing. Or perhaps they're saving money for college, which is just around the corner. I also think it's important for teenagers to have a checking account, so that they learn how to spend cash money. I do not think teenagers should have credit cards. I do think they need to learn how to spend cash. So, if they had a checking account with an ATM card, they could be depositing their paychecks, they could be withdrawing cash to pay. Again, before they go off to college, they know what real money looks like, they know what it feels like to spend real money as well.
