PARENTING ARTICLES :Your Children and Money
By Dr.Maryann Rosenthal
Having money, of course, isn’t the same as having character. But I believe that how we use money reflects our character. Too many Americans spend mindlessly and, even worse, give their teens no instruction in responsible spending. This can only create a generation of financially irresponsible and self-indulgent adults. The truth is, what you leave in your children as core values and healthy habits is far more important than what you leave to your children in your estate.
Yet money management is talked about in few households. Most parents, having themselves received no instruction, are uncomfortable with money and tend to keep children in the dark about financial matters. But it’s imperative that you begin teaching them at a young age about managing money and about the responsibility that goes with it.
The key is consistency. Here’s my advice: Establish a regular schedule for family discussions about finances. Talk about your family’s philosophy of money—how you earn it, how you save it, where it all goes. Explain borrowing and saving and how that works. The lesson learned will be that money gives people, both young and old, spending choices and decision-making opportunities. Knowing the difference between needs, wants, and wishes will help your children appreciate what they possess and have a healthy desire for what they can get.
Repetition, a key element of the family meeting, is a great learning tool. So if you start having family money meetings, keep at it. Stay on schedule. I’d suggest doing it at least once a month and focus on actions to be taken, not just complaints to be heard.
Talking about family money helps your adolescent and teen understand that money doesn’t grow on trees. Show your kids where the money goes by showing them some of the bills. They’ll see that electricity and water take part of the money, that the government gets some for police and fire protection and to fix the roads, and some, for example, goes to savings for school tuition, vacations, and Christmas presents. Then show them what’s left so they can get a grasp of what is affordable. Explain to your children the concept of compounding – that money can earn money simply by staying there untouched. Don’t lecture or preach. Be serious, but light.
By the time your children reach adolescence, they should have checking accounts, savings accounts, and a long-term investment account to which they make regular deposits but no withdrawals. Many banks offer inexpensive or free savings accounts to young savers.
Keeping a ledger or journal helps your child see where their money is going, how much is available and when a certain amount will be reached. This, combined with a budget, helps build a total understanding of money management. Your teens should have a financial ledger in which they can keep track of their balances and expenditures. That’ll be a good habit to have when they begin balancing their checkbooks.
Seize everyday opportunities and start early teaching teens how to save and invest for the future. A good time to discuss what things it cost is when your child wants something. Look online or go to a store that has comparable items. Do the others look the same? What’s the difference in quality versus cost? If you didn’t spend this money now, what could you afford later?
Also, use their allowances as a teaching tool. All kids are vulnerable to impulsive thinking and immediate gratification so the key to being an effective parent is to teach them delayed gratification, which is the opposite of what commercial culture drums into us. Set guidelines for how your kids spend their allowances. If necessary, write down the guidelines in a contract signed by both you and your teen to help avoid any misunderstandings. If one method doesn’t work, the key is to be flexible enough to try another. The important thing is to avoid a power struggle over money matters where parents can’t agree and the child manipulates them get what he wants.
I suggest paying the allowance on a regular schedule, just like you would receive a paycheck. Gradually switch to bi-monthly or monthly payments.
I feel strongly that an allowance should not be linked to chores or grades, nor should it be withdrawn as a form of punishment. Money shouldn’t be offered as an incentive for good behavior. Personal duties, such as cleaning their room and picking up their things and family responsibilities like doing dishes and taking out the trash, would not be paid for. That’s all part of being a family member and “good citizen.”
The point is that as a family you decide what extra work will involve extra pay. Extra money for extra jobs is fine. In fact, make a list of chores that you want done and place a money value on each of them. Perhaps lawn care, cleaning the garage, or painting around the house could involve extra pay in which you set up a “fee for services” arrangement with your child. It’s a great way to get those difficult-to-finish jobs done and allow your child to earn some extra money.
Talk to your teen about the wise use of credit, about what goes into buying and maintaining a car, paying for college, living on their own. Again, you’re showing them something practical about money management, but on a deeper level, you’re also teaching them how life works: There is no free lunch, and every action or inaction has its consequences. Your kids will learn a lot from their failures and negative experiences with money. Your job is to guide but not control their spending habits but encourage them to think about their spending decisions.
Discourage your children from believing it’s okay to borrow from you when they want something badly, then pay you back when they get more money. For one thing, they probably won’t pay you back. For another, you’re encouraging financial irresponsibility, a scourge that already infects all too many adults. Instead, urge your kids to spend only what they have, and even to save some of that.
