Kids And Money

At a recent family gathering my great-niece showed me the gap in her teeth and informed me that the Tooth Fairy had left her $5 in exchange for her tooth.  Now, I might be a bit behind the times, but $5 seems pretty generous for a 5-year old.  That got me thinking about at what age kids should start learning about money.

Pre-schoolers can’t be expected to make financial decisions, but they do like to pay for items – candy and such – with their own money.  I remember when I went grocery shopping with my young sons how excited they were to pick out and pay for a treat when we got to the check-out (yes, I know it was bribery, but it worked).

Allowances

By the time kids start school they should be learning about how to handle money.  They can learn that once the money is spent, that’s it until the next time, and how to save for a future purchase (just make sure that the future item isn’t too costly for their age or they will get discouraged).

You can even teach them about credit.  If they get an advance on their allowance, you can charge interest and offer a weekly minimum payment.

How much allowance is given is a matter of choice and budget.  Some parents use a flat calculation such as $1 to $5 per age per week or month, so a 10-year old might get $10 a week.  Some families decide on what the child is responsible to buy from the money they receive, such as school lunches, and give an appropriate amount.

I don’t believe that allowance should be tied to chores.  Children should know that there are basic household duties that need to be done regularly by every member of the family.

You could make an exception for a non-regular task such as painting the fence and pay an agreed upon sum for proper completion.  I especially don’t like the practice of giving financial rewards for good grades or sports scores.

Part-time jobs

At some point your child will realize that to purchase the items he or she wants they will have to find outside employment.

 

Related: How To Make More Money

Whether it’s mowing the neighbours’ lawns, babysitting or working part-time at the local grocery store they can start bringing in some decent money.  While I don’t think that parents should interfere with what their child does with their own money, this is the time when some ground rules should be discussed and what is expected.

Bank Accounts

As soon as a child can sign their own name, they can open a chequing account.  Most banks have their versions of a youth account.  Check the fees.  TD and CIBC have free transactions.  RBC has a limit of 15 free transactions.  All charge for Interac and Plus.  I don’t think parents should make the account joint but they could set withdrawal limits and restrict bankcard use if appropriate.

Related: Best Savings Accounts For Children

Many youngsters get money from grandparents and other relatives for birthdays and such as well as allowances and employment earnings.  They should be encouraged to use their accounts to save for their high tech gadgets or other higher priced items as well as spending money for family vacations.  Some parents offer to pay half of a large-ticket item.

Household finances

Children should have some age appropriate knowledge of their family finances.  Even young children can be shown utility and grocery bills.  Teenagers can be given more advanced information such as mortgage, loan and credit card payments.  Be warned though.  Teens can be notorious blabbermouths, so you might want to be discreet about any personal information such as salaries, investments and certain spending.

Allow your children the freedom to spend and save their money as they wish.  I know it’s difficult to sometimes to refrain from telling them what to do, but isn’t it better to let them make their mistakes now with little money than when they are adults with a lot more to lose?


7 Responses to Kids And Money

  1. The Investment Blogger says:

    Great post topic, I often talk about this with my wife as part of parent planning….weighing pros/cons of various views.

    I also agree your view that children should know there are basic regular duties, but exceptions for non-regular tasks could be made. Too many kids these days expect money for things that they should be expected to do…. like cleaning up after themselves, doing homework, etc.

    Keep up the good work!

  2. Spell out the basic ground rules, establish a monitoring system and better yet a mentoring system on an ongoing basis.

  3. I have shared my strategy on my blog and like you, allowance is not tied to chores. Chores is what you have to deal with to live as a family in my point of view. Everyone contributes to enjoy the home and yard and therefore everyone should participate in the chores (To the extent of their capabilities). Parents seem to feel the need to pay as a reward but that’s something kids learn from seeing us work. The relationship between having to work to earn money is easily learned. I have heard of parents paying their kids every time they practice piano. It’s insane the type of incentive and solutions parents will go through sometimes.

    I gave a no string attached allowance with a yearly raise. It’s for them to use and plan for their own purpose. I prefer giving them the money to buy and plan their purchase than me buying everything they request. (outside of the necessity obviously)

    I too find 5$ to be a steep price. Maybe I am cheap but I have a feeling that parents try too much to rationalize what is meaningful for the child. It’s all about the tooth fairy … until they are older.

  4. I do like the idea of expecting our kids to perform basic chores around the house because they are a part of our family.

    I do not pay my kids any money, though, unless it is tied to time or effort on their part (outside of gifts, of course).

    I do this because it most closely replicates reality. In life, time and effort are tied to money and rewards (unless you are a part of a social program such as welfare).

    I still think giving kids an allowance is totally alright, through, since most parents are using OTHER forms to share the time/effort and money/reward link.

    Derrik Hubbard, CFP

  5. Boomer says:

    Hi Derrik. Giving children an allowance is a good way to start teaching them the value of money as well as the value of items purchased. Too many kids have a sense of entitlement and don’t take proper care of their possessions if they are always given what they want.

  6. On the tooth fairy front: yeah, $5 sounds really high. It’s twice what we see on our site:

    http://blog.famzoo.com/2010/03/whats-tooth-fairys-going-rate-these.html

    Personally, I’d go with $1!

  7. B Kelly says:

    I believe that kids can be taught the value of money from a young age, and as such can be molded to own good financial habits. What better place than to start with an allowance? I would not want my kids to assume that money is their entitlement and that as a parent, their (purchase) wish is my command!

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