3 Tips To Help Kids Learn How To Spend Their Own Money Not Yours!
What is green, rectangular and is one of the best tools parents have to teach responsibility?
The answer may surprise you.
An allowance.
An allowance is a powerful package for teaching kids how to be responsible about earning, saving, sharing, borrowing and, of course, spending-the topic of this month's column.
Some folks think kids should only spend money they earn. But that only works when kids are motivated enough or have the means to earn their own money. Other folks think that if they give their kids money to spend freely, the kids will waste it or make poor decisions.
Those folks are absolutely right. But kids who make poor choices when given some freedom to spend money is a good thing to have happen for several reasons. For many kids, the only thing they know about spending is how to spend their parents' money! An allowance gives kids lots of opportunities to make plenty of mistakes with their own money while the price tag is literally and figuratively more affordable.
Witness how much unintended financial mismanagement takes place in the adult world. If our kids are eventually going to grow up in that world, we need to prepare them by offering them ways to practice so they can make less costly mistakes to learn from.
An allowance provides the essential step of practice with concrete cash. (See my column about setting up an allowance at www.northstateparent.com/moneysmartkids.html)
How can parents get started teaching their kids to spend wisely? Here are a few tips.
Tip #1: Set limits, not bail.
That means when the allowance is gone, it's gone. Tell your kids, in advance, that there is no more allowance until next time.
If they beg you for more money because they spent it already, just quietly repeat, "I'm giving allowance out on Saturdays."
"But Dad..."
"I'm happy to give you your next allowance on Saturday."
Do not waver.... or waiver on this.
What does this teach?
Kids learn a lot more about managing money wisely when we offer them experiences with consequences for using it unwisely. Do not bail them out from their poor choices or you may find you will be doing that for your kids in one form or another for the rest of your life.
Tip # 2 -Head off arguments over kids' spending choices before they happen.
Tell your children their allowance can be spent on "anything that doesn't cause a problem."
Problems naturally fall under the category of inappropriate, unsafe, illegal, unhealthy, unauthorized (i.e. online spending), or anything else that is not in line with your family values. When giving their kids an allowance, parents can say: "Here's your allowance, Durk, just because we love you. Feel free to spend it any way you like as long as it doesn't cause a problem."
Most every buying decision can fall under this phrase, "doesn't cause a problem." It is a generic approach that is effective because it prevents kids from finding the loopholes in the rules. For example, if you said, "No candy," a child might retort with "You didn't say 'no Halloween candy'."
With the "no problems" approach a parent can say, "Remember when I gave you an allowance and I said you could spend it anyway you like, as long as it doesn't cause a problem?"
"Yeah."
"Well that's a problem. Love you too much to argue about this."
Specific rules about what kids can spend or not spend their money on invariably develop into arguments that become an energy drain for adults. If your child argues that something is not a problem, just calmly and softly repeat, "Love you too much to argue," and end as necessary with the question: "And what did I say?"
In this way, parents get to keep the control they need while giving their kids some financial freedom to make both wise and unwise decisions.
Tip #3: The amount of money increases only as financial responsibility increases.
There is a tendency when starting out to give older kids more money because their needs are different than younger children. For example, a teenager may need additional money for school supplies or gas money for driving to school. Don't fall into the trap of giving a teen a big allowance if she or he has never had any freedom spending his or her own money. Age has nothing to do with being financially responsible. Parents can give their kids a base amount of allowance and increase that amount as the child takes on more responsibility for their own spending.
Sit down and develop a "spending plan" or budget with each child. As they come to understand the concept of budgeting-basically your child's first lesson in supply and demand-your can expand their budget. For example, you may start out with toys and games as the only budget items for a young child, and expand to clothes, entertainment and electronic gadgets as the child becomes older and more adept. When this type of approach is used, financial wants eventually evolve into meeting their own financial needs, the very lessons we need to provide our children as they become adults.
Teaching kids to become wise spenders and consumers can begin as early as their first allowance at five or six years old. For a much more detailed look at how to introduce the concept of budgets to kids with charts and worksheets, see Chapter 7 "Gadgets, Gizmos and Gigabytes-Who's Buying?" in Millionaire Babies or Bankrupt Brats? Love and Logic Solutions to Teaching Kids about Money.
If you have found yourself in any of the following situations, Millionaire Babies has more tips about how to take the slip out of the spending slope. For example, what to do when:
- One parent say "yes" and the other says "no"
- Relatives want to spoil your children
- Your kids are begging you for something in the store
- You have a child who overspends
- You have a child who under spends
Next month's column: Helping kids learn how to save for big ticket items.