As a financial advisor, I talk about money all day long…and it doesn’t stop when I get home! Since our girls were young, my wife and I have been intentional about teaching and training them on making financial decisions. What we discovered over the years are two significant truths:
- The best way to learn to handle money is have your own money to handle.
- The best way to learn to make good financial decisions is to make your own financial decisions.
Both of these can be addressed by using an allowance system, starting at a very young age. We started the girls with an allowance when they started kindergarten, giving them fifty cents a week. Throughout elementary school we increased it yearly (for example, in 4th grade they got $4/week), and had them pay for most of their “wants”. This included treats at a ball game, snacks on a road trip, gifts for birthday parties, etc. As they faced their decisions, we were able to give input into their thought process, guiding them to understand concepts such as opportunity cost, value of saving, and the joy of generosity.
When they entered Junior High, we started giving them their allowance on a monthly basis ($70/month in 7th grade), and increased their financial responsibilities, as well. For example, they were responsible for paying for their own school lunches from their allowance. That freed us from having to keep track of the balance in their account, and transferred the decision-making to them about whether they wanted to pack their own lunch in the morning or buy lunch at school. It was my oldest daughter who blazed the trail when she realized she could keep a whole lot more money if she simply packed her own lunch!
Our older two daughters are now in college, managing their own income and limited expenses on their own. They have learned how to plan for future expenses and, in the words of my eldest daughter,
“When I think of money management, the first word that comes to my mind is freedom. When I have my money under control, I have the freedom to use it, and because it is money I have earned, I don’t have to run every financial decision through my parents, because they have taught me well. I know when I can splurge and treat my friends to ice cream, and I know when I should just avoid going to Target altogether. I have so much more peace about life, no matter how full my bank account is, because I have the skills to use my money appropriately.”
As your children grow and mature, the conversations become more complex and the role morphs into one of coaching, guiding, and encouraging. Talking about housing decisions, job offers, medical bills, student loan repayment, wedding expenses, and even inheritance…these all become an extension of the financial planning conversation started when they were little children.
So, consider using an allowance system as a training tool for the children in your life. You won’t regret it!
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