Clothes make an inordinately important personal statement for adolescents and teens, especially girls. So setting a clothing allowance makes good sense. It will help you to keep your sanity, and it will teach your teen that by shopping wisely, she will be able to afford the designer splurge once in a while. You may even want her to have those new hot skis or that nifty jacket before she has the money. But if you give her the money, she won’t appreciate the item as much as if she’d earned it on her own. Give her the money and you cheat her out of the learning experience that in the long run will be much more helpful than having the new skis or jacket now.
Some parents will involve their kids in a few of the bigger family money decisions. Here are some thoughts: “With the money we have for vacation, where should we go?” “Should we but an expensive SUV or a less expensive van? The van gets better mileage and with the extra money we could go on a trip.”
Here are some other ways you could engage your teens about money:
Investigate ads together. Study the promotions and ask the questions: “Will that product make you more popular?” “Will it really do what it says?” “ Is that the best price?” “What else could you get for that price?”
Encourage an entrepreneurial spirit. If you have your own business, consider involving the children as early as possible. Let them learn the business from the ground up, such as stocking shelves, running errands, or cleaning up. Then, if they show an interest, gradually increase their responsibilities. If that’s not possible, encourage your teens to find work by, for example, canvassing the neighborhood, putting out flyers announcing their availability to wash cars, clean houses, or shop for seniors, etc. You can assist by asking friends if they need extra help. Be careful not to trivialize the jobs your daughters do while motivating your sons to work harder. Suggest that your teen take a class for being a mother’s helper and learning cardiopulmonary resuscitation (CPR). This is a good time to remind them that not all work is done for money and that service is an important value.
Encourage investment. You might want to set up a tax-free Roth IRA account with some of the money that your child earns outside of the home. They can’t put more in the account in a year than they earn. But once deposited, the money grows tax-free and can be withdrawn tax-free after they turn 59½.
Make a loan. At some point your teen may want to borrow some money. Don’t be a bottomless bank, but make this an opportunity to teach him or her about credit. Keep it business-like by explaining how credit works and helping your teen to understand how much debt is acceptable. Talk about the consequences of too much debt and late payments. Make sure they pay back the loan back in agreed increments within a certain amount of time. Discuss where the money will come from to pay back the loan. By charging interest on small loans that you make to them, you will show them the pitfalls of borrowing money and paying interest. As always, do not talk down to your child. Instead, begin the dialogue with the goal of making the transaction a good experience.
Buy stock. Buying stock in a company that makes a product that interests your child is a great way to involve him/her in the business world. Follow the stock with your child, then make it a venture perhaps in which you put up the initial capital. Choose a stock that sends material and newsletters to keep him/her involved and that sell products that your child can relate to, such as Nike, Disney, or McDonald’s.
Set long-term and short-term savings goals. Let your children know that the first step in savings is to set goals. Let them select goals that are meaningful to them. Short-term goals might include saving for the latest iPod, while long-term goals could include saving for a car or for college. Matching dollars is a great motivator and will help keep kids on track when it comes to goal setting and saving.
Educate on the wise use of credit and debit cards. Use of plastic is of particular importance to teens because they often seen their friends charging items. Your kid may complain that he or she doesn’t have enough compared to other kids, that his or her allowance is too paltry, that other teens have free rein, and that, in effect, you’re a tightwad.
First, explain the importance of adult money management and how you want to help your teen achieve that skill. Then maybe you could give him or her some added chores, with the money going into a checking account accessible by a debit card. That way the teen couldn’t spend more than what he or she has in the account. Further, the teen will be responsible for replenishing it. And explain that if he or she handles that well for a year or so, you might consider offering a credit card, especially if the teen ends up going to college. Teaching your teen about money offers a golden opportunity to communicate what’s important to your family.
Discussions about financial fidelity and integrity are important to have with your children because, as I said, money reflects character. Further, money issues are major concerns in many marriages. Thirdly, learning about money is part—or should be—of becoming a fully functioning adult. And our primary goal as parents is to give our children the launching pad and fuel, so they can fly from home as responsible, independent, young adults.
Weeds in life show up daily and uninvited; however, we can plant the seeds of greatness in our own children as nurturing mentors and role models. Money, as they say, isn’t everything. But it is our library card and transportation system for life’s incredible journey.
Dr. Maryann Rosenthal is a highly respected clinical psychologist on family dynamics and best selling author of Be A Parent, Not A Pushover, recently selected as a book of the year on effective parenting. She is a featured authority on regional and national television and a global keynote speaker. She co-authored with Denis Waitley, the new family leadership program, The Seeds of Greatness System taught worldwide. Maryann lives in southern California with her husband and their blended family of seven children and six grandchildren (and counting).
© 2004 by Dr. Maryann Rosenthal. Permission to reprint if left intact.