We've slowly started our children's financial education. I thought the easiest way to start would be opening a savings account. I suppose I was correct, but it was met with more resistance than I expected.
When we actually opened a savings account for them, I explained that we would deposit their money into their accounts. Then the bank would pay them interest. First, my son was horrified that they would lend "his" money out to other customers, and would he ever see it again? And then, could he have his original bills back?
That little anecdote made me realize that teaching them about money was going to be more challenging than I thought. See, I had lofty expectations of how we were going to give our children this fantastic financial education. But like any tool, you have to use money to really figure out how it works, what it can do (or not do) for you, and how to use it more efficiently. So our kids will need to have money to learn to manage it. And that's what I forgot: Where's the money going to come from?
An allowance history
Since our kids don't get much money as gifts, their source of money either has to come from us or they need to become entrepreneurs. At six and ten years of age, becoming a budding entrepreneur is not impossible, but it's certainly challenging.
As always with parenting, I stretch back to my parents' methods to evaluate their effectiveness -- now that I've had several decades to study the results. To evaluate, I want to know what worked, what didn't, and what I should have learned in the first place.
As a child, I had specific chores that I had to accomplish. I didn't get reimbursed for those, but I did frequently ask my dad for extra chores to earn money.
Those chores were above and beyond and basically involved farming tasks that paid, depending on the job, $5 per hour for one job, $20 each month for another, or a quarter per bucket of corn I found in the field after the combine had made its pass through. (I can already tell these jobs will make a great base for the "When I was your age" stories that I just can't seem to help myself from telling my children.)
And I also became a little entrepreneur, enlisting the help of my parents to learn how to raise and sell rabbits and chickens. I had to pay for my own expenses, do my own chores, and I kept all the profit.
Lastly, when I hit the teenage years, I was given a clothing allowance. I had to (er, was supposed to) buy all my own clothes and could theoretically save any leftover cash. But I never had any leftover cash and actually usually had to borrow from the next month's allowance to make the clothing allowance work.
Other than the clothing allowance, throughout most of my childhood, my parents paid for standard expenses; but if I wanted something different or extra, I paid for it myself. Likewise, I understood very early on that if I wanted to go to college, I would be footing the bill myself. I also knew that I would be able to drive the family car until my next sibling got her driver's license. After that, I would need to find my own wheels.
Evaluating history
I don't think I am a personal finance superstar, by any means. I've done some really stupid things, getting myself into some really difficult situations. But I have done some things right, so it makes me wonder if the techniques my parents used were helpful or not.
I liked tying the money I earned to the task that I did. I could clearly see how my effort affected my paycheck. I also liked being in charge of running my own little businesses. Seeing how expenses ate away my profit, in addition to being 100 percent responsible for caring for my animals, was invaluable.
One of the other lessons from my childhood came when I arrived home late after a basketball game. I thought, since it was dark outside, my father would have completed my chore for the night (the one where I earned $20 per month).
"No, I didn't," he replied.
"What?! But Dad, it's dark outside!" I whined and threw a tantrum.
He didn't lose his cool at all. "It's your job and your responsibility. And I am paying you to complete this job."
I think I cried the whole time I finished my job, but it's obviously something I've never forgotten.
The least effective method was my clothing allowance. Number one, I felt like I never learned to be a smart shopper and make my money last. But the problem is that I didn't have to be a smart shopper. If I didn't have enough money, I begged money from my parents -- and sometimes I got it. Maybe it wasn't enough money, or maybe it didn't really add any value beyond what I received from the other methods of money management I learned.
Sources of money for our kids
Because of my own experiences, I am not sold on just giving them an allowance without tying it to a specific chore. Some people -- a lot of people actually -- believe an allowance should be used to teach kids how to manage money without tying it to a specific chore.
And I get that. One disadvantage of tying money to chores is that the child could potentially only do chores they are paid for. Living in a household has its advantages, and there are some things that everyone should do without expecting reimbursement.
"Raising Financially Fit Kids" by Mary Hunt offers an interesting approach. When she and her husband were raising their sons, they made them "money managers." Once the boys reached a certain age, they were given a certain amount of money per month. This was money their parents would have given them anyway, but the boys were expected to manage it. Mary Hunt and her husband allowed their sons to make mistakes and, by the time they graduated from high school, they were managing several hundred dollars per month.
My short review does not do this book and concept justice, so read the book if this sounds interesting to you.
We're still tossing around ideas on how to give our children some money to manage. Which techniques worked for you or your children?