Working Hard for the Money

Working Hard for the Money

Parents - Stay Strong at the Store (Allowance Tips)

I Discuss Youth Financial Literacy on "The Intentional Parent"

Helping kids control money...not the other way around

I ran into a friend of mine at the local flea market recently.  She is trying to do the right thing.  She is giving her two kids a weekly allowance.  Check.  She's not tying it to chore AND giving them the opportunity to make extra money on the side with "over and above" chores.  Check.  She's having them set goals using their share jars.  Check.  But she's giving her 7-year-old two dollars a week.

Pfffft!  The air went out of the balloon.

Kids need to get enough money to allow an allowance to work effectively.  Giving them a paltry amount is going to frustrate them as they try to achieve goals for anything substantial.  A 7-year-old should be getting six or seven dollars a week and, if you've started setting goals earlier, he can be saving up for items that are in the $50 - $100 range.  Doing this on a two dollar allowance will be incredibly frustrating for a 7-year-old.  Remember, you're trying to empower them and make the understand that money is simply a tool.  We want to help them develop "positive" feelings toward money and to understand that it's something that they can control...not the other way around.

I was happy to hear when she decided to alter her allowance amount.  Her 7-year-old is now getting six bucks a week and is saving for big Harry Potter lego set.

Note - this family is doing fine financially.  I understand that many of us are hurting and if you're circumstances are such that you must give a smaller allowance, that is perfectly fine and understandable. It's more important to do something than nothing.  If necessary, find an opportunity to discuss the amount and why it might be lower than you want to provide.

Good luck and please, please send me your stories as you try and help your kids become comfortable with money.

Guest Post by Raine Parker

Raine Parker approach me about doing a post on youth financial literacy.  We agree a some things (setting goals, starting early and the importance of allowance) and disagree on others (chores vs. no chores).  Have a look and please comment to let me know what you think.  Enjoy!

5 Lessons Children Can Learn from Getting an Allowance

I'm a firm believer in giving a child an allowance even for children as young as four and five! Why? Because it teaches them the concrete value of money as well as effective money management techniques at an early age. Allowances also provide many opportunities for teaching children specific lessons about money. Here I will discuss five key lessons your children can learn from getting an allowance.

1.) "Money is something you work for." 

I don't condone giving a child an allowance without giving them some sort of age-appropriate chores or responsibilities around the house. This way they learn that money doesn't just appear out of nowhere. Four- and five-year-olds can make their own beds, pick up their own toys, set and clear the table and even feed pets. With help, they can even do more "grown up" chores like sweeping, unloading the dishwasher or drying off dishes with a kitchen towel. You might even send them throughout the house to gather any trash and dirty dishes to bring to you. Older children can do more difficult chores, like taking out the trash or vacuuming. The key is that they associate doing these simple household chores with the money they receive at the end of the week. If your child doesn't want to do chores one week, make it clear to them that they will not receive an allowance that week. You'll really drive the point home when they beg for toys or treats at the store, and you tell them, "You haven't earned any money for that toy or treat this week."

2.) "You save money to get the things you want." 

Speaking of saving for toys, giving a child an allowance is a perfect opportunity to teach young children about saving. You may even want to give them an incentive to save at first like matching dollar-for-dollar every little bit they save in a jar in your child's room. When your child points out a toy that he or she particularly wants, ask them how much they have in savings (when they're old enough to count). You don't have to make them pay for the whole thing at first, but at least encourage them to pay for half of the toy out of their own savings. As they get older, they can pay for certain toys in their entirety.

3.) "It's important to give money too."  

Allowances are also a perfect opportunity to talk to your child about charitable giving. If you are a church-going family, train your child to give a little of his or her allowance to the offering plate and explain that the money helps the church pay its bills. You may even want to encourage your child to use the money to support a child in a third world country through a nonprofit organization such as World Vision or Compassion International. To make the giving lesson more concrete, you can take your child to your neighborhood food bank or other local nonprofit organization and explain how giving some of the money from their allowance helps people in need.

4.) "You can save money toward a big goal." 

Let's say your child wants something a little pricier, like a certain Wii or PlayStation game. You can talk to them about saving their allowance toward this big purchase. You can print out a picture of the game on your printer and tape it on the wall above their savings jar so they can keep their goal in mind. This will encourage them to save little by little until they can afford their big-ticket item.

5.) "Money is something to be grateful for." 

When it's the day your child gets his or her allowance, teach him or her to ask politely for their allowance and to say thank you once they've received it. Explain to them that not all children receive allowances and that it's something that mommy and daddy have to work hard for. Encourage them not to brag about their allowances at school and to share their allowance when necessary by buying little things like snacks at a convenience store for a friend.

In conclusion, children can learn many valuable lessons by receiving an allowance. These are only a few examples. What lesson has your child learned in the past few months?

By-line:

This guest post is contributed by Raine Parker, who writes on the topics of online accounting degree.  She welcomes your comments at her email Id: raine.parker6@gmail.com. 

Build Good Habits Early - Why to start now!

