From birth, we are a voracious learning center full of curiosity. By age 4 or 5 our brain has quadrupled in size. (Goswami 2008) Yet, the ability for us to learn as we grow is dependent upon our cognitive development. Just as children need to walk before they run, they also need personal, enjoyable experiences with money, like shopping with their parents, to prepare them to understand basic financial concepts like counting money, a skill not typically acquired until age 5.
Discovery Learning Reigns!
Early on, we learn by imitating the actions of our parents. From then on, it’s all about discovery learning. Providing children with abundant experiences within a trusted learning environment prepares them to tackle new problems with confidence and try different strategies to solve their problems. (e.g. Chen & Siegler, 2000) This ability, known as metacognition, is valuable in resolving financial dilemmas or better yet, avoiding them later in life.
Make saving a fun experience!
‘You can lead a horse to water but you can’t make him drink,’ is another way of saying learning is more effective if we’re motivated. Children need to understand the relevancy of a proposed activity to their life or they may rebel feeling it’s not worthwhile. Explaining the relationship between the activity and their situation will also give them confidence they can succeed at a task–at their appropriate cognitive level. For example, you wouldn’t ask a 5 year-old to make change. (Gelman and Merk, 1986)
Cultivate A Strong Relationship
Finally, a parent’s relationship with their young child strongly influences the child’s cognitive ability. Reading to your child, language development activities, responsiveness and warmth of interactions influence positive growth and development as well as the motivation to learn. (eg. Grolnick, 2009; Melhush, 2010)
Learning Behaviors Indicate Readiness
As we explore ‘saving’, we will often refer to the extent to which the following cognitive learning behaviors are necessary and relevant to the skill to be acquired. i.e. receiving an allowance. To have a positive learning experience, we will discuss the necessity for a child:
To exhibit self-control
To plan for future events
To be attentive
To remember instructions
To apply learned concepts
To perceive causal relationships
To comprehend that skills learned today will be of future benefit
Please share your tips and advice on teaching money management skills with other parents by leaving a comment. All comments are screened for appropriateness. We look forward to hearing from you!
The little ones are now in Kindergarten or first grade. Their awareness of money and its benefits is heightened and now it’s personal. Today’s schools are asking them to help pay for their education by contacting their relatives to ask for money. This money may be an outright donation to fund the librarian or computer lab or it could be a request to purchase wrapping paper, cookie dough or grapefruit!
What is a little one to think? They are familiar with coins and dollar bills some of which have even found their way into their piggy bank. And it’s obvious from the way their parents fuss about saving that money is important.
They may be thinking they won’t have any books to read if there’s no librarian—and they like reading! Time to panic? Well no, because this is where their ‘hidden’ inclination to exhibit self-control surfaces. Together with their parents they create a plan to induce their aunts, uncles and grandparents to help fund the librarian! At this age, budding self-control tendencies and the ability to plan future events for personal benefit are inherent readiness skills!
Interesting to them is that this librarian scarcity dilemma can simply be rectified with money. This is the first step to understanding that money has VALUE. Comparing the monetary value of a librarian versus a computer is, however, not possible at this age! In addition, their attention span for discussions of such abstract topics is way too short.
Money is Interesting
What CAN be gleaned by 5-6 year olds, is that money has an important place in the lives of their family members and now in their own life. They will be involved in discussions about fund-raising goals that have been set for their family to help pay for their school librarian. This will definitely motivate them to learn more about money. Here are some money activities you can do with your children to reinforce basic money concepts.
Go on a treasure hunt for misplaced coins around the house—on the floor, under pillows, in jars and pockets etc. When found, arrange all the coins in their specific piles and ask your child to count them by the number in the stack. Next, show them how a nickel is five pennies etc. Ask them if they would rather have a nickel or a penny. Don’t expect them to understand the value of the various coins, but you have piqued their imagination. Now, take them shopping with you and show them how to put coins together to check out. Buy a McDonald’s special $.50 soft serve on the way home with coins found around the house.
Play Clue Jr. or Checkers with them . These games reinforce ‘planning’ and ‘thinking’ skills that can help them understand abstract ‘coin value’ concepts.
Use cooking as a way to teach coin concepts to your children. Help them cut a lime in half and then show them that one nickel is half of a dime.
Buy Cuisenaire rods and teach them fractions! Amazon has them for $11.88. I used them to teach my children basic math concepts.
