An Aged-Based Plan For Teaching Kids About Money

The June 2009 edition of Money magazine featured an article on how to Unspoil Your Kids. The article included an interesting chart outlining “What to Teach When,” as suggested by Jon and Eileen Gallo, authors of The Financially Intelligent Parent.

I like the idea of breaking up financial lessons by age group, recognizing of course that some kids “get it” before others, despite their age. For instance, my daughter is fairly money-savvy and back when she was just seven or eight could explain in adult terms what a mortgage was, how taxes were collected, etc. She probably got that from hanging out with her frugal dad.

My son, on the other hand, at five years-old, is more interested in a shiny penny than a paper dollar.  He’s yet to recognize the differences in currency (despite our best efforts). Actually, I think he does understand it on some level; he just likes shiny coins.  Who could blame him?

I’ll include the age brackets below, along with the suggested lessons from the Money article, but as usual, I put my frugal spin on the ideas as well.

Ages 5-9: Teach Basic Money Skills and Develop Work Ethic

Assign simple chores. Chores in the frugal household have evolved as the kids grew older. When both kids were small they were responsible for making their beds in the morning, and taking dirty clothes to the laundry room. My oldest, now ten, helps set the table, unload the dishwasher and put away dishes, put away clean laundry, and is still responsible for keeping up her own room.

Start a weekly allowance. The younger kids are the more often they should get paid, because budgeting any longer than a few days is hard to do (even for some adults!). As kids get older, stretch their paydays out a bit so they get used to stretching out those dollars, too. My daughter is paid allowance every other week on the same day I get paid.

Talk about money decisions and values. My blogging colleague at Moolanomy recently shared a great thought on avoiding the phrase, “We can’t afford it.” I like the concept, and have caught myself using that same excuse with my children. Be honest with kids and tell them that if you spend money on a new Wii game, you won’t have money for the grocery store. Life, and money, is about choices and the opportunity costs of making one choice over the other.

Introduce the idea of charity. The best way to make your kids givers is to lead by example. Take them along when volunteering (when possible), and encourage them to allocate some of their allowance to giving to a cause they care about.

Ages 10-13: Kick It Up a Notch With Skills and Responsibilities

Open a savings account. Every kids should have a basic savings account, complete with a ledger for recording transactions. It’s a great introduction to banking, and the idea of compound interest. Help kids complete deposit slips initially, but encourage them to complete deposit slips themselves, keep up the receipt, and record it in their ledger at home.

Offer extra chores as a way to earn money. My kids often bring me a sales flier they’ve found sitting around and say, “I really, really want this new (insert latest Disney movie, lego set, etc.), but I don’t have enough money.” What a perfect opportunity to reinforce the idea of working for money. Find some extra chores around the house and offer to pay kids enough to help them earn the difference. My kids are familiar with the $0.05 per weed plan of helping Dad around the yard.

Raise allowance to cover more of your child’s expenses. One allowance hack my wife and I are introducing this upcoming school year is to include my daughter’s lunch money in her allowance. It’s my opinion that she buys her lunch too often, and I hope to encourage her to “brown bag” it like Dad usually does. It’s fun to eat out, or buy a school lunch once a week or so, but it is almost always cheaper (and healthier) to make something from home.

Ages 14-18: Coach Kids On Using Checking and Credit

Open a checking account; deposit allowance into it. In addition to a savings account for kids, teen years are a good time to introduce checking accounts. Encourage teens to deposit their allowance, and other found money, into checking and make appropriate contributions to their savings account.

Introduce debit or prepaid credit card and monitor (by 16). Along with a checking account, help your teen get set up with a debit card. I don’t advocate introducing teens to credit cards, but that’s a personal decision. Teens can accomplish everything they need to learn about using plastic with a debit card. Later, when they are earning their own money, they can apply and pay for their own credit card if they decide, but I would not let them use plastic and me pay for it. Kids need to understand the transaction behind shopping with a credit card, and using their hard-earned dollars to pay for the items when the bill arrives.

Encourage part-time job (by 16). I have mixed feelings on this suggestion. I’ve worked since the day I turned 16. I worked in high school, and all the way through college. While it was nice to have spending money, it was a necessity in college. Either way, it put a strain on my grades, and my social life (who am I kidding, what social life?).  The only time I didn’t work was during football season when it wasn’t possible to keep a job and practice. I would encourage my own kids to take up things like babysitting, pet sitting, lawn care, or a similar entrepreneurial service–it beats the pay from most retail or fast food outlets and they’ll have more schedule flexibility.

