By Karen Richardson, HBOR
Parents often ask me if they should give their children an allowance. The answer is yes! As our children grow and change they will have many different dreams for their future, but whichever path they take they will need to know how to manage their money.
You may have read Money Coach Kathryn Mandelcorn’s recent post about being the architect of your financial future, she suggests people look at their family history around spending and saving to understand their current relationship to money. Your children’s future habits are being shaped right now. The good news is you’re in a position to help shape them.
Of course not everyone sees that influence as good news. One of the concerns I hear from many parents is that they don’t think they are doing a great job with their own finances, so they shy away from “teaching” their kids. I say that’s all the more reason to make teaching their kids about money a priority! Kids are watching and listening all the time, so you are either actively or passively teaching them your attitudes to money every day.
So where do you start?
Decide on an amount and keep it consistent. Use cash. Using a bank transfer and allowing your kids to use a debit card may seem like you are keeping up with the times, but the abstract nature of that kind of allowance is hard for kids to really understand.
Pick a day of the week for “payday.” Don’t just hand over the cash; include time for a family discussion on money. Ask how their goals are shaping up. Keep your attitude to money positive during these discussions.
Create structure. I teach my clients the GISS ™ system developed by Nancy Phillips of DollarSmartKids Enterprises Inc. GISS ™ stands for Give Invest Save Spend. After you have given the allowance have your kids divide it into GISS ™ labeled jars.
Give 10%. Teaching kids about contribution will help them feel empathy for others and empowered to make a difference in the world. Imagine how proud a child who loves animals will feel making a donation to a shelter.
Invest 15%. Understanding the idea of saving for a distant future can be difficult for kids and some parents decide not to use this category, but instilling the idea of retirement planning is a good one.
Save 25%. Kids who develop the habit of delayed gratification are on the way to a healthy financial future, but start small. Allow them to save for things they are excited about and can save for relatively quickly. If they don’t see the results of saving they will lose enthusiasm for it.
Spend 50%. That can be a tough category for parents, but unless what your child wants to purchase is dangerous or conflicts with family values, let them make their own choices. They will learn a lot from the purchases they regret. This is another reason why cash is so valuable for teaching about money. Handing the money to the cashier and having little or nothing left, highlights how much they are spending. Handing over a debit card and getting the same debit card back along with the purchased item doesn’t have the same impact.
My parents used a divided allowance structure when I was growing up. I was given one dollar a week. Ten cents went in my Sunday school envelope, 20 cents for my bank account, 20 cents to my mom for the house, food and car rides and I could keep 50 cents to spend or save. It took a long time to save for something but it sure felt worth it when I was able to take my money to the old Consumer’s Distributing store and buy a new dress for my Strawberry Shortcake doll for $5.49!
Those lessons shaped how I treat my money today and are why I use GISS ™ with my kids. Of course even with a structure in place you’re bound to have a few conversations like the one I had with my son:
Will: How much is in my bank account mom?
Will: Well, I would like to use my “future account” to buy a new scooter ‘cause my regular one doesn’t have enough.
Me: That money is for your future Will – it’s not your future yet!
Will: Well I will wait and buy it tomorrow then…
Teaching your kids about money can actually be fun. In fact Billionaire Warren Buffett has created a website for kids about business and entrepreneurship called Secret Millionaires Club that your kids may enjoy.
Your kids won’t be the only winners when you make money discussions positive and routine in your home, you may find yourself getting back to basics with your own finances.