Kids and Money 4-5 is the first in a new series of articles designed to help you teach your children about money including its value, its management and how to invest it for maximum returns. Woven through all these fundamental concepts will be financial responsibility without which financial literacy is worthless. With college and credit card debt in the TRILLIONS, we must ensure even our youngest children acquire the financial literacy they need for a secure and happy future.
It’s not easy!
We begin the series with tips and tricks for engaging your 4-5 year-olds in the money game. At this tender age, most of them are just learning to count and are not capable of understanding how the value of money relates to purchases and employment. You may want to refer to an earlier article on How Learning Influences Saving at this website for more information.
Walking the dog is expensive if you have to hire a ‘dog walker’. Offering to pay your children to walk the dog at this age is pointless because they cannot understand the value of money yet. They can, however, understand the concept that paying a ‘dog walker’ for a month means we can’t go out for pizza and a movie every Friday night. It’s one or the other! Walking the dog can quickly become the lead-in to a discussion on where money comes from and how to get it!
While young children don’t yet understand the value of money, they seem quite adroit at bartering! They know what they like and they want it–NOW! You can use this natural instinct to your advantage in helping them understand that money doesn’t just pop up out of the ground like a weed. And speaking of weeds, children this age are entirely capable of pulling weeds. And guess what, a nickel for every 10 weeds they pull can add up to a trip to the ice cream parlor pretty fast. Any by the way, this is how mommy and daddy get money–we work for it, too!
I fully support parents who limit their children’s screen time. Enough of coming home from kindergarten to sit and watch TV or play with an iPad even if it is educational. But, if you limit screen time more than normal, you can introduce the concept of BONUS screen time for extra time spent outside or in physical activity/sports! Bonus time can lead to discussions of how you earn bonuses at work and try to save that extra money for emergencies. By the way, I don’t think it’s prudent to discuss traumatic financial affairs in front of children. There’s nothing a 5-year old can do about your financial problems, but they still are old enough to worry about your welfare instead of concentrating on success in school.
“Show them the budget!”
Everyone is short on time, but no one more that MOTHERS. Increasing your child’s financial literacy works best when you involve them in your daily financial management tasks, where possible. For example, when you’re making up your shopping list, ask you children for input. Not only might it be an insight into the commercials they are watching/hearing, but it gives you the opportunity to talk about your food budget! No, we don’t just go to the store and buy anything and everything we see on the shelves.
Night out with Mom!
A girl’s night out with mom can be the best reward of all for sticking to your budget! Share your food budget with your child and take her shopping with you. Keep your receipts and at the end of the month, total them together to see if your stayed within your budget. If you did, plan a special event to celebrate your thrift. Saving and being thrifty should be a celebrated endeavor whenever possible!
Setting aside religious preferences, there are three things I believe parents need to promote with their children during the holidays: Gratitude, Giving, and Responsible Gifting. Having said that, the holidays are especially great for family fun! At our home, we had the ‘Elf’ leave small gifts under pillows or ring the door bell and vanish (leaving a gift behind) a few weeks before Christmas. Of course, the Elf came more frequently to children making ‘wise choices’ like doing their homework and going to bed on time! Frequently the Elf who was thousands of years old and some say lived on the moon during holidays-off, left games the family could play together! These games gave parents their children’s undivided attention for a couple of hours in the evening for discussions of gratitude, giving and responsible gifting.
It’s easy to gain agreement that the family has a lot to be grateful for when you not only have a roof over your head and food on your table but the Elf is dropping by with gifts now and then! The question is, should we as a family be doing anything to show our gratitude? Some family members may feel they don’t need to be grateful for anything because they got where they are through their own hard work! But a deeper look at the origin of their success may well reveal that an ‘opportunity’ was presented to them. A better job offer? Funds for college tuition? A job mowing neighbors’ lawns? Yes, they asserted themselves to take advantage of the opportunity, but that ‘opportunity’ could have gone to someone else, too.
Consensus on gratitude is a great segue into discussions on ‘giving.’ When possible, we want to engage the whole family in a ‘giving’ activity. Giving your time and expertise to help someone is much more rewarding all around than writing a check. More importantly, it lets your children experience heartfelt appreciation from a non-family member for their contribution—an experience they may never forget. Of course, you, the parent, must propose several ‘giving’ options from which to choose. Should we shovel snow off the sidewalk for the elderly couple down the street? Should we help a widow store her outdoor summer furniture and tools? Maybe bake some cookies and sing carols as you deliver them to a handicapped neighbor? Whatever you choose, make it an activity for several members of the family and when it’s completed, go out for hot chocolate or ice cream sundaes! Your children will relive the ‘giving’ experience over the hot chocolate and look forward to the next opportunity to give of their time and ‘expertise’!
