If you take the time to teach your children about money, that’s fantastic. If you’re not, know that your children are learning money habits whether you’re teaching or not. Savvy marketers are telling our kindergartners that they need a certain toy to be happy, and credit card companies are peddling instant gratification to our teens.
To help you teach your kids about money, the Pennsylvania Institute of Certified Public Accountants offers these suggestions as a basis to build good money habits.
Allowances Teach Financial Literacy
One tool to start teaching your kids about money is an allowance.
An allowance is an opportunity to place funds directly in a child’s hands, giving them experience in making choices, budgeting, and placing value on their desires.
Tips for making allowances work:
- Start when your child is old enough to understand money. He or she should know that $1 equals four quarters, for example. This is typically around age six.
In terms of amount, it’s generally a good idea to start small and expand it as the child gets older and his or her money-management skills grow.
- Consider creating an allowance structure with accounts, such as “share,” “save,” and “spend.” The amount you give per account is largely based on your values. If goal setting and patience are values, perhaps the save bucket gets the bulk of the allowance. Or if generosity is a value, the share account may encourage your child to give.
- Help them budget. Young children are concrete thinkers, so jars labeled by account are easy to understand. Some good apps for the more abstract thinkers include Kids Money, Allowance Manager, iAllowance, Tykoon, and Envelopes. Websites such as ThreeJars, It’s My Life/Money on the PBS Kids portal, and LearnVest My Money Center offer great budgeting tools and tips.
- Whatever structure and budgeting tools you choose, the most important thing is to communicate with your child about money values, why you’ve structured and funded the accounts as you have, and what you hope they will learn. Think of allowances as a communications tool. Keep the conversation going on a regular basis.
- Encourage your child to think of something they want to save for upfront. This helps delay instant gratification and teaches them to save for what they truly want.
Don’t dictate what your kids spend their “spend” bucks on. You may cringe when your daughter buys yet another stuffed animal, but that’s what an allowance is for. When it’s gone, it’s gone. They will eventually learn that they have to make choices with their money.
- Pay out on time. When you pay out allowances inconsistently, you are sending out a bad message about money management: That it’s OK to pay our bills late.
Don’t take away allowance as a punishment. If a child breaks a window, have the child pay for the new window out of his or her allowance. Taking away allowance is merely a punishment, but having the child pay for a mistake is a lesson. Actually, it’s two lessons: we all have to take responsibility for our actions, and sometimes decisions we make end up costing money.
- Although it is important to talk to your child about money, it is more important for the child to see how you manage yours. Always remember that your child learns more from what you do than from what you say.
The days of biking to the local record store to buy music are long gone. Here are some ways your children can spend their allowance money instead of yours when they are shopping online:
- For Apple services, such as iTunes, the App Store, iBookstore, or Newsstand, its allowance feature enables you to pre-set a specific amount of money each month that your child can spend.
- The Tykoon app has its own Amazon.com store where kids can spend their allowance. They can also donate from their “share” account through Network for Good.
- Prefilled debit cards and gift cards are other options for providing a limited amount of funds.
Talk to a CPA
Money management is not always easy. Talk to a certified public accountant (CPA) for ideas to help with budgeting and money management. For articles on money management tips from CPAs, visit the consumer section of this site.