It's gratifying that more of my friends are asking me about starting their kids on an allowance program at the ages of five or six. I think those are great ages to start (even four for younger siblings as they like to mimic the older ones). More and more of them are getting the message that building good habits early will help them avoid having to break bad habits later.

I thought it prudent to share some of the ideas I've been sharing with my friends. Here are five really practical reasons for parents to start teaching kids about money that I've learned from personal experience as a parent:

1. A Strong Foundation - Building good habits early (which includes making some minor mistakes along the way) will help you avoid having to break bad habits later (or REALLY big mistakes).

2. Have Mall Fun - A good allowance program will make trips to the store or mall so much easier. When your kids ask you for something, you can tell them to save for it. You might get a few tantrums when you first start doing this, but if you stick to your guns your kids will get it.

3. Goals are Good - Setting goals is essential to teaching kids about money (that's how they deal with #2) and is an incredibly valuable life skill for them to learn. Set goals together. Note to self - follow your own advice more often on this one.

4. Confident Kids - Money is subject to so many taboos, not the least of which is discussing the stuff within the family.  Set an allowance, give them cash to handle and discuss making choices, needs and wants and other essential money concepts.  It will help make them more confident consumers when the subject is brought out into the open.

5. Visible Dough - So much of the transactions that kids witness involve invisible money. Make sure there is a physical component (cold, hard cash) to your allowance so that kids can count, transact and get confident with real money. Sure, money is already largely virtual and is only trending more in the total virtual direction, but young kids have tremendous difficulty with abstraction.  Handling actual money is essential to early money learning.

I hope these tips help you.  Let me know if they do or if you have anything else to add.

Back to American Girl

In keeping with my belief that the point of an allowance is to allow kids to make mistakes and learn from them, I said yes to my daughter's request to save for an American Girl doll. She's set her goal and pasted the exact doll she wants on her Save jar. Big bonus - she immediately shifted all of her money from the Spend Smart jar into Save, once again proving that an "owned" goal is just as powerful for 6-year-olds as they are for grown adults.

My hope in this experiment is that she'll earn at least a trickle of appreciation for how expensive the dolls are when she is finally able to purchase one in about two-and-a-half months. It will be interesting. I'll keep you posted.

-John

6 Great Youth Financial Literacy Links

These are some of the top resources that I've found that can help you teach your kids about the value of money:

Allowance Magic - Short, simple authoritative allowance system. Full disclosure - We sell this book on our site, www.themoneymammals.com.

Thrive By Five - What can kids learn about money BEFORE they enter kindergarten? A lot!

Early Childhood Financial Literacy - Great study about the importance of teaching kids and building good money habits young.

Frugal Dad - This Dad is on a mission. Join him.

First National Bank of Dad - I LOVED David Owen's book. His wit and wisdom can help you teach your kids about money. Incredibly well written.

The Money Mammals (www.themoneymammals.com) - Full disclosure - I created this DVD. Like Frugal Dad, I'm on a mission to teach kids about the value of money and I believe it's important to make the process fun. Our DVD is a family affair - my wife and I came up with the concept to teach our kids about the value of money, I wrote the script and my brother wrote the songs. Your kids or grandkids will love the DVD and they'll learn something in the process. If they don't, holler at me (john@themoneymammals.com) and we'll give your money back.

Let me know what you think and post YOUR favorite resources.

Share - Charitable Giving For Kids

The least utilized used bank in my daughter's Share / Save / Spend Smart bank set is that pesky Share (charitable giving) one.  I say pesky because we need to provide here more guidance.  We require that she put $1 of her $4 allowance dollars (she's 6) in Share and she did give to a Leukemia society last year, but I think it's time to bring the goal-setting ideas we use for the Save bank (which have worked) to the Share bank as well.  I thought this article on eHow was very helpful in giving us a framework to create a better Share program.

-John

Allowance for Obama Kids

Janet Bodnar of Kiplinger is right on the money when it comes to the Obama kids, Sasha and Malia, and how their parents handle their allowance.  Janet points out that the paltry $1 allowance they each get is likely counterproductive.  There is virtually no way that 10-year-old Sasha is going to learn about money management by receiving $1/week.  Think about it.  If she saved for one year - an eternity for someone that age - she'd have $52.  What could she buy for $52?  A pair of sneakers?  Maybe.  A videogame?  Again, maybe.  Very little that would likely convince her that the time was worthwhile.  

I hope that Janet's article makes its way to the president's desk.  I won't hold my breath waiting for that to happen, but I will suggest that it's very important for us as parents to have an allowance system that is not tied to chores and allows kids to save an amount of money that would have a stronger psychological impact on them.  

For example, imagine if Sasha were to receive $10/week and her parents incentivized or required her to give some portion to charity (say $1 or 10% per week), save some portion (minimum 10%) and then allocate the rest as she saw fit (with guidance and requirements that she would have to pay for some amount of her own clothes and/or friends' gifts).  Then, at the end of the year, she could give $50 or more to her chosen charity (think of the potential impact on other kids) and save $200 or more for a goal she set with the assistance of her mom & dad.   How about a custom bed for the new dog?  What an opportunity for the Obamas.  I know they're busy, but I hope they listen to Janet.

