Children and Money

Kimberly A. Evans  |  7/20/2009 6:49:09 PM

Summer breaks from school often expose children to more television, advertising, siblings, friends and ideas for spending money. Parents often are at wit’s end.

Parents ask, "Should children be given an allowance?" "Should they have to work for the money they have?" "How can I help my child learn about managing money?"

Children learn about money from those around them. They watch their parents spend money and learn from them. They watch their siblings and friends and are influenced by them. They watch television advertising and are encouraged to buy the latest toys and gadgets. Yet research indicates parents generally are children's greatest financial influences.

Although it takes years for children to develop a sound sense of money and how to use it, summer provides a perfect time for parents to lay a foundation for children to form positive money management skills. Parents can help their children understand and learn money management skills by including them in appropriate discussions about money matters, such as the cost of summer swim club membership or a new television. They also can demonstrate good money management skills when using credit wisely and paying bills promptly.

Children need to learn how to earn an income and evaluate the way they spend it. Allowances and earnings can be very effective tools for helping children as they learn to live within their means.

One of the best learning opportunities a child can have is to experience not having enough money to buy everything he or she wants. This experience allows a child to learn the concept of scarcity and how to make spending choices and to live with the consequences.

Children often purchase items parents consider useless, irresponsible or of poor quality. When that happens, remember it is important for children to learn from their own mistakes without your criticism. Experience, both positive and negative, is a great teacher.

Allowances should begin as soon as children are capable of counting money and understanding the principle of exchanging money to buy things. Coach your children and give them guidelines as they learn to manage their allowances. The allowance should be large enough to cover their needs, such as school lunches, and should also include some money for personal use, savings and sharing (for example, charitable contributions). The amount should increase as children grow older and their needs change. To encourage savings, match a child’s savings, like an employer matches a worker’s 401(k) deposits.

Parents face several alternatives if their children run out of money before the time for their next allowance. One option is to let them learn from past mistakes and do without. Another option is to loan the needed money with an agreement prior to the loan on a repayment schedule -- and perhaps interest.

Older children frequently want to earn their own money. They enjoy the independence of earning rather than asking for money. Employment can help children develop a responsible and positive attitude toward work and provide an opportunity to understand money in terms of the time, effort and skill required to earn it.

One caution about work, however, is that paid employment should not consume all of your child’s time. Kids also need time for school activities, studying, sleep, family responsibilities and fun. Research suggests that 15 hours or less of paid employment per week is best for most high school students during the school year. Like everyone, children need a reasonable balance in their lives.

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