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. 

Around the World

I recently had lunch with a friend just before she was about to take off on an around-the-world journey. I was envious. We had talked previously about goals, something she knew I believed was important. But, more importantly, goals were something her Dad believed in. She put it simply, "It may seem cheezy, but this 'goal' thing works." I found it interesting that she had to include the "cheezy" disclaimer to me, a reader and listener of those same books, as if to say, "you know, I'm not some crazy, self-helf zealot."

That encounter made me realize two things:

First, having goals and putting them out there for the world to hear (I'm thinking of Gary Vaynerchuk's claim that he WILL buy the NY Jets) is a something that I believe can work for anyone and that more of us should embrace (I'm telling myself to be more vocal as I write). None of us should ever feel they need to defend our desires to strive for difficult goals with a line like, "I know it sounds cheezy, but..."

Second, we parents need to model goal-setting for our kids to really make it stick. This is important because modeling is how kids learn. They "do what we do, not what we say" (unless of course we do what we say). As I've noted in this blog many times, goal-setting for kids is a path to learning to save.

So put your goals out there for all to see. Have your kids to the same.

See where that takes you.

Around the world, maybe?

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

Age Old Goals

I've advocated the idea that saving for a short-term goal is a good way to teach young kids about the value of money. So, for example, during the Money Mammals Challenge, my daughter saved her weekly allowance over a month to buy a new shirt (she's now five and needs some new clothes). My wife and I both saved for tangible things as well so that she could see that we were engaged in the Challenge as a family. As I've noted in this blog, I've used this approach of short-term savings goals numerous times in order to teach the concept of saving. My wife - who is much more financially savvy than me - asked me if it's such a good idea to associate saving so directly with spending, albeit delayed gratification spending. I told her that I thought it was, but I figured another source could more effectively make my case. So I turned to a classic. I read a nice piece in a terrific book I picked up from Amazon from 1969, The Time-Life Book of Family Finance. This 40-year-old tome makes a terrific case for the need to be practical in our approach to teaching kids to save:

"One idea about money that nearly all parent try to inculcate in very young children is the importance of saving. The effort is frequently wasted, perhaps because so many people go about it in the wrong way. Too often saving is not presented in its true light, as a practical method of satisfying needs and desires, but as a vague ideal, a Good Thing symbolized by the ubiquitous piggy bank...Saving can be either a negative action - a self-denial - or a positive action leading to some desired goal. For most of us, saving must be positive: The desire for some future good has to be stronger than that for an immediate satisfaction...the reward must always be attainable and attractive. If it is not, we will not save, and neither will Junior.
Against this backdrop, let's try to imagine what goes in Junior's mind vis-a-vis his piggy bank. [When he receives pennies] he is instructed to "put them in Piggy." This is accompanied by smiles and a general air of "we're doing a good thing." It seems to be a game that adults enjoy playing, possibly because of the interesting noise the pennies make when Piggy is shaken. It is also an interesting kind of magic, because the pennies do a disappearing act. You never see them again. In fact, Junior is admonished that you never take money out of Piggy. That money is being saved.
It is not clear what Junior is learning from all this, unless what the parents have in mind is training him to be a miser. It certainly is not teaching him that a deferred use of money can be more satisfying than a present one..."

The article also makes a great case for using clear or translucent savings jars or banks.

Goal-Setting for Kids

So it wasn't a one-time occurrence.

Immediately after having success with pasting a goal on my daughter's bank to encourage savings (see 12/26 post), I decided to ask her if she'd like to try it again. She did, picked out a scooter that she wanted and, lo and behold, she successfully saved again. Most importantly, she allocated most of her allowance EVERY week to saving for this goal. Over the course of almost three months, and with a little help from her friends (read "grandmother"), she saved enough to purchase a scooter that she wanted.

To those who might downplay the importance of starting young, don't underestimate the importance of starting this process sooner than later. Learning to delay gratification is a very important trait that your kids can develop early. Columbia University Psychologist Walter Mischel found a link between preschoolers who displayed this trait and future success. He found in follow up studies that preschoolers who displayed this trait were better adjusted and achieved more academically. Want to know more? Click here.

-John