Teaching Your Child How To Budget Money
One of the biggest problems facing parents today is curbing the sense of entitlement that children feel. From designer jeans, to extended curfews, to credit cards, many children have an attitude of "I deserve to have the things my friends have" or simply "I deserve to have stuff as well as money to spend." In part, this attitude is encouraged and reinforced by the media, whose primary message is "you gotta have it or you're not cool." However, parents also play a part, often overindulging their children by buying them material things whenever they want them or indiscriminately handing over large amounts of cash.
This overindulgence is sometimes a product of parental guilt. In a society where single parent families are on the rise, and where in dual-parent families both parents often work, it's not uncommon for mothers and fathers to feel guilty about not giving enough time to their children. To assuage their guilt, they often give other things in an attempt to make up for their absence.
Whether you feel guilty and inadvertently overindulge, or your children are simply responding to the messages in the media, I believe that a primary responsibility of all parents is to teach financial awareness and accountability to their children. All too often young adults find that they've incurred huge financial debt because of overspending, and the reality is that with a little simple planning and starting your kids off on the right track, this wouldn't happen.
The first step in teaching fiscal responsibility lies in recognizing that you're the parent, and you're in control of the money and material things you give to your kid. This may sound like a simple concept, but many parents throw up their hands and say "What can I do? All her friends get $X amount per week, I have to give her that much" or "But everyone has Pokemon cards, my child will feel left out if he doesn't have them too." Helping your child learn financial responsibility first means taking back the reins, not buying in to the "I gotta have it" message yourself.
Next, in order for children to learn how to handle money, they first must be given money to work with. Allowances serve this purpose. Let's look at some guidelines to follow when establishing an allowance for your child:
* Begin allowance at around age 6. Prior to that age children are not developmentally capable of handling money.
* Start small and be realistic. How much money does your child really need at any particular age? Six year olds can be given a dollar or two a week, while you might want to give your teenager enough to cover lunch during school hours, or the purchase of their own wardrobe during the year.
* Require that your child, no matter their age or the size of their allowance, buy certain things "out of their own money." For example, if your six year old wants a new pack of Pokemon cards, tell her that she has to use her allowance (even if it means saving up for the cards.) Teenagers can learn to handle a large enough amount of money to purchase their own toiletries, clothing, or other essential items.
* Keep the lines of communication open. Talk to your child about how to budget, what your expectations are, what "line items" on a budget mean. This is part of the teaching that parents have a responsibility to do.
* Give your child enough, but not too much. Every child should have a little money to spend at their own discretion -- whether they're saving for a special toy, or simply want a pack of gum. Often, however, this "discretionary sum" is too large (some parents give $100 - $300 per week to their adolescents) and the child isn't required to account for any of it. Remember that accountability is critical so that later your child won't overspend and get herself into debt.
* Think about timing. Young children should be given an allowance once a week so that they only have to be accountable in short increments. Pre- and early adolescents can be given a monthly allowance so that they can begin budgeting for longer stretches of time. Adolescents (age 16 - 18) can be given a monthly or a yearly sum so that they get used to prioritizing and saving for the future.
* Elicit your child's input about allowance. Ask what amount he thinks would be appropriate. Remember that it's not necessary to say "yes", but this allows your child or teen to begin thinking about what he needs (in other words the money "necessary" to live on) vs. what he wants (the discretionary money for non-essential items). Once you've heard what your child's requests are, refrain from making a quick decision. Let him know that you're going to think about it, and you'll come back to discuss it with him in a couple of days or a week. In the second discussion, offer whatever modifications you feel are necessary, and allow for a dialogue. Be willing to negotiate a little, as this teaches your child a valuable skill as well.
* Consider outside sources of income when you give your child money. As your child gets older, she may have an opportunity to earn money through babysitting, odd jobs, etc. This should be part of the overall budget, not in addition to it.
* It's not necessary to tie allowance to chores. This may sound counterintuitive with regard to raising children who are not overindulged. However, most parents who've "paid" their children for doing chores around the house find it eventually backfires. Children often decide that the allowance isn't worth it, and they'd rather not do the chores even if it means not getting an allowance. In addition, it's important for children to realize that we don't "get" something for doing what we should do as responsible members of a family. Chores are something everyone has to do, and are not something family members get paid for.