Dogs Love Holiday Strudel too!
Have you ever seen a young child tear the wrapping off a holiday gift, throw it down, grab another gift, tear its wrapping off and repeat the process for every gift never even opening one of the gifts? Even though several of the gifts may have been on the child’s Gift Wish List, they will appear disappointed there weren’t more gifts to open! You can manage this situation by having children alternate gift opening and by helping them inspect each gift and determine how it can be used.
The more important question is how much should you spend on gifts for your children and what types of gifts should they be? The amount you spend for each child clearly depends on your disposable income, but even if you are flush with cash, you need to reign in your desire to give your children their every heart’s desire. Too many gifts will simply end up in the closet never to be played with again but taking up valuable space. Additionally, too many gifts can distract from the true meaning of the holiday. I liked to give my children gifts that required an activity, like a pair or skis, hockey skates or a skateboard. Added to that were clothing items like a cool new pair of sneakers, sweaters or ski jackets to complement their skiing activities but which were also suitable for school.
Your children won’t have a clue about what they got for Christmas two years ago. But, here’s what they will remember. Your 17-year-old football wide receiver son will remember his favorite aunt teaching him how to make the 100 year old family orange roll recipe and that he’s now the next-in-line Orange Roll King!
May you have a joyful and peaceful holiday with your family by your side!
Spending their money helps children understand its value!
A funny thing happens when children start saving. We see it repeatedly at School Savings™ where children make deposits into their savings or 529 College Savings account AT SCHOOL. They understand saving is a sacrifice because, after all, they could have purchased something they want with that money! Instead they have ‘chosen’ to save for something important: college or vocational school, a special purchase or for an emergency, perhaps! If you then ask them to spend some of their savings for the greater good, you shouldn’t be surprised to receive either dead silence or immediate push back. Why? They are starting to understand the value of money! Now, you know it’s time to come up with a strategy and plan for expecting your children to help pay for goods or services.
The first thing to determine is your children’s cognitive learning level. It’s fruitless to try to teach them something they are not ready to comprehend. Can they:
use self-control appropriately
plan for future events and delay gratification
be attentive and remember instructions
apply the concept of their saving to the need for the family to save, too
perceive that wise money management skills now will benefit them their whole life
Depending on your children’s age, ability to work and your financial capability, determine whether you actually need the funds your child could contribute to manage your household or whether the contribution will simply be a learning exercise to help them with money management skills.
Next, are your children receiving an allowance, working for their money or being provided with money on a needs basis by you? You can see where this is going? Whether you ask your children to help pay for anything depends on many circumstances.
Involve your children in budget discussions!
Wants Versus Needs
To keep the rules simple and flexible you might start with two categories of ‘Needs’ versus ‘Wants.’ Things like snacks, sweets, designer label clothing, expensive smart phones, toys, cosmetics, most gas, and unnecessary school supplies or events should all be paid for at least partially by children. But what about college/vocational education? Is college a “want” or a “need”? And what about the extra car insurance required for your teenager to drive your car? Is the extra insurance for your benefit or theirs? After years of drumming the importance of saving into my three children, I offered them this deal for college when they were in grade eight and their future grades would be reviewed for college entrance.
If they wanted to go to college and their grades and SAT scores were in the top 5 percent statewide, I would pay for their instate undergraduate tuition, books, fees and housing expenses as long as they maintained a 3.0 grade point average. They would be responsible for their spending money. Alternately, they could not accept my offer and choose to join the armed services or simply graduate from high school and get their own place and car. I assured them if they chose the latter and were unsuccessful they could pitch a tent in the backyard until they got back on their feet! They all chose college and graduated. One is a Director at T-Mobile, another a TV writer in Hollywood with her own company and the last is a viticulturist with his own vineyard. All have a Masters degree. Because they were such good scholars, two of them received fellowships which I considered a contribution to their education and also reduced the amount I needed to provide.
Plan early for college!
Create A Long Term Plan
The salient points of a long term strategy for teaching your children wise money management and helping them plan for a secure future are:
Open a saving account and a 529 College Savings account for each of your children. Insist on regular saving and sign them up for School Savings™ if it is available at your school. It’s Cool to Save at School!
