Children And Money - Teaching Children About Money Management
Over The Years, Many People Have Told Me They Wished They Had Learned About Money When They Were Children
It's unfortunate that there is no formal curriculum about money management and budgeting in the majority of our schools today.
Many years ago when I taught forth grade students, we started a project of selling pop corn to the other students after school. First, we went to the bank to get a loan. The only reason we were actually able to get a loan, I think, is that the father of one of my students was the bank president. Our ‘marketing department’ called the paper to let them know we were getting a bank loan and they printed a front-page story. The publicity was so good that parents would buy popcorn along with their children.
We compared prices and created a budget for our supplies and estimated our profit. One of the most important lessons the students learned was that the more popcorn they ate while making it to sell, the lower our profit. The month-long project ended with enough money to purchase quite a few books for our school library. I often wonder if some entrepreneurs got their start from that project.
Years later, when I was teaching a financial planning at our local junior college, I asked each of the students why they selected this course as one of their electives. I remember one young woman said she was there because her boyfriend wanted to take the class and she wanted to be with him. I hope that by the end of the course she realized it was important for her to learn about money management just for herself.
Since we can’t rely on the school system to teach children about money, parents can provide important lessons. Dealing with an allowance is a great way for children to practice money management and help them gain the skills they’ll need as adults.
Children need to learn that their allowance or income must be allocated appropriately. Here’s one suggestion of an appropriate split:
- Encourage your child to put 30% in a savings account. This teaches the all-important lesson of “paying yourself first”.
- Another 30% goes to their everyday spending that can be used in any way they like: computer games, movies, ice cream, etc.
- Another 30% goes to “overhead” – their food, clothing and shelter. This doesn’t mean your child is necessarily paying for his or her portion of all expenses, but it does help them realize that some expenses are a function of just living.
This is the part of the allowance that is most overlooked. We don’t think in terms of having the child be responsible for some of his own livings expenses. It’s no surprise, then, that some children come back home after college, job loss or divorce and expect their parents to support them. If you don’t want that to happen, begin now to teach your children about the costs of overhead.
- Finally, have your child give 10% of his or her allowance to help produce a better world. Work with him or her to find an organization that matches their interests. Some organizations will provide a letter of appreciation or list your child’s name in the donor section of their newsletter.
- If the allowance is spent and your child still wants something special, offer to pay half and help him or her figure out ways to earn this other half. This will teach resourcefulness and creativity to find new ways to earn money.
When your child is ready to go to college, work with him or her to set up a budget and submit a proposal to you for expenses for the first quarter. If the money runs out early, there will be an opportunity for the two of you to review past spending and better project future expenses. When credit cards are introduced you’ll be able to discuss the often shocking costs of credit and ways to manage it so that the bill gets paid in its entirety every month.
This type of practical day-to-day training with money management teaches your child to use money responsibly. As a result, a relationship of mentor/student develops as opposed to a paternalist, control based relationship. It will also teach your child self-reliance. If there’s not enough income to make the desired purchases, explore various ways of increasing income instead of running to Mom and Dad expecting a bail-out. Your child might also be much more inclined to seek out those hard-to-find scholarships. And if school loans are necessary, your child will have had experience with his credit card so the loans won’t be taken lightly.
Again, sadly, little formal curriculum exists in elementary and high schools for building skills in money management. It’s up to you to support your child in learning the sound financial habits that will serve them well throughout their lifetime.
Judi Martindale, (www.judimartindale.com), a certified financial planner as well as a certified coach and author, was named as one of American's top 250 financial planners for three years in a row by Worth magazine. She specializes in working with women's concerns all over the country.