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my money coach

Kids and money

by Tim St Vincent

Last month Manraj, our educator in Edmonton wrote an article on children and how they learn about money. This seemed like a good topic for a lot of you, so I thought that maybe we could expand on that topic a bit this month and continue the conversation.

Most of us learned our money habits at home, both the good habits and the bad. The schools taught us how to calculate interest, but not what it meant in the real world we live in. Our parents likely learned their money skills the same way, at home. Funny thing though is that parents, for the most part, don’t really actively teach money skills to their children, rather their children learn by observing. Talking about money is a great taboo in our society, especially to children. So they learn in a vacuum. That leaves them open to learning about money from other sources, TV and the Internet where slick marketing can easily convince the impressionable young person that in order to count, in order to be “worthy” in our society they must spend, own, and consume – a very dangerous cycle to get into.

How can we break this cycle? By changing our patterns and by starting to actively teach our children about money.

Let’s start with this taboo topic – allowance! Many people feel passionately about this; some for, some against. My personal opinion? I am not a believer in allowance. A child isn’t deserving of money simply because they are my child. What does that teach them about the value of an earned dollar, what does that teach them about where money comes from and how to save? What does it teach them about delayed gratification? The answer to those questions is easy. It teaches nothing.

If you are a believer in allowances, I suggest a small one. When they complain that it isn’t fair, that it isn’t enough, then you can start the “teachable moments.” Let them know you agree, that it isn’t enough, and they can easily and readily have more money – but they have to work for it! I suggest putting up a series of sticky notes on the fridge or maybe create a job jar bulletin board. You can post all types of jobs here. I suggest posting a series of different jobs, with different levels of difficulty and time commitment. The tougher jobs, the jobs that take more time, pay more. This way the child can pick which jobs they want to do, how much they want to work, for how much money. This will start to teach the child the value of money; that it doesn’t magically appear when you want for it, that it must be earned, and that not all jobs pay equally. Some are definitely more valuable than others.

So how small of an allowance should be paid? When should you start? Some sources say as early as five years old. While on one hand I think that is a bit young to pay your child simply for the reason that they are your child, it is a great age to start teaching them about the value of money.

Okay, then how much? Again some sources say in the range of $0.50 to a dollar a week per year of the child. What this means at the $1.00 mark a five-year-old child would get $5 a week. That translates into about $20 a month. I don’t know about you, but I don’t know why a five-year-old would need $20 a month! Maybe I am just cheap. Okay, I am cheap. I would go more to the $0.50 level which works out to $2.50 a week and about $10 a month. Still sounds like a lot for a five-year-old. Wow. I am cheap! Whatever allowance or job jar type of format you choose, it is important to teach the child about saving. A popular format for this is called the “three piggy banks.” This is where you have one piggy bank marked for Savings, one for Spending and one for Sharing. You can Google “three piggy banks” to get more information on this.

There are lots of great ideas out there. I have heard of one idea where the parents charge a “sugar tax” whenever their kids buy sweets with their money – this is to offset future dental bills! This introduces both the idea of taxes to the children as well as the potential consequences of some of our choices! I have read of another idea where if the child wanted to buy something and hadn’t saved enough money that the parents would lend them the money and charge them interest, literally becoming the Bank of Mom & Dad!

There are a lot of great things when it comes to talking about kids and money, maybe I will make this another two-part article.

Tim J. St Vincent is a retired CFP and is a Certified Educator in Personal Finance with the Credit Counselling Society, a Non-Profit organization. If you wish to contact the Society for further information, assistance or to attend a webinar, please call 1-888-527-8999 or visit www.nomoredebts.org or www.mymoneycoach.ca

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