Ages 19-22: Set a Path for Financial Independence

Expand allowance to cover a semester (if in college). I disagree with this suggestion because a semester is a long time. Imagine if we had to budget our income on a quarterly basis, rather than month-to-month. I would extend allowances to no more than a monthly allotment which covers things like rent (if living off campus), some money for utilities and food, and a little for miscellaneous college expenses–you know, like pizza, iTunes downloads, and football tickets.

Provide financial help only if it fuels independence. We have a goal to gift a down payment to our kids when they get married (which may or may not happen outside of this age bracket). My wife and I married young, and could not afford a home for many years. I don’t agree with buying an entire home for kids, but helping them with the down payment seems like a way to help them get on solid ground early on.

Continue to encourage charity. Continue to lead by example, and encourage teens to make time for helping others. I was encouraged to hear about college students spending Spring Break along the Gulf of Mexico in the wake of Hurricane Katrina – not to party, but to help those hurting rebuild their lives. We need more examples like this, and it shouldn’t take a natural disaster to spur a giving spirit.

Comments

  1. @Molly: Doesn’t necessarily have to be – just thought it would make for a nice post-wedding gift. If one or both of my kids are single, and are looking to buy a house before getting married, I’ll offer help then.

  2. do you recommend allowance be tied to behavior or chores – or just because? I am thinking about starting with my 5 year old. Any ideas how much may be appropriate?

  3. @mpnmom: As a general rule, I like the $1 per week per year of age plan. Under these guildelines, your 5-year old could earn $5 per week.

    I used to have our kids on a commission-only schedule where every nickel and dime had to be recorded each day as chores were completed, and the total earned was then paid out at the end of the week. It got to be a bit too cumbersome, so we started paying the kids an allowance (salary, if you will) for keeping up the same chore list each week.

    I also encourage my kids to come up with extra/bonus chores not on their regular list for ways to earn extra money for things like book fairs at their school, birthday presents for friends, or to save up and buy something they really want for themselves.

    One final thought…keep in mind that there are certain chores kids do just because they are members of the family (not to be paid). Similarily, there are expenses we pay for as parents, not with the expectation it has to be “worked off” by doing chores. Both sides can take this to the extreme if not careful, which puts too much emphasis on money and the earning of it, which is not the desired effect.

  4. Great post! I just wrote on this topic over the weekend. We are pretty similar in our thoughts. One thing I mentioned different from you was matching funds for a college kid up to a certain amount…money for food, fun.

  5. Great ideas. Some things kids will be ready for at a different time. We have had my daughter save 25% of her allowance for long-term savings, save 25% in her “caring can” to give to charity (when she was littler, amount chosen for simplicity’s sake … $1 out of her $4 weekly allowance), and 50% she can do with as she likes. When I explained what a savings account was, and how compound interest works, she went right in to give her savings to me to deposit ASAP.

    Now, she is 8, and we give her allowance once a month — but she has shown that she does an excellent job of saving for her goals. Paying once a month lets her have more disposable income at once, but she still tends to spread out its usage. I like that it helps her plan ahead, but a different child’s personality might make that a bad idea.

    We give allowance because she is part of the family, and she does chores because she is part of the family. They are not tied, but she can do extra for negotiated fees if she wants (she usually does not).

  6. You should take this to the public school system FD. I was never taught money skills at home or at school. I was raised in a super frugal family but we still couldn’t make ends meet.
    Kids and young adults need to learn these skills.

  7. I am surprised to see allowance mentioned at all in the 19-22 year old age bracket. I am a 19 year old college student. I don’t know anyone whose parents are paying them an allowance just for spending money! Maybe I just know the wrong people, but I think most college students are lucky if their parents can even help with tuition and housing costs.

  8. Heather- lots of students get allowances. I know more than a few who get them after college as well.
    Good article. I agree on the job thing. I volunteered at the high school and found that many students were so taken over by their jobs that they never had time for school. Some did fine, but the majority at that high school were the ones least likely to go on to a four year college and graduate! I also found that the community was so used to those students working a jillion hours they protested when the school attempted to change schedules to later in the day (proven to be better for high school) because they would lose that cheap workforce!
    Babysitting, working at the family store, yard work- yes- working at Safeway as a bagger…no.

  9. I love the suggestions. I do plan on introducing credit to my kids, but not with a real credit card. We will make a fake card that has interest, late fees, penalties, etc. and they’ll sign an application form, too.

    I figure if they screw it up royally (they way most people do) when they are doing it with me, it will help them understand why mom and dad skip it and pay cash. (I can’t wait to call or harass them three times a day and say it’s because I’m a bill collector…of course my kids are stubborn, maybe they’ll be great with credit just to frustrate me LOL)

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