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Train a Child in the Way He Should Go …. (Prov 22:6)
I was given the high privilege this past weekend of participating in my Grandchildren’s (Ian & Kathleen) first lesson on Finances. We went to the bank with their mother and set up a savings account in each of their names with the money that they have accumulated in savings lately (about 40 to 50 dollars each). We are going to be talking with them about savings versus spending and certain incentives such as matching funds for a period of time and some of the fundamentals of money and banking. I noticed today an article in the local paper that I am going to insert in whole (until they tell me to take it down) from MarketWatch that I think has some very good points about starting kids out with learning about money. This is not a “mommy blog” but a political blog and you can’t have a political blog that is deaf to economics and the economic problems of this world often start with the accumulated mismanagement of finances and financial responsibility of individuals, so there is no better place to start this “political process” than when they are Children.
Teach Children About Money by
Giving Them an Allowance
July 8, 2007
MarketWatch
NEW YORK — Money management is the one subject conspicuously absent from most schools, which means your child’s financial education begins and ends at home. And one of the best tools for teaching your kids about managing their money is an allowance. Here are the five fundamental rules of allowances:
• Start early. Many parents have a hard time deciding when to begin, but the sooner, the better. Studies have shown that kids as young as 3 understand the concept of money and are eager to learn more.
• Determine an appropriate amount. Many experts recommend calculating what you spend on your child every month and then determining which expenses he or she will be responsible for covering. (These might include school lunches, clothing costs or entertainment expenses.) Give your child enough to cover weekly expenses, as well as some extra money to save or spend on other things.
• Be consistent. The way you approach children’s allowances can teach them a great deal about responsible money management. To ensure that they understand the importance of fulfilling financial obligations, make sure to pay regularly and on time.
• Help them track their expenses. Initially most children run through their allowances without knowing exactly where the money has gone. Take time to sit down with them and make a list of regular expenses.
• Keep chores separate. If you make your child’s allowance contingent on the completion of chores, you send the wrong message. Housework is a family responsibility, and children should not be paid for it.
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16 Responses to “Train a Child in the Way He Should Go …. (Prov 22:6)”
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Excellent tips on an important topic. Money may not buy happiness but mismanaging it buys lots of unhappiness. I have my teens using Quicken now and it is working well. It gives them a good feel for exactly how much they have and where it is going. I need to blog on it sometime.
Neil…..good point about money being the currency of unhappiness but not happiness when mismanaged. My grand kids are too young for Quicken yet, but I think that will be in their future………steve
Oh to have learned this at a younger age ….
It’s never to late to learn financial responsibility though:)
Thanks for posting!
Wy ……….. yes, to learn at a younger age! For some reason I grew up very financial oriented and I am not sure, but I used to really calculate my financial options as best I could. I guess I was shocked to find other kids didn’t do that. I assumed they would because it is money and money was a narrow path to a little independence in the days of youth. ……..steve
I had a fairly good experience with my mid-teens using the Visa Buxx prepaid card as an instructional tool.
plodon………was it the “mid-teen” years that they started with the VISA? How has it worked out? ………steve
what precious lil ones!!
Angel ……….. thanks, I think so too……….steve
steve
i am sure that both of them will be eager students. when i see them in the kids ministry, they are sponges for learning. ian and i were talking the science of friction and kathleen was discussing the merits of color coordination when they were making biblical royal outfits. it was heart warming. under your teaching, i bet they will ask some of the best questions that will sharpen your learning also.
as far as the money goes, i think that it is crucial to teach kids how money is a fantastic servant but a terrible master. the opportunities to persue other interests outside of the stress of worrying about living outside ones means is invaluable. one of my first lessons in finance was when i discovered the proxy for interest bearing growth (the rule of 72). i was captivated by the concept that taking 72/(earned interest rate) would equal the amount of time for an initial investment to double. only when i took partial differential equations did i learn the proof, but the simple math started an interest in money and banking at a very young age.
Matt………You are exactly right and they will ask questions that challenge us. We need to be on our game when we bring up the kids. That law of 72’s is quite a reveling equation. It reminds me of the practical case of someone paying off there house in 15 years instead of 25 or 30. The difference is that the house cost twice as much when paid off over the longest term. I always say only buy the house that you can afford to amortize over 15 years……steve
as i was writing, i thought that the rule of 72 could also be used in the reverse. take 72/(credit card interest rate) and that is how quickly your negative balance will double in years. then, the latest gadget might seem less valuable if your are charged an 18% interest rate. imagine paying twice the price four years after the fact to own the now 4 year obsolete gizmo.
Matt………..exactly, with interest debt can accumulate as fast as investments. For some reason it seems that debt to the IRS accumulates faster than anywhere else, must be the penalties on top of interest!
….. steve
Don’t forget to buy them savings bonds. Another excellent lesson.
Hi Steve,
My Mother did the savings account thing when I was around the age of nine. Then she made me deposit my coin collection, which, at the time, consisted of $150 of Mercury dimes and Buffalo nickles. Last I estimated the value to collectors, it was in the thousand to two thousand dollar range. Today, the dimes would be worth a bit more than that due to high silver prices. This act also put me off of coin collecting for decades, which was another huge loss. Don’t even mention comic books!
the Grit
Hi Grit, ……… This reminds me of when I was a kid myself. I had a coin collection worth a lot, about 100 silver dollars circa 1880-90’s, Indian head cents and a few gold coins. We were on vacation and my brother’s friend broke in the house and stole my mothers mink, my dads T-Bird and my coin collection. By the time he was caught he had “spent” the coin collection. ……..
Very good suggestions. It helps kids to understand money if they see where it goes, exactly how far it does NOT get them, and how to budget.
The only suggestion I don’t like is that housework should not be tied to allowance. Are you supposed to give the kids an allowance anyway?
I got paid for doing yard work and shoveling the driveway. I liked earning money that way - spend an hour sweating and pushing a lawn mower and walk away $15 wealthier.
Bridget, you have a good point here, but I like the idea that kids should be taught that they have responsibilities to the family and the household and paying them to do it might contradict that point. So they are both opposite yet noble ideas. I think on this one I’d personally comedown on learning responsibility to the family. ………steve
“Train a child…”
I take this very seriously and find it refreshing when others do to. Why is it refreshing? Because I see too many examples of the irresponsibility of parents.
I see too many examples of young people who don’t have the first clue on how to behave in another’s home. They sure get a lesson when they come to my house.
Train up a child, praise God for those who do!
Barb……..it has been a few years since I had to do this on a full time basis, but we still must keep it in mind when we have the opportunity to influence the little ones. When it comes to finances it is most important to add some structure to it or they will grow up totally incompetent when it comes to their own economics. Did you know the largest cause of poverty is the lack of money?
……steve
wow, that was food for thought. i have been struggling about what to do with my kids and allowance/chores/responsibility stuff. we didn’t really get allowances as kids at all, but we worked hard in the family and we were taken care of.
i struggle with handing money over to my kids, but i know it teaches a valuable lesson.
Heidi Jo………It is interesting that families can exercise similar practices and come out with different results with different children. The bottom line is though that it is important to lay the basics down in their lives so they can understand it and if they fall away from that practice they will still have a basis to return to. You know…….the theme of the post “Train a Child in the way…………” Thanks for stopping by and reading this post……….steve
Hi Steve,
It says a lot about your character that you can smile about that.
the Grit
Hm………..
yes, learning how to use money appropriately is very hard. someone gave me a credit card in 7th grade
But hey, I have excellent credit because of it 
We have to get things together in our house and will be soon very regimented. I know how to do it, just don’t always/ mostly practice it. you bred a child with expensive taste! But I do know I want to be good examples to owen and lukas, it has to start with us. I wish I had saved more of that money I made working (by choice) in HS…. That would have accumulated some nice interest by now.
I remember you saying all growing up- “Nobody has enough money to waste money”. You also taught me that many people with huge houses and nice cars also have huge debt and aren’t really wealthy when you consider that. You also taught me the value of a guy hearing “no” from a girl- oh wait, that wasn’t finances
MZ……….I think that those credit cards in the 7th Grade were in my name and didn’t help your credit very much. It was other practices that you incorporated into your life that helped with your credit standing today. ………..dad
Zabs & Steve,
Actually, if you put your child’s name on your credit card, your child acquires your credit history with that card. There are times when 19-year-olds have 30 years of perfect credit.
I remember you saying all growing up- “Nobody has enough money to waste money”.
Yep. It always cracks me up to see people buy (or covet) things like Fendi purses. Anyone who spends $1,500 on a purse is just wasting money. One of the things that I liked about growing up in New England is that such displays of wealth were considered unseemly. The real old money never spent it, because how can you drop $1,500 on a purse every season and have enough to send your grandkids through private high school and college?
Bridget, some of those 19 year olds have pretty good credit then I guess until about 6 months later when they finally go out on their own and start missing payments. Your a lawyer. I used to think that there should be a law that say when a Bank unilaterally increases the credit line of some (especially young people) that they do so without recorse on that portion of the loan since the line wasn’t requested. The banks set these traps without the consent of the victims
….. steve
One of my friends had her credit limit increased from $300 to $15,000 overnight. She had to call up to complain.
I do agree that if it’s not requested, the credit card companies shouldn’t do it. Let people decide for themselves if they want that credit limit.
As for the good credit: a lot of times, the parents will pay the bills. Sad, but it happens.
Bridget………exactly my point. IF the bank approves unrequested credit then they should be on their own limb hoping it get paid, but without recourse to the courts. These college kids don’t even know how much credit line they have remaining. The banks just keep approving the charges. Something is wrong with this……..steve
You’re absolutely right.