Teaching Money Saving To Kids

Kids often take money for granted, but if they can share in the experience of watching savings grow and reduce, they gain a much needed appreciation for making wise spending decisions.

My kids have a knack for spending money in record time. Given a hundred dollar bill and free reign, they would have a tough time making a whole day of it at the local mall. With four kids and a tight budget, finding some way to make them understand a few things about the long term effects of short term spending became imperative.

For many parents (including yours truly), the hard part is being able to recognize when kids are spending beyond a reasonable and responsible level. This is especially true of teens. One statistic reports that the average teen pumps an estimated $5,000 per year into the economy. They like spending money, and they're darn good at it. Estimates from the same report state the average teen allowance at $94 per week. When I do the math, this leaves only $112 for savings in a year, only slightly more than one week's allowance. Also, there are some specific questions that go beyond these figures. What responsibilities did this "average teen" meet which earned him or her this allowance? Is making his or her own bed a justifiable task for earning allowance? Certainly, these are questions that each family must determine for themselves, but they are important in that they establish guidelines and expectations which are the cornerstone of kids' attitudes toward financial accountability.

Like most life lessons we try to teach our kids, financial responsibility is based primarily on habits that lead to positive and/or negative results. Consistency is essential in breaking negative habits for everyone, and the earlier you start building on healthy financial habits with your kids, the sooner they establish realistic thinking about money. If Johnny spends all of his allowance four days before his next one is due, his "need" for the latest CD will just have to wait. If, however, he has learned to save a portion of his previous allowance, the CD can be his, thanks to his own long term planning.

Perhaps you are secure in the notion that your child is set for life based on your own strong and wise financial planning. Consider this a benefit of money lessons you learned, but don't neglect to impart your knowledge on to your child. History shows that we can only predict the economic future to a very limited degree. Just as you felt obligated to secure their future, extend that obligation to teaching them how to do it for themselves.

Often, a hands-on approach is most effective for teaching money matters. While accounting and economics textbooks and software are certainly helpful to the overall understanding of finances, they address the hypothetical. The funds in these accounts are not tangible, therefore, they are of no true consequence to the student's next trip to the mall and theatre. On the other hand, a savings account for your child's funds can help them more readily see the results of their spending decisions. This is an excellent way for them to see evidence of what happens when spending is disproportionate to income. Even more basic, you can establish a written ledger of your child's debits and credits. For younger children who have smaller allowances and spending practices, this may prove to be the more practical route. However, this method only works if you, as bookkeeper, are disciplined and diligent in not bending the rules. Otherwise, the only lesson they learn is that you can be manipulated.

Managing money requires a basic understanding of Cause and Effect. When your child asks you for a "loan," is he really asking you to give him the money? This was an issue at our house, and it took a few unpleasant lessons in required repayments to make one of our teens understand his responsibility to the family member who served as lender. Finally, he began to evaluate his circumstances more honestly before deciding if a loan from his thriftier brother was in his best interest. It is important for kids to understand that banks are not just drive-through tellers and ATM's that spit out cash. Financial institutions make agreeable arrangements with their customers, and they expect these terms to be honored. A lender looks at your ability and previous record of planning ahead and honoring loans agreements. Failure to do so (i.e., the "cause") will hurt you as a borrower in the future (i.e., the effect).

It's not wrong to want to give your kids the things that make them happy. We want them to like us, to communicate with us, to see us as understanding and flexible. Doing those things that are in their best interest in the long run often seems to get in the way of building a friendship with them. The key here is to resolve within yourself that being a friend to your kids is secondary to being their parent and their primary teacher. Teaching them financial responsibility is a tough one, even for the most pragmatic of parents. But they are expecting us to prepare them for a world outside of our protective walls and our wallets.

**statistics taken from Quicken, cited 10/6/00

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