April 1, 2019
Children need to learn about money and financial literacy early. Unfortunately, many children’s financial education ends after they learn to make change. In today’s world, children need to learn the importance of saving, avoiding credit and living within a budget, among many other topics. I would rather have a child declare “bankruptcy” as a 9-year-old than drop out of college because of massive credit-card debt as a 19-year-old.
Children need to have money to learn about managing money. I recommend paying children for specific jobs or chores. There are jobs children do simply because they are part of the family (e.g., clean the table). There are jobs that parents are glad to pay for, depending on a child’s age. A 10-year-old may be paid for cleaning a bathroom, but a 14-year-old would simply be expected to clean a bathroom because they are part of the family. A 14-year-old, however, would still get paid for shoveling a driveway. Remember to give bonuses for extra effort, and/or for doing a job without being asked or reminded.
Children learn the most about money when they are trying to save for a large purchase. Cell phones are ideal for this purpose. When a child is trying to save money for a cell phone, taking $10 to go to the movies means another two weeks without a phone. Once a child earns the money for a cell phone, they then need to pay part of the monthly service charges. Earning $15 a month in chores, and having to pay $20 a month in fees is a hard and fast way to learn about a balance sheet and living on credit, particularly when the cell phone disappears until the fee is paid.
One mistake well-meaning parents make with children and preteens is the mandatory college savings-account piggy bank. It often goes like this: Grandma gives $40 for a birthday; $20 goes into the college piggy bank and $20 to the child. To a child with little concept of college, this simply teaches the child to spend their money as fast as possible. If they spend the $40 immediately or never let their parents know about it, they can spend the whole $40. It is better to teach the child about the importance of saving for bigger purchases. This lesson will transfer over time into the importance of saving for college when they actually start to earn money.
Daniel J. DeMarle, Ph.D, is an education specialist at DeMarle Inc. in Rochester.