Parents call my radio show all the time and say, “Dave, my teenager thinks money grows on trees. What do I do?” “Dave, we’re still supporting our 25-year-old son, what do we do?” “Dave, how do I teach my kids about money?” Read on; I’ll show you.
Lead by Example
First, remember your children are watching you. When my oldest child was in preschool the brave (or crazy) teacher put her little feet in paint and then put the footprints on some matting. Under those precious prints she wrote, “I’m following in your footsteps.” I kept that little plaque on my desk for years to remind me that they are watching.
There is a Native American saying: “Tell me, and I’ll forget. Show me, and I may not remember. Involve me, and I’ll understand.” Our children are going to model our handling of money. The most important thing we, as parents, can do is to make wise decisions ourselves and show our children what we are doing and why we are doing it. Jump Start, which produces a line of children’s educational software, says that 94 percent of children learn money management skills from their parents.
Second, teach them intentionally. There are four main areas of money that children need to learn: working, saving, spending and giving. Each of these areas is handled differently for different age categories. Let’s look at them generally for just a moment:
- Working is how money is made. There has to be an emotional and intellectual connection between work and money. I meet 50-year-olds who have never made this connection. Because it needs to be made, never use the word “allowance.” Instead, pay “commissions.” Life will not make “allowance” for you, but it will pay you what you earn. Work, get paid; don’t work, don’t get paid. Work, eat; don’t work, don’t eat.
- Saving is how you control some of your circumstances and how you can buy big purchases since you don’t want to teach your children to borrow money (if you don’t know why that is, pick up one of my books or listen to my radio show). Goal-setting is very important when you are saving. Try making a game out of saving to buy something and wealth building. Simply divide the price of the goal by the amount you plan to save each week and see how many weeks or months it takes to ring the bell.
- Spending happens differently when you are spending money that you earned. Your teenager will think seriously about his evenings out when they have to earn the $20 for dinner and a movie. Spending is also one of the rewards of working and disciplined saving; it can be the celebration of a goal reached. When spending occurs in this way, the child’s self-esteem is maximized; he did it on his own.
- Giving is precious to watch when the kids are young, and fulfilling to watch as they grow into adulthood. Giving makes them less self-centered, and brings depth of character. Those who never give become shallow, self-centered and miserable adults. Givers are better spouses, better employees, better people.
For Kids Ages 3 – 6
When I suggest that kids work to earn commissions, some parents with small children raise an eyebrow. I am not talking about a Hitler’s boot camp for money. Those of us who have had little ones know the definition of cleaning the room for a 3-year-old: the parent does everything except the one or two toys the child actually puts in the toy box, but the child gets all the credit for cleaning the room. Give them small chores with which you assist, then give them all the credit.
For 3- to 6-year-olds, pay the commission on the spot. Children need to have instant “atta boys” and money for work. This allows them to make the emotional connection between work and money. They will be more willing to do the chore next time.
Likewise, the savings goals should be short-term. When a child saves for a Prince and the Pauper Barbie and buys it with her own money, there is a sense of pride that will make her smile a lot more than if you simply buy it for her. When children are young, put their money in a clear container. This helps them visually register the savings increasing and the spending decreasing their balance.
Three to 6-year-olds typically can’t systematically give a percentage of their earnings. Let their giving be spontaneous and follow it with tons of affirmation for giving to anything. There are many years ahead to teach judgment about how much and where to give. Just let your little one grab some of her cash from her jar for children’s church; she will beam, again with the look of a job well done.
For Kids Ages 6 – 13
Between the ages of 6 and 13 you can judge for yourself when to teach your child what. Some of my kids did things with money later, some earlier. The temperament of the child will dictate when and where, so the age guidelines here are up for interpretation.
Since you pay your child only if she works, you need a tracking system. Try using a dry-erase board placed on the front of the refrigerator to list the chores that need to be done and how much is paid for each one. In this age bracket, I suggest $5 per week for five chores – simple things like clearing away the dishes, feeding the dog and keeping their bedroom clean. These are things you probably expect anyway, but paying for them gives you teachable moments about money and helps make the emotional connection between money and work.
Around our house, if you missed a chore one week you didn’t get paid for it; if you missed it for too long your life was in danger. Some chores should be done without pay just because you are part of the family, but if they are all done without pay, there are no teachable moments.
Once the work is done, have a payday. At this age, payday should be once a week. Divide the money between three envelopes: spending, saving and giving. Spending and giving at this age fosters problem-solving skills as the goal-setting can get really detailed, depending on the particular child.
For Teens
Teenagers are emotionally age 4 one day and 30 the next. Teenagers are very fun to mess with and teach because they are trying so hard to be adults and be cool at the same time. Treat your children as adult as they are acting. Our kids, for example, were ready to handle an entire household budget by their teenage years because we intentionally walked them to that point.
At 14, if you have them ready and their temperament is correct, release their own budgets to them. We opened a checking account for ours with a debit card, but remember: NO credit cards! We established the portion of our budget that was going to their clothes, entertainment, etc. Then we explained to them that from now on we were no longer paying for virtually anything directly, but we would be giving them X dollars per month to live on.
If they blow it all on clothes they can’t go to the movies. It was very rewarding to watch the lessons we had been teaching them over many years go into overdrive. The bargain shopping, the conscious decision making and the discipline were extreme, adult-like and gratifying. The giving was systematic and mature. Your teen will learn to balance her checkbook every month. You will watch your child decide how to spend his money rather than blow it all without thought.
You will have the normal power struggles over who is in charge. By empowering your teen with money management, you do not abdicate your right or responsibility to parent. You still decide which bathing suits are too revealing, what hair color will work and whether or not they get their tongues pierced.
You are teaching your children how to live life well when you build their character and money management skills. Teach your children to work, spend wisely, save and give. The most powerful legacy you can leave is wise, competent children.
Dave Ramsey is a financial counselor, author and radio talk-show host.
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