One of the most important things we can give our kids is a sense of financial responsibility. Too many kids are growing up without a clear understanding of how personal finance works and they are paying the price for it by having too much debt and not saving enough to meet future goals like retirement. Fortunately, there is something we can do about it. We can teach our kids about finances. Here are my thoughts (the age ranges are merely suggestions. You can change them up however you see fit):
Kids Under 5 Years of Age:
Kids are very observant. For instance, I was making coffee the other day and my 20 month old daughter was standing beside me. I was putting the coffee maker together, adding the beans and filter. I always use bottled water and the bottle was sitting beside my daughter. She reached down and picked up the bottle of water and held it up for me. This all happened without me ever telling or showing her how I made coffee. She just picked it up on her own. Something tells me that she’s picking up other stuff on her own too.
The point of the example above is that if our kids can pick up stuff on their own by witnessing our examples, why can’t we set a “financial example” for them too? For instance: my wife and I pay our boys their allowances on Friday. We could start paying our daughter $2 per week in change and show her how to put it in her piggy bank. Then, once she had a decent amount of money, we could show her how we take money out of her bank to go buy something at the store. It’s simple but it starts laying the seeds for later in life.
Kids Ages 5 to 9:
Around age 5 it might be good to start paying kids a weekly allowance. My wife and I pay $1 per week per year of age (a 5-year old would get $5 per week). We cap it at $10 per week. It is important that you help kids budget their money by having envelopes for categories like spending, long and short-term savings, and tithe or giving. Some parents even go so far as to make their kids pay taxes. I don’t do this because I think they will be paying taxes soon enough.
It is important to tie short-term savings to some sort of goal. Maybe your son wants a new skateboard or bicycle. I think it is a good idea for them to pick out what they want, find a picture of it and hang it on the wall where they can see it all the time. That way, when there is the temptation to spend their money on something like candy, they can be reminded of their goal. As an extra incentive, parents could offer to meet the child halfway in reaching their goal. So, if the skateboard costs $70, the child would save up $35 and the parents would kick in another $35. Of course, this is totally optional and some parents may think it is better for the child to reach the goal on their own.
Kids Ages 10 to 13:
Now would be a good time to start showing your kids the family budget so that they start getting an idea of just how expensive life is. It might even be a good idea to have a family goal like a vacation or a new computer that the whole family can work toward.
It might even be a good time to start teaching them how you shop for groceries or plan for expenses like car repairs. Maybe explain to them what a 401(k) is and why you are making contributions to it. Explain to them what taxes are and how you pay them. Take them shopping for your next car. Introduce them to Consumer Reports and show them the KellyBlueBook website and Edmunds.com.
Kids Older Than 13:
Once kids reach 13 years of age, it might be good to start making them buy their own clothes. You can sit down with them and plan a clothing budget and then pay them that amount. If they are frugal with their clothing budget they get to keep the difference. If they blow it, they will go without.
It might also be a good time for them to get some sort of job. Of course, kids under 16 can’t really work anywhere other than mowing yards or housesitting. However, setting up a small business for them can be a great educational activity. I’m committed to helping my sons do something this year. We tried last year but they were too young to show any interest in it.
Those are my thoughts. I would love to know what your thoughts are on this topic. In the meantime, here’s what other bloggers are saying about Kids & Money: