What are some of the challenges parents face when teaching their kids about financial management? Delayed Gratification vs. Instant Gratification
When the baby boomers were children credit cards were not as commonplace as they are today. As a child, if I wanted something: I would set a goal, work toward the goal and hopefully achieve it. This was called “Delayed gratification.” In today’s world, with the “charge it” mentality, our children are living in a world of “instant gratification”. If they want something, they buy it and then try to figure out how to pay for it a month later when the credit card bill arrives. By helping your children set goals, work toward those goals and achieve those goals, not only are you teaching them the benefits of delayed gratification, you are also building their self esteem and self confidence.
I don’t want my children to realize I am in financial trouble.
Many parents worry that their children will find out that they themselves are in financial trouble. We want parents to understand that the financial world we live in has changed. The rules have changed but our education system has not. Money is a life skill. Today’s parents weren’t taught about money in school and our children are still not being taught about money. The greatest gift you can give your children is to provide them the financial education they will need to not only survive, but to thrive, in the world they will face as adults.
When can parents begin teaching their children sound financial principles? I will answer this question with a question.
At what age does a child know the difference between a one dollar bill and a twenty dollar bill? The answer is typically: at age four or five a child will know to choose a twenty dollar bill over a one dollar bill. That is when parents need to begin teaching their children sound financial principles. Our board game THRIVE Time for Teens was created to help parents teach their children about money and was designed for children age eight up.
Is giving children an allowance helpful or hurtful in this area? What is the best way to approach it? (Ex: paying for chores completed, grades earned.) Allowance decisions are parenting decisions and can often differ from one child to the next.
There are four different phases or parental strategies that may be helpful to parents in determining the allowance policy right for them.
Phase 1: Personal Responsibility – things that your children need to do for their own health and development (eg. Brushing their teeth). There should be no financial reward for fulfilling tasks that you consider to be personal responsibility.
Phase 2: Family or Social Responsibility – things or tasks that contribute to the family or social environment that do not result in financial reward. (eg. Helping with dishes or reading to a younger sibling.)
Phase 3: Establishing an allowance of Payment for Specific Tasks – Determine guidelines that include what general tasks or duties are expected that will result in the “earning” of the allowance. By defining what is “over and above” what is expected for personal responsibility and family or social responsibility you can encourage and reward your children for their extra effort. This also helps prevent the “entitlement” attitude that so many children today develop.
Phase 4: Encouraging Your Child’s Entrepreneurial Spirit – encourage your child to thing of ways to earn money, and then how to make that money work for your child.
In summary, the age-old question of whether or not to pay your child an allowance can be decided only by you as the parent. Ask yourself if the allowance policy you set is training your child to have: an entitlement mind-set? an employee mind-set? or An entrepreneur’s mind-set?
How do you recommend children and youth divide their earnings between spending, saving and investing? The three piggy banks.
There is a simple strategy using three piggy banks to teach your children about money. One is for savings to be used for spending money, one is for investing and one is for charity. By establishing this habit early, you can help your children create a financial pattern of paying themselves first-and making investing and giving to charity fundamental elements of their financial lives.
If you have children of your own, please tell me their ages and how you have approached these different topics with them. My passion about teaching children about money comes from my own mistakes.
My oldest son Phillip (now 35) got into credit card debt during his first semester in college at the age of 18. I was devastated because I thought I had taught him about money. The problem was I taught him the same things my parents had taught me-but the world had changed. I didn’t accumulate debt on my credit cards and never expected that Phillip would fall into that trap. It took him six years to clean up his credit report and he keeps it clean today. My daughter Shelly (now 32) and my son William (now 27) both also have faced financial challenges. This drove my desire to create ThriveTime for Teens. The reaction we have from the teens having played it is all I need to tell me that young people want to learn about money, especially if it is fun and relative to their own lives.
Are there any other comments you would like to add, perhaps specific to your area of expertise that I have not touched on? Even though I am an accountant by training, I am first and foremost a MOM.
Your children will make mistakes with money. We all do. If you allow them to make “little” mistakes while they are still living with you, you can turn those mistakes into learning opportunities. Allow them to stub their toes while they are still at home so they don’t break their legs when they go off to college! Talk to your children about money and the financial world around them. You will be amazed how quickly they will learn. By learning about money, your children will gain confidence about money, instead of being fearful about money.
It’s not how much money you make it is how much you keep and how hard it works for you.
Are you focused on your salary, or how much money you make? Instead of thinking about your salary, try thinking about how you spend your paycheck instead. Are you choosing financial freedom, or financial slavery? You have the power with each dollar that you earn, to spend it foolishly, to live above your means, to invest it, or to give it to charity. By learning the difference between assets and liabilities and concentrating on buying or creating assets as early in your life as possible, you have a much greater opportunity to expand your means to live the lifestyle you choose.
Sharon Lechter can help you with your kid’s Financial Debt.