The saving account is for short-term needs and emergencies. The 529 college savings account will pay for expenses at two-year accredited vocational education institutions, too but can only be used for education expenses.
Put a reminder in your phone to have a monthly discussion with your children about saving, spending and investing for their future. And, plan an ACTIVITY that brings home the fact that money doesn’t fall from trees.
Give younger children $5.00 in cash and your teenagers a $25 prepaid debit card and let them start spending. When they run out of money, sit them down and discuss their thoughts, pre and post, on the experience. You’re sure to hear: “I thought it would buy more.”
Bring up newsworthy financial topics at the dinner table now and then. “The Federal Reserve lowered interest rates, I wonder if that will affect our family and your college plans”? It will start them thinking even if you don’t know the answer yourself!
Make a family budget with expense categories such as food, entertainment, housing, clothing. Estimate a spending ceiling for each category. A budget is invaluable in curtailing spending. If those “Wants” aren’t in the budget they can’t happen which makes the refusal less personal.
At least every six months, have a family meeting to discuss the family’s success in meeting its budget. Your credit cards should be paid off every month, if possible.
Talk to your kids about money!
My point is that you need to have a LONG TERM strategy and plan for your children’s ‘needs’, a plan that has been developed in cooperation with them, no matter how young. And, it all begins with SAVING. Saving is the foundation of financial literacy. It is the invaluable experience with managing their money which will secure their financial future and keep them from falling into credit card traps and bankruptcy.
You may be worried that if you give your children a debit card they may drain your bank account. Rest assured there are products designed to specifically prevent this from happening. The bigger questions are:
Is your child responsible enough to carry and use a debit card?
Do you have time to make the debit card a financial management learning experience for your child?
Is it more convenient for you to give your child a debit card rather than cash for approved expenses or allowance?
At What Age?
I can’t count the number of times I have removed my children’s $1, $5, $10 and $20 bills from the washing machine and dryer. Whether it was money for school expenses or their allowance, it was still any indication they either needed more instruction on money management or were simply too careless to be given a debit card. I won’t mention the number of times they lost their wallets! Eventually, however, between ages 11 and 12 they found the wherewithal to become organized and seemingly responsible enough to receive a debit card. And, their expenses for sports and school activities were becoming more frequent requiring me to keep a lot of cash on hand. I was ready to try the debit card approach to money management!
Which Debit Card?
But, which debit card? Fortunately, now there are several debit card options available. You may have heard of a couple specifically designed for pre-teens and teenagers: Greenlight and FamZoo. They integrate allowance with chores and notify you in real time of your child’s expenditures. A reporting system makes it easy for you to review expenditures with your child. One system even includes a budgeting process. Of course, you may not have the time it takes to setup and maintain these types of systems which cost around $5.00 per month.
Another alternative is a bank debit card. Bank of America, for example, will provide any child under the age of 24 with a fee free bare bones checking account and debit card. You the parent could be a signer on the account and receive immediate notifications of expenditures over a set spending limit. As the account funder, you would be able to control the maximum amount spent and set up automatic recurring transfers to fund the account, for allowance or upcoming expenses.
Please see the page titled “Saving Matters” in this blog for information on the American Express and Chase Bank PREPAID debit card options.
Wells Fargo Bank also has a checking account and debit card for teens ages 13-17. A minimum of $25 is required to open the account (parent must be present with proper identification) but there are no monthly account fees!
Debit Card Benefits For Teens And Parents
Benefits for teens include the ability to:
Manage their accounts with 24/7 online access.
Get account alerts via text message, email, or online.
Develop budgeting skills with free money management tools like My Spending Report and Budget Watch.
Check balances and account activity from a mobile phone
Benefits for parents include:
Online access and account alerts which let parents review their teen’s account activity anytime.
Online transfers which allow parents to easily move money from their account to their teen’s account.
Optional Overdraft Protection from a Wells Fargo savings account can help protect against unexpected overdrafts and returned items.
Check with your local bank or credit union to see if they too offer a similar teen account. One advantage of your child having their own account is that when they lose their debit card, you won’t have to cancel YOUR account.
A Credit Card Too?
No discussion of debit should end without a mention of credit. The ability to conduct most financial transactions is closely related to our credit rating. Your child has no credit rating but may soon need one for college or vocational school—to get a loan, rent an apartment or maybe buy a ‘beater car’ to get around. If your child can’t qualify for these types of items alone, you will be asked to bear the financial risk yourself! But, there is a risk free way to help your child establish credit. If you have good credit yourself, you can get a credit card for your child on your account. I am not suggesting you give them a credit card but merely add them to your account. You can take them out a few times a year and use their card to pay the bill. Paying the credit card invoice on time will maintain your good credit and establish a good credit score for your child who will need one when the cord is cut for good!
