As you probably know, if you had a peak at my ‘About Me’ page, I have children and their financial education is very important to me. They are relatively young, so the mathematic concepts, such as compound growth, don’t really sink in and as it turns out, I actually have to teach them about money differently. With bank/credit cards or automated deposits/withdrawals, they don’t get to see a hard earned paychecks or an envelop full of cash.
My Early Years
I learned about money from a very early age. I had my own newspaper route. I hopped on my bicycle and delivered over 20 newspapers. Saturday morning was never easy; the paper was twice as thick and I had a hard time keeping my balance on my bicycle. In the winter, I would have to face the weather and deal with it. So I earned every pennies. My kids are actually interested in a newspaper route but the one in our neighborhood is taken. We call every once and a while to inquire about its availability though …
You may conclude that delivering the newspaper to earn money was the learning but it was not. Working for money is something expected (unless you are very wealthy) and it’s naturally absorbed through life. Being a newspaper boy thought me responsibility and work ethic.
The learning from my childhood experience was that I had my own money in my hands. In the bank, in fact, and with those older passbook with a typewriter print showing the deposit AND the interest. That was so cool when the bank gave me money! I could use it or save it. It was my choice (to some extent). How to spend or save money is a very difficult behavior to get right. How do you teach it?
Teaching About Money
What I decided to do for my children was to start giving them an allowance (I grew up with one). A very small amount weekly with an increase of 25 cents per year on their birthday. At the same time, we opened a bank account. Of course, everything is online nowadays so that very quickly removes the tangible but that’s the reality of life in this century. My wife wasn’t so sure about the weekly allowance at first because she wanted them to work for the money by doing chores. In my book, they need to do the chores no matter what and that’s learning to be responsible and organized. We agreed on the weekly allowance and she has come to see the benefits. (Once in a while we will retain pay if their behavior isn’t appropriate at home.)
Initially, I was giving them the pay in coins and they would put it in their piggy bank or wallet, but quickly it would be used. Building wealth with patience isn’t an attribute you have at birth. In order to build the patience, I changed from a weekly payday to a longer time frame and rather than paying cash, I transfered it in their account. The amount they received was much bigger and their account was growing. All of a sudden, they were able to buy more than just a gum ball from the food court at the mall.
As parents, we provide all the necessities and I am happy to pay for those. Anything else they desire is either delivered as a birthday or Christmas present. Once in a while, they will have a treat of some sort but in general, anything not a necessity involves negotiations. However, with money in their bank account, we tell them that they can buy what they want themselves (within guidelines of course). This is one of the major switch in behavior. As you know, children want a lot of things but their bank account isn’t a bottom-less pit, so it requires a decision process on their part to make the choice to spend the money. As parents, we ask the right questions when it seems to be a very spur of the moment want to make them think about their choice. We will sometimes remind them about the few other things they also want to buy. They do some quick calculation sometimes to see how much will be left or how many they can buy and so forth. That’s the behavior we need to nurture around money. Even if we know it’s not the best choice, we are going to let them do it to let them learn from their mistake. Better make it now on a 10$ toy than with a much more expensive adult toy later on.
The End Goal
What I believe is important is to learn to make mistakes early with money. Having to make a choice and be satisfied with it. It takes time to build the appropriate behavior and financial education starts at home.