How to talk with your kids about the “M” word -- Money

For citizens living in the world’s wealthiest nation, Americans show surprisingly little knowledge of personal money management. Well over half of Americans live without the benefit of a household budget, and one out of five of us admit we have no clue how much we spend on such things as housing, food and entertainment.

Would so many of us be so loose with our money if we understood the potential for harm it poses to our children? The National Foundation for Credit Counseling’s 2012 Financial Literacy Survey recently revealed that 44 percent of Americans learned the most about personal finance from their parents. Clearly, the ability to handle money wisely is one of the most important lessons you can pass along to your children.

Parents can buy any number of “how to” books for teaching kids about money, but any of them worth their salt must emphasize the following 5 essential lessons. My wife, Ann, and I have taught these to our four boys and are pleased that our oldest sons have been self-sufficient financially since they left home. We still have two who are at home and in the process of learning these lessons.

1. Practice Delayed Gratification. This lesson is best taught from one year of age forward. To begin, parents must learn to say “no.” From almost the moment of birth, kids are in a “me, my, gimme” stage. Teaching them to wait for something they want is crucial. Adults who haven’t learned this lesson are likely to find credit cards irresistible. Try a simple rule to begin the learning process. At mealtime, insist that the child wait to begin eating until everyone is seated and a prayer of thanks is spoken. Consider the famed “Marshmallow Test,” that demonstrated which children had ability to wait for greater reward, a character trait with direct implications for future successes.

2. Teach Your Kids About Simple Allocation. This lesson, taught from ages three to five, is more visual than mathematical and it’s designed to help kids establish a routine with money. By now they are receiving monetary gifts from grandparents or other family members, and from the earliest age must learn to divide and distribute these resources. Use any three jars, piggy banks, envelopes, or other containers of your choice. Teach the child to divide all money received into the separate holders: giving to church or charity (10 percent), saving (50 percent) and spending (40 percent). Your child’s willingness to give to others may surprise you.

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    3. Teach Personal Responsibility. The very young child who wants to “help” a parent fold clothes or rake leaves is heartwarming, and that behavior should be encouraged. But by ages five to eight, a child should be taught to do routine chores simply for being a member of the family. Making the bed, picking up clothes (and perhaps even doing one’s laundry, depending on age and ability) become personal responsibilities and should not be “paid for.” An allowance should be earned for doing chores that benefit the entire family and are not personal responsibilities.

    4. Talk About Earning and Spending Money. This is an extension of the earlier simple allocation lesson and necessary from ages eight to 12 because the child is able to earn money by doing a variety of tasks around the house.

    Post “jobs” on the refrigerator with the price you are willing to pay, but be willing to negotiate within reason. You’ll be surprised how quickly a young “contractor” bids on the work. “Hire” your children and teach them to complete jobs as if they are employed. Define each task, such as mowing the yard, cleaning the garage, raking leaves or washing the car. Set a fee, but pay only after a job has been inspected and done correctly.

    Keeping your child's money in envelopes or in a binder with three vinyl zip pouches is now most useful for holding money that is to be given to others, saved and spent. When a folder fills up, transfer the money to a bank account. You can dramatically boost your child’s willingness to earn and save if you offer to match any amount that is deposited into a bank account. During this stage, you child is receptive to ideas about shopping for sales and ways to find the best prices on items they want to buy with their own money. Teach them about yard sales and thrift shops at this stage.

    5. Let Your Child Get Some Work Experience. From ages 12 to 16, your child’s ability to earn money around the house and in the neighborhood dramatically increases. Once a skill such as leaf raking is mastered, the child can then offer the service to neighbors to earn additional money. By age 16 your child will know the value of working for someone else and earning money outside the home. It’s now only a short step to filling out applications at nearby restaurants and other businesses for part-time work.

    Teaching these five lessons to your children isn’t easy and requires persistence, patience and love on your part, but no child should enter adulthood without them.