Money & Power
How Do You Teach Money Management to Children?
The sooner your children understand the value of money, the better.
IMAGE Wikimedia Commons
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Children do not acquire street smarts, especially money smarts, overnight.  

Handling money wisely is one of the most important life lessons that you can impart to your children. But to learn how to manage money, a child must have income and that means… an allowance.

Approaches toward money for children can and do differ. Some affluent Filipino parents, wary about the temptation of too much money in the hands of children, keep a tight leash on the family purse strings. A quick, unscientific survey among family and friends showed that the earliest age at which an allowance was given was nine. One affluent mother said that she resisted giving an allowance until she caved in from peer pressure from her son’s group. Another mother said she started a regular allowance only when her daughters were in first year high school. The wealthiest mother, an old-school type, gave her children a regular allowance—but only for food—starting in their first year of college. The last two mothers explained that if they needed more they could ask for more.

The advantage to an early allowance is that the wants and needs of children at this age are simple, and they are more likely to listen to what their parents have to say about money.

Let them manage their "own" money with your help.
On the other hand, American financial gurus advise giving children allowances early, as a means to impart the traits and money skills—planning and budgeting, saving and postponing gratification, prudence and generosity—that will enable them to navigate financial perils later on in life.

There are no hard and fast rules about how soon a child should handle money, but certainly, not before a child has acquired basic math skills and can wrap his mind around the concept of money and value. By age six or seven, children will have a pretty good idea that things have value, and that money is used to acquire things.  

Some children are natural savers, but for most, saving has no particular charm. Saving money, therefore, has to have a purpose...

The advantage to an early allowance is that the wants and needs of children at this age are simple, and they are more likely to listen to what their parents have to say about money. With older children, the godlike status of parents evaporates and they become more susceptible to other influences such as friends and media advertising.

A weekly allowance should be able to cover snacks, some fun money, an amount for saving, and an amount for charity. Parents should sit down with the child to explain exactly what the money is to be used for. This is an opportunity for parents to teach the child how to budget—this much should be spent daily on food, this much can be used for buying small items, and, if they save a little every day, they can buy something bigger at the end of the week.

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Set a positive reward system.
Some children are natural savers, but for most, saving has no particular charm. Saving money, therefore, has to have a purpose—and for small children, the purpose has to be to acquire something that he wants. The saving period cannot be too long.

Children’s time horizons are short and seven “sleeps” can feel like an eternity to a seven-year-old. At the end of the week, the parent can offer to match the child’s savings, if they are not enough to pay for the item, or to pay the balance. What is important is that the child learns that if he can postpone gratification, he can get something better later on. As the child gets older, he can save for a longer period for bigger items

Charitable giving is a habit that should also start early. Realistically, the child’s mite will not make much of a dent on the church’s overall collection, but it inculcates compassion, and an awareness of responsibility to a community larger than one’s immediate family.

To simplify money management for children and make it more fun, parents can give their children piggy banks in different colors—one for saving, one for charity, and one for food and fun money from which they can draw daily. Parents can ask other parents how much allowance they give, but ultimately the decision on the amount must be determined by the parents’ own good sense.  

As children get older, their needs expand. Parents and children have to thresh out what the allowances can cover. For tweens—children between nine and twelve years of age—allowances could cover entertainment, gifts for friends and whatever parents and children agree on. They should also be introduced to bank savings accounts. Teens should have a clothes and toiletries budget.

Monetizing family duties promotes an overly materialistic mindset and undercuts the solidarity of the family unit.

Ask your children to perform some responsibilities without monetary reward.
Parents should resist the temptation to use the allowance as a means to get children to perform family duties and get good grades. Driving one’s sister to school when the family driver takes French leave should not require payment, for example. Monetizing family duties promotes an overly materialistic mindset and undercuts the solidarity of the family unit.  

Tying allowances to good grades could prevent the child from learning to derive satisfaction from overcoming challenges and in a job well done. And how do you treat children of unequal ability? Even a very bright young child might not understand why he needs to get honors to receive a reward, while his sibling is rewarded only for effort.
 
In democratic America, financial advisers recommend regular family councils where financial matters are discussed. This is ideal, but it might be a bit tricky to manage for a more authoritarian Filipino family with five children with ages ranging from four to 16. Information has to be age-appropriate. A formal discussion on money is likely to float above children’s heads leading to much wriggling at the dinner table.
 
Very young children only need to be reassured that they should not worry about becoming poor. It might actually be dangerous to give them too much detail about what the family earns and owns. They also need to know that money that comes out of an ATM is there because it is earned by Papa and, often, by Mama, too. Tweens’ financial education should cover the difference between wants and needs, and how a credit card operates. They can have a general idea of family income and expenditure and how much it takes to manage a household. Tweens can already be included in discussions of the family’s financial goals and major financial decisions. Teens should have more specific knowledge on household expenses and—dare I hope?—can probably absorb some information about saving and investing.

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They also need to know that money that comes out of an ATM is there because it is earned by Papa and, often, by Mama, too.

Set an example. 
Whether the parents take the Filipino or the American approach, the first thing to remember is that the family is the first school of the child. He learns by observing what you do and what you say, and, as any annoyed parent will attest, is only too eager point out to you the inconsistency between your words and your deeds. The child is also more likely to follow your example than your instruction. All your careful lectures about living within your means will be for naught if they see you routinely exceed your budget and indulge in impulse buying of luxury items.  

You have to set a ceiling on the price of items that you will buy for your child. For example, cell phones are necessities nowadays for parents’ peace of mind. However, if the child wants a model more expensive than what you are willing to pay for, he should make up the difference out of his allowance or savings. Big-ticket items like cars should wait until he earns his own money.

Make room for mistakes.
Parents should allow children to make mistakes when handling money. The most important lesson that children can learn is that actions have consequences. If, in spite of your careful instructions on budgeting, the child blows the week’s allowance in two days, then he has to suffer the fallout. If the teenager dents the fender of the car, then his allowance will have to be reduced the next few months to pay for the car repairs. The worst thing that parents can do is hyperventilate and then rush to rescue the child from his or her folly. Better for the child to learn from a P500 mistake at age 12 than a P5 million mistake at age 45!

Being a parent is not easy. No parent really wants to say “no” to his child and look like an ogre in his eyes; but, as in business, parents should never lose sight of the long-term goal—that of raising the child into a responsible, self-reliant adult who will be able to raise and sustain his own family, and take his place as a fully functioning member of society.

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About The Author
Araceli Z. Lorayes
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