As a parent, you have many jobs, but the overarching theme is to provide your children with the care and the life lessons that they need to become happy, healthy adults as they grow up. And as life lessons go, there are few more valuable skills to have than good money management.
“For sure there is more to life than money, but responsible money management is the cornerstone of many of life’s successes and the ability to set and achieve financial goals. On the flipside, money mismanagement can lead to a vicious cycle of debt, stress and unhappiness,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
In addition to adopting and displaying good money management yourself to teach by example, a great tool to instill money values is an allowance.
“There is always a debate around whether or not you should give children an allowance. Strictly from a money management point of view, giving your children an allowance provides a unique, hands-on opportunity where children can understand the relationship between life and money, as well as the concept that money comes in a limited supply,” says Schwartz.
Chores for money?
The usual debate with respect to giving allowance is, “are they for doing household chores, or not?” While this type of decision is usually made at the household level, providing allowance starting at a young age, coupled with structure, can provide valuable life lessons. Doing chores provides another level of life learning on what it means to be a part of a family. There is always something to be done around the house, so why not attach additional financial opportunities to these other tasks beyond daily duties. Better yet, if your kids are old enough, let them choose household projects to tackle that are of interest to them as well.
How much to give your kids? There is a lot of discussion around that too. Remember that this is not so much about the amount of money, but about the learning. Decide what you can afford in your budget and what is appropriate for your child’s age.
Now that you’ve established a learning plan and how much your kids will get paid, establish a pay cycle. Have a regular “pay day” just like you do.
When your kids receive their allowance, have a routine that happens automatically. No matter what age your kids are (a lot of adults even benefit from visual representation), it is a good idea to use a jar system to demonstrate that your paycheque is to be split. Put part of their earnings into a savings jar part into a giving back jar and part into a spending jar.
Help your kids establish financial goals. Perhaps they have an eye on something at the toy store, a piece of designer clothing or electronics. Have them research how much it is and how long it will take them to be able to buy it. Also point out that putting less money in the spending jar means putting more money in the savings jar, moving you more quickly towards your goal.
If your kids are asking for something that they want, suggest that you visit the savings jar. Is there enough money to cover the costs? If not, you’ve got to defer the purchase until you have enough savings accumulated.
Alternatively, if your children are older, you could discuss the scenario of borrowing the money to make up the difference. Have your child actually borrow the money from you. Add an additional jar for “debt” payment. They will quickly see how much of their cash is going into the debt jar.