Financial Literacy for Kids
I often get parents complaining about their children not knowing how to handle their money. Some fritter it all away, no matter how much they get, «money is burning a hole in their pockets». Others have no concept of its value: «This is only 300 euros, if you think of it…» Grown-up children are not willing to work to be paid «peanuts»: «What can I buy for this kind of salary? An iPad maybe, but I have already got one!»
As to the parents, they are uncomfortable bringing up the money subject. They prefer not to dwell on it perceiving it as either too «dirty» or too «sacred». One would think a child naturally develops a mature attitude to money in the same way that he learns to walk. This is not at all like that.
Whether we like it or not, we have to handle the money questions: should we give children pocket money or should they earn it by «doing chores and getting good grades»? Should we fine them for misbehavior and bad grades?
Before giving any kind of recommendation, we need to find out what we, parents, are doing wrong.
We rebuke them. «We do everything for you, how dare you …», «Do you know how much we pay to your tutors?» etc. We really do a lot for our children. But at the end of the day, providing them with everything they need is part of our parental duty. You cannot quite ask to be specially thanked for that. It is akin to reproaching them «for having a piece of bread», as they say. If they get more than other children or more than they need, this is our own choice.
We bribe them. These days it is quite common to pay children for good grades, for tidying up the room, for being A and B students. This seems to be the way of preparing them for a grown-up life, teaching them to value money and increasing their motivation. Bribing, however, is not the healthiest parenting strategy. When children are paid for good grades or domestic chores, they do not value their achievements as such, but rather their «cash equivalent». Parents are also losing their authority: «If you pay me, I will consider your opinion. If not, this is quite another matter». Children are no longer willing to do anything at all unless they are being paid.
One American book on parenting has an interesting story. A farmer decided to boost his 10-year-old son’s interest in agriculture with money. He promised to pay him $10 for every matchbox of Colorado beetles collected in their garden. For the first few days, the boy barely managed a box per day. A week later, however, he increased it to 10–15 boxes. The man was shocked: were there really that many beetles pestering their garden? Until one day he accidentally discovered a whole Colorado beetle nursery farm set up by his entrepreneurial boy…
We are measuring with money something that cannot be measured. For instance, we often tell our children: «Time is money». In a work context, it makes sense. But for our personal relations, it is totally inappropriate. We are suggesting that love, attention and care could be measured with money, and material things matter more than anything else. If your son was performing at a concert and you did not manage to show up, the worst thing you could say would be: «I was not there because I have to earn money. Do you know how much your violin is worth?»
Double standards. Parents may also convey an ambiguous attitude to money, with their words contradicting their actions. An owner of a travel company who wanted his son to become his successor was highlighting the importance of honesty and business reputation: «If someone’s done his job, pay him!» Later on, a crisis broke out, and the boy heard his father say: «Pay only those who we need, don’t worry about the ones who will lose their jobs». When questioned about it, he said: «This is a time of crisis, there is no money in the company».
Soon, however, he would take the whole family on holiday, they would live in a 5-star hotel and go to expensive restaurants. His son would ask him again: «How come there is no money, but we are spending so much?» And the answer was: «It is the company that has no money, but we are fine». Contrary to that, his son used to hear him say: «I am the company». He used to be an unquestioned authority to the boy, the embodiment of certain values. And suddenly it all changed. His world order collapsed, the boy was confused, he became disobedient, changed his attitude to school and manifested a type of protest behavior.
Contradicting each other. Grown-ups having a contradictory attitude to money may confuse their children. Say, mom and dad can’t quite agree how much money to spend and what to buy. They often fight about the whole thing. This could result in a silent war. When one parent is away, the other demonstrates a totally different value system.
Teaching Children About Money or Five Principles of «Money Policy»
Money, by no means, should have a halo of mystery. All children’s questions should be answered simply and directly, providing them with a correct model of how to handle money and sharing your experience. For the child to get familiar with it, he needs pocket money. It is not even a discussion anymore whether to give it or not. The question is how to do it in the right and most productive way. A few important rules will be helpful with that.
Do not associate money with a child’s behavior. Pocket money is, above all, a symbol of the child’s belonging to the family. He is entitled to pocket money. But it shouldn’t be a compensation for his good grades or good behavior, being successful in school or sports competitions. He doesn’t get paid for loving and respecting us. He gets this money simply because he is a member of our family.
It’s a huge mistake to associate pocket money with a child’s success. We thus take away his main motivation for achieving results, replacing it by the most primitive one, receiving money.
And one more thing. Please avoid associating pocket money with house chores — tidying up the room, buying groceries or washing the car. Family is not a market environment where you get paid for your services.
Have a system. It is important to be specific on the amount of pocket money we are ready to give and stick to it. A child must know exactly how much he gets and for what period of time. If it changes, you must give an explanation.
For a primary school child, a weekly frame works out the best. An older one may be getting it every two weeks, then once a month. Once a child grows up, develops new hobbies and needs, the amount should be increased.
How do we decide what amount is appropriate? For schoolchildren, it makes sense to ask their friends’ parents how much the other children are getting and give them the same. This will avoid them feeling underprivileged or standing out.
Teach them to manage money. Before giving any kind of pocket money to our children, we must teach them how to manage even the smallest amount. Start with some «basic financial education» as early as possible. Little children will be happy to listen to your advice as to the best way of spending it. You may ask them to write down their expenses and then discuss what to save up and what to spend. However, it is never too late to learn. With older children there should be a way of discussing it without getting into mutual accusations, complaints or reproaches.
Give them freedom in spending money. Once the child gets familiar with the rules, do not stress him, requiring weekly reports or tracking his account. By the age of 18 or 20, it is important that he feels free to manage his own money. It is his business how to spend it. He can buy something that his parents wouldn’t buy, give it to someone or lose it. It is obvious, however, that this money should not be spent on forbidden things, like drugs or alcohol.
Stick to your rules. The child must have a clear understanding that he is free to manage money at his own discretion. Once he spends it all, however, he may have to wait another week until he gets any more. It is his business to sort it out, there should be no money arriving in between.
If he «forgot» money at home and is asking you to buy something he would typically pay out of his own pocket, lend it to him, but make sure he pays you back. If he doesn’t, do remind him kindly, but firmly, that only people with a good credit history can be trusted with money.
Money is a tricky subject, and it is easy to «stumble». Once you stumble you may lose your child’s respect. To avoid this, we should carefully think about what we are doing wrong and how to fix it. Money may then become a powerful tool for building sincere and trustworthy relations with our children. Not financial, but above all, personal.