Money Matters Basics

I have often heard from presenters in the CARE program how one day they realized that, even though they were responsible with their own finances, they had never actually talked with their children about finances. 

Children learn many, if not most, of their attitudes and habits about money from the actions of their adult role models.  It is definitely challenging in today’s world of hyperconsumerism and debt acceptance, but you need to talk with children, take advantage of and create learning experiences whenever possible.

The basics:

1. Money is something we mostly earn from our hard work, and then use to buy goods (food, gas, and clothes) and services (heat, car mechanics who fix our cars) and to do things (go to the movies). People and families earn different amounts of money because some work pays more than other work (yes, athletes and entertainers work), and some families have two workers. If you earn more money you can buy and do more, so people can work harder or get a better job, which sometimes requires that you move or have more education.
2. At some point, show the child your paystub. Explain that money doesn’t always buy happiness.
3. There are other incidental ways to get more money that children may or will see. Gifts (grandparents, allowances without chores), selling things you don’t need or want anymore (garage sales, online, consignment stores), and even playing, and only sometimes winning the lottery.
4. Then there are two other significant ways to get more money, but for the most part children won’t see or understand them without your guidance – returns on investments and loan proceeds. I don’t believe that until you have taught them about saving and earning a return, like interest on their own bank account, are they ready to learn about loans or credit cards that may cost money.
5. Although not technically a way to get more money, saving money on the things you need by finding them at a cheaper price, (a penny saved is a penny earned), is also an important lesson on how to be able to buy and do more with your money.

I believe that the more you associate money and buying power with saving and investing, the more children will value money and want to get better value for it when they spend it. .

I know that you want your children to learn how to get good value for the money they spend, especially the spending portion of an allowance if they receive one, even though they will grow up in our hyper-consumer, keep-up-with-the-Joneses, world – where they will be constantly bombarded with advertising, peer pressure and reality shows and the rich and famous.

You know your child or grandchild better than anyone, and at what age they can learn certain lessons and not others.  With a little thought, you can easily develop effective exercises that will teach them about smart spending.  With that in mind, here are a few of my favorite lessons and exercises:

Take them to different grocery, pharmacy and discount stores and teach them about unit prices. Then see if they can find the best value for the same brands of laundry detergent and potato chips, which seem to come in every imaginable size.

Show them how coupons can save them money when used effectively, especially if you can use them at discount stores or when the item is on sale. With all the lessons on buying things for less, like when they see that they can buy two cookies at one store for the price of one at another, depending on whose money is being spent, ask them what they or the family should do with the savings. Buy something more or keep the savings for something else in the future (if it is a family purchase, maybe a dinner out).

Store and off brands in many cases can be just as good, or good enough and cheaper.  Have them do some blind taste tests with different cereals to see if they can really tell the difference, or care. 

Eating out is great, but it is expensive. I tell students, “fast food may be fast, but it’s not cheap.” Show them how many pasta dinners you can make at home for the price of one at the restaurant.

Make a list of the things like your preferred deodorant, shampoo and bath soap. Find where they are cheapest and buy a supply. Have them check the list in the future to make sure those places continue to be the cheapest, and have them help you look for sales so you can “stock up.”

Develop your own creative exercises to teach them that:

• some products are so much cheaper at a different store (I show students that a specific creamer was $1.29, two blocks away from where it was $2.49);
• advertised products are not necessarily better;
• the same product can cost more at different stores in the same chain;
• buying some things in bulk can save you a lot; and,
• if you wait for something you sort of want, but don’t need to go on sale, you often don’t want it anymore.

Of course, they also need to learn that everyone makes some spending mistakes in life and value is more than just the monetary component of something.

That expensive vacation may not have been a better family experience than that weekend camping trip, or vice versa (great topics for Money Matters Family Meetings).

Although there are many different opinions about whether, when, how much, whether chores should be required, and what lessons they should be used for, allowances can be an important teaching tool. That being said, if, as a parent, you decide to go that route, please be proactive, committed, engaged, and willing to do more research.

Chores required

I believe that an allowance should be tied to chores, because, as I have said, the more money is associated with work, the more people will value it and make better decisions about it. When I speak to students about $25 late or overlimit fees, I translate them into 3 to 4 hours of work at that minimum wage job they love so much – and they get it.

However, I think there should be two sets of chores. One set is just the things you do to learn to be a responsible individual and family member (make your bed), and others you get an allowance for (take out the garbage). Then there can be extraordinary chores you can get paid separately for (wash the car). It’s up to each family to develop the list.

Needs vs. Wants

An allowance is a great tool to start teaching them this difference and how to make smart choices. You are responsible for their needs in life, but if you think that includes things like name brand clothes and the best camps, this will be difficult. So decide on age appropriate things they should see as wants that they are responsible to work and save for.

Saving, spending, and maybe some giving

I believe children need to save some agreed upon percentage of their allowance, and any monetary gifts they receive, right off the top. First, they should build an emergency fund (something they are responsible for – a superhero backpack they saved for – gets lost, broken or stolen, and they need to replace it.) Second, they should save for something big that they want (that backpack), so they learn delayed gratification. Before they are ready to open a bank account, they can use separate piggybanks.

Then the rest is for spending, or some for giving, if you believe that it is important for them to learn to help others or their community by donating money as well as time.

When and how much?

I know you will be talking about money earlier, and you know your child is best, but First Grade is a good time to start an allowance.  How much is a decision that should be revisited and modified over time, especially as they get older. The keys are what can your child handle and what are you trying to achieve with the allowance – will there be a giving requirement? What specific lessons do you want to teach and how much of an allowance will be required to effectively teach them, and how much of their “wants” will they be responsible for? I don’t think there is a right or wrong answer, but just like everything else in parenting, you need to be consistent and, in this case, able to explain your reasons.