We hear a lot about reading literacy, but what about financial literacy? Money isn’t everything, but we all need to learn how to manage it and use it wisely. So much has changed in the financial landscape since we were kids, and technology makes things like paper money, coins, and checks seem old-fashioned to some.
Yet when we can order all kinds of goodies just by pushing a few buttons on our mobile devices, do we really have as close an eye on our financial health as we would if we were counting out bills or mailing checks? I’m guessing not. Better to learn about buyer’s remorse when you’re 12 than when you are 25! So, how to teach our kids to be financially literate?
One way to make money more “real” is to use an allowance system. Our family uses one inspired by Neale Godfrey’s book “Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children.” I also liked Dave Ramsey’s ideas about teaching kids about money.
What works for your family may be a little different, but essentially Godfrey’s is a four-jar program (with actual cash in the jars):
- Charity: Godfrey’s program takes 10 percent off the top for charity, letting kids pick recipients.
- The remaining 90 percent is split evenly between:
- Long-term savings: Usually for things like college or a car — big-ticket items that will take a long time to purchase
- Short-term savings: Items that cost a few weeks’ worth of the short-term portion
- Quick cash: This is the discretionary spending amount. Kids can spend it on anything they choose, provided it’s something you allow them to buy in the first place.
We chose to divide the four jars equally, renaming the charity jar “cash for others,” which includes charitable giving and gifts for friends or family.
Godfrey recommends one dollar per year of age, from 3 to about 15, when, she says, the teenager should have a job of his or her own. Regardless, you will have to decide what is reasonable and what expenses you are going to expect the teenager to take over with either allowance or paycheck.
Pick one day a week that you’ll pay allowances. We picked Friday afternoon because that is a common payday. I get a couple months’ worth of small-denomination bills and then paper-clip together the weekly amounts. I also get larger bills so I can change out some of the ones and reuse them.
Godfrey argues that some chores are “citizen of the household” chores: things everyone needs to do to keep the house running smoothly. These are things like clearing the table, putting your laundry in your bedroom hamper, or picking up toys from the family room floor. Other chores can be assigned, with allowance contingent on completing all the chores, by a certain time, to an agreed-upon standard. Ramsey also recommends that allowances be earned, not given. However other experts disagree with payment for chores. We decided not to pay for chores unless they are special/unusual, with the understanding that any time we ask the kids to do something or assign a chore, they do it. See what feels right for your family; you can even try out different systems for a month or so.
Yes, teaching your kids the value of money is going to take some effort and energy. Deciding where their financial responsibilities begin and end is an individual decision for each family. But starting early will help your kids be financially wiser, and also learn the enjoyment of saving up for something special, or giving of their own money to causes they support.
– Lori Warner, Ph.D., LP, BCBA-D, Director, HOPE Center at Beaumont Children’s Hospital