-John

Starting An Allowance

At one of our recent super-fun live "Money Mammals" shows, a parent approached me about starting an allowance for her 5-year-old. I figured it was a good time to share the approach our family is taking as it might be helpful for others. We've just started allowance for our 4-and-a-half year old and I've begun by using David McCurrach's book, Kids' Allowances, as a guide. I like this book because it's simple, includes a survey of what parents of various age kids do r.e. allowance, cites various experts on youth financial literacy, and provides you with a structure to provide allowance for your children. The author is also experienced - he has honed his method on both his kids and grandkids. And he's not "preachy" or condescending, refreshing when you consider the approach of some financial self-help gurus today.

So what are we doing? We are using a three bank system (Share, Save, Spend Smart) and she's getting three dollars per week - two dollars and four quarters. Providing the money in different denominations provides us with a teaching opportunity each week (e.g. four quarters equals one dollar - and you can change up the coins each week). She is required to put two quarters into the "Share" jar (for donations) and two into the "Save" jar. At her age, we're making saving tangible by putting a picture of a savings goal on the bank so she knows that she's saving for something. She can do what she pleases with the other two dollars - put them in the "Spend Smart" jar or either of the other two (Save or Share). We are not tying our allowance to chores and we will revisit our approach at least every six months. At some point, we may consider some type of savings matching to encourage savings and I envision giving her complete control of her allowance (no mandates) in a few years.

I hope this is helpful and good luck to all parents out there. Remember, it's most important to just do something. You can't afford not to teach your kids about money.

Give Kids Credit (Not that kind of credit)

This morning, I was perusing an article about teaching kids about money and the author suggested that you should start giving an allowance when kids begin to understand the concepts of saving and spending. I agree. Then the author said this should happend around first grade. First grade? Hmmm...my kids certainly have learned about the concept of spending money much earlier than that and saving money is something they can understand by the time they reach kindergarten (if not before). We need to give kids more credit (not that kind of credit) for their ability to grasp concepts earlier and, therefore, I think you should start them on an allowance earlier than first grade. Earlier is better, because the forces teaching kids to be irreponsible with money are certainly not waiting and an allowance is one of the best tools to start teaching your kids about the value of money. Let them make mistakes with the money young, seek out the teachable moments when they make them, and hopefully they will learn and we can raise a generation of kids much smarter than us when it comes to money.

All About Allowance

I have been asked by more than one parent recently about allowances, particularly for the 2-6 year-old age group to which we cater. I culled through some experts’ books and articles to come up with some pointers that are (hopefully) useful to help you get started:

When? Determine when you think your kids can handle it. I know from experience with my own three-year-old that she is too young (for an allowance, though certainly not too young to discuss and handle money). Five or six seemed to be the consensus amongst experts. Try this poll to see what 5000+ parents think, http://life.familyeducation.com/allowance/parenting/43766.html?detoured=1

Teaching Tool: Let your kids know that allowance is a tool for them to learn how to manage money, but don’t get upset when they manage it poorly. Use it as a teaching tool, not a disciplinary one.

Allowance/Chores: Strongly consider not tying allowance to chores. Though I’ve seen some reasoning to the contrary, all the sources (below) for this post suggest that chores and allowance should be separate. “In my experience, and according to many psychologists and counselors, an allowance should not be tied to personal achievement [grades]…or doing chores around the house…Give an allowance to teach your children the basics of good money management.” -Paul Lermitte from Making Allowances.

Watch yourself: If you’re concerned about how they will treat their money (and you should be), pay particular attention to your own money habits and try to be consistent with what you tell your kids and what you do.

Responsibility: Help them build personal responsibility; let them make mistakes.

Calculating the allowance is a little more difficult and a more personal decision. One prevailing thought (seen on Pearson Education’s Family Education site among others) is to give your child a weekly dollar amount that is half their age ($3/week for a six-year-old). Parent response on this particular site was vehemently against that idea because of the paltry allowance it would create. David Owen in First National Bank of Dad makes a very strong case for a substantial allowance AND providing a substantial interest rate to the children to teach the power of saving and compounding. The experts generally agreed that it’s most sensible to determine what the child will be responsible for (a list that will likely grow as your child grows) and provide them with enough for that. Whenever you start, whether it be four, five or six, keep it simple. Janet Bodnar in Dollars & Sense for Kids (aka “Dr. Tightwad”) suggests making them responsible for one thing (sweets on supermarket trips, trinkets on trips to Target, etc.) Also, give them money in denominations that allow for doling it up and saving, sharing (donating) or spending it (five ones instead of a five-dollar bill).

For more in depth information, the following books were my sources for this post:

Janet Bodnar’s Dollars & Sense for Kids
Joline Godfrey’s Raising Financially Fit Kids
Paul Lermitte’s Making Allowances
David Owen’s The First National Bank of Dad
Pearson Education Family Education Site (featuring National PTA material)