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.

Just Add Kids

We are really fortunate. Our Money Mammals teaching guide, for kids 1-2, just won the Oregon State Desjardins award for leadership in youth financial literacy, courtesy of Rogue Federal Credit Union and Kerrie Davis. Thanks, Kerrie! I also happened to be using the teaching guide this week in my daughter's K-2 class at Larchmont Charter Schools here in Los Angeles, California. The guide provided a nice framework for a "Share" (charitable giving) lesson tied to the school's Thanksgiving food (and money) drive. I brought in some jars and the kids decorated them with fun Share labels and Goal labels for the amount they planned to save over the two weeks until the Thanksgiving drive ended. I enhanced the lesson with video from my show.

The kids really enjoyed setting the goals and I just know that they will do an incredible job bringing in food and money for the needy. The take-home lesson for me was that, once again, you just need a good framework and just add kids. The kids are ready to learn about many aspects of financial literacy at a young age (five and six in this case) and they make any lesson so much more than you could have imagined prior to going into the classroom.

Share YOUR Insights with Marketplace Money

The good folks at American Public Media's Marketplace Money are planning a show focused on kids and money and they want to know how you teach your kids about money. You can check out the questions here, http://bit.ly/1mCR7H. Fill out the questionnaire and share your insights on kids and money.

Turning the Corner

I see one huge silver lining in the current economic crisis our world is facing - financial literacy is already becoming a huge, hot topic.  I've seen a marked increase in articles promoting frugality and even teaching kids about money.  Not surprisingly, it takes a massive calamity to open people's eyes up to the importance of something.  Let's hope that the sudden new emphasis on frugality can lead us to the promised land - a nation of people who save at least 10% of our disposable income.  There's never been a better time for all of us to become money mammals.

-John

Financial Literacy's time is NOW!

A terrific recent article in The Economist (click the link above) highlights the global push towards improved financial literacy. It shines a bright light on the desperate need for financial literacy worldwide and it underscores two of my core beliefs and what drives The Money Mammals project:

1. TEACH KIDS YOUNG - Jeroo Billimoria, a social entrepreneur who founded Child Savings International, teaches kids 6-14 in 35 developing countries about money through a course called Alfatoun ("Explorer"). She notes that it's imperative to start young because "by 14 most of their habits are formed." Not surprisingly, she encountered skepticism but has fought past that to create a successful worldwide financial literacy program for youth.

2. USE NOVEL METHODS - Lewis Mandell, winner of the William E. Odem Visionary Leadership Award in financial literacy, says, "clearly the way we are going about teaching personal finance needs to be improved" The article notes, "the only classroom method that seems consistently to raise financial literacy among high-school pupils is playing a stockmarket-investing game - which rewards taking high-risk bets."

Kids need to be engaged to be educated. Bland presentations or classes don't cut it. Saving Money Is Fun?! It can be.

It is clearly important to do something and to do something for our children NOW. We cannot wait. We all must work together to improve financial literacy education in this country. But we also can't wait for education system to handle this. Take advantage of the numerous services offered by many of your local credit unions to help teach you and your children about financial literacy. But more than anything else, start educating your kids yourselves. If your discomfort with the subject is holding you back, keep it simple. Teach them to share, save and spend smart, understand the difference between needs and wants and to make smart money choices. Want to get started? Take The Money Mammals Challenge (see previous post this month).

A Christmas Gift

So what was my daughter's favorite present this Christmas? Her own.

Quick back story - As mentioned in a previous post, we recently tried the saving-for-a-goal approach to dealing with allowance. My daughter taped a picture of something she wanted to buy - a neat, kid-sized pottery wheel that came with wood, clay and paint. Over the course of a few months, she saved enough to purchase the wheel. Having the picture taped directly to her save bank helped serve as a reminder at allowance time. Sure enough, most of her money went to saving. When she saved enough for the item, she gave me her money and I purchased it online for her. I would have preferred to purchase this item at a store so she could physically pay for the item, but then this wouldn't have happened...

Back to Christmas - She had already opened most of her gifts as I picked up the brown box that had arrived with her name on it (one of several). It had been a busy holiday season and I had forgotten about the order we had placed for her. I thought this was another gift from one of her long distance relatives. We opened the box together and when I realized what was inside, I almost jumped with excitement. My daughter, though, went bananas. She was so excited and proud that she had received the toy for which she had so diligently saved. It was a an exciting moment for both my wife and me. Of all the presents she had received, none had elicited such a powerful reaction. We had stumbled into an incredible teaching moment for our child. She had learned the power and pride of saving for something on your own. She had received an incredible Christmas gift...from herself.

I wish you all a Happy New Year!

Holiday Cries for Help - Got Sanity?

Help! That seems to be the call this season. I am seeing so many articles about kids, money and the holidays that I honestly can't keep up. There is one thing that I've been talking about that I think is probably the most important consideration parents should have this holiday season - be aware of your own actions. Stacy Tisdale's new book, "The True Cost of Happiness," addresses this same issue - she says that if kids grow up in a credit card debt home, that's the kind of home they'll have. She even talked on the Today Show about this. True, true, true. I completely concur with Stacy's assessment. We all know kids do what we do, not what we say. So, this holiday season, be aware of the following:

- Make it a point to create and talk about a budget - even if you have very young kids, talk about it. They may not yet get, but you're setting the foundation...and you'll help yourselves curb "crazy spending in the process."

- Be very aware of the use of the words "need" and "want." Correct yourself and your children when you use these words incorrectly and/or interchangeability. Seriously, make it a point to pay strict attention to your words and actions regarding money for a day or two and you may be surprised at what you might discover about yourself - and your kids.

-Emphasize traditions. Don't have any traditions, create some. Every kids wants gifts during the holidays and I certainly don't want to advocate being a scrooge here, but emphasize your traditions - whatever they may be - because that's what kids will value in the long run. Granted, a Christmas without presents would not be fun at all, but neither would a Christmas without a decorated tree.

Make time for family and enjoy yourselves.

-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.

Somewhat Shocking Short

Just in case you're wondering how important it is to teach your kids about the value of money, please watch this New York Times Magazine short, "Kids + Money," by Lauren Greenfield. It's so important that we as parents demystify money and help our children to understand that it in no way should define them (or us). Doing so is obviously not an easy task (we're in the process ourselves and have not hit the truly difficult life stages with our kids yet), but I am so glad that my wife and I have made money education a cornerstone of our childrens' lives.

-John