In summary, a debit card can be a good thing for you and your children if properly and easily managed. I would also opt for Overdraft Protection at least until your child exemplifies sound money management for a year i.e. no overdrafts. Any overdraft fees should be paid for by the child from allowance or work receipts.
I recommend the pay-for-routine-chores allowance system. Of course, certain chores like cleaning your own bedroom and picking up after yourself, should be unpaid and considered family “member” chores. In my household of three children we had the Sanitation Engineer, the Ranger and Sous Chef. The specific tasks for each role were on a card in a pocket on a wall chart. Tasks rotated each week. At our weekly family meetings the children had an opportunity to vote on any proposed changes to the chore system and house rules. We all took turns chairing the family meetings but Momma had the extra vote in a tie! Before initiating an allowance system, take into consideration your child’s readiness to comprehend the concept of an ‘allowance’.
Do they have the self-control to not spend it all at once? Are they capable of understanding the need to save some of it? If not, they’re probably not ready for an allowance.
A 2012 survey by the American Institute of Certified Public Accountants (AICPA) found that 61% of parents give their children allowances, most starting by the time children reach age 8. The average allowance over all age groups is about $70 per month. That may sound like a lot but it’s under $18 a week. Some families pay $1.00 for each year of age of the child.
Use Allowance To Teach Budgeting
What children should be required to pay for from their allowance varies by age level and the amount they receive. I’ll be covering that topic in another post but suffice it to say as children get older, use their allowance to model and teach them sound money management. Their allowance and any earned money should gradually become their entire budget—for entertainment, for music downloads on iTunes, for gas and after school eats.
It will soon become clear they must prioritize their wants and needs to stay within their budget. Ask them to keep track of each penny they spend for a month. Make a pie chart of their expenditures with categories such as entertainment, food, clothes, electronics and maybe extracurricular expenses. Discuss with them how and where they might cut expenses to stay within budget. It’s no fun when your car runs out of gas and you have to walk home form the football game on a cold night.
Children who received unconditional allowance, no chores required, had the lowest rates of financial literacy as well as a poorer work ethic according to the 2000 Jumpstart Coalition Survey entitled “Improving Financial Literacy—What the Schools and Parents Can and Cannot Do.” And that makes sense, why work if someone will simply give you money!
Create Fun Activities
The purpose of an allowance is to teach children how to manage their money and budget for future purchases. Simply giving children an allowance will not teach them the money management skills they need for a secure future. Parental interaction and guidance is required.
A good way to help them understand you can’t have everything you want is to take them grocery shopping with you. Create a shopping list and an approximate budget for what you want to spend. Add up the cost of your purchases as you shop and do a lot of brand price comparing. When your child wants something not on the list, ask him/her to suggest what can be put back on the shelf to allocate enough funds for the alternative purchase.
Even young children can benefit from participating in the monthly bill paying process. It may be news to them that you have to pay for you and them to live in your house! Paying your credit card bill is a great time to explain credit, interest and debt to them. What, you have to pay a company every time you use a piece of plastic for money? Why? Developing your child’s financial literacy should be an ongoing experiential adventure in your household!
Vacations cost money!
Saving Is The Foundation Of Financial Literacy
Most parents surveyed reported their children saved less than 1 percent of their allowance. Saving is the foundation of financial literacy. A lifelong saving habit can be one of the greatest gifts a parent can bestow on a child, but it takes work. It’s that parent interaction again that makes the difference!
As soon as the allowance is awarded the child should be “helped” to put 10 to 15 percent into his/her savings account for future emergencies or necessities. The trip to the bank may be through the piggy bank or School Savings™, the national bank-at-school program, but the money needs to be put into savings as soon as it’s received or it is gone forever, it appears.
Declaration Of Allowance
So if you’ve decided to give your child an allowance, put on your family planner hat and start thinking of all the ways it could be implemented and abused! What tasks will the allowance system include? What will the task division look like? Will there be a deadline by which the tasks have to be performed? What happens if all the assigned tasks are not completed? What happens if they are not done well? Will the kids be paid on a per task basis or on a project basis? When and how will payment be made? Is there a penalty if your allowance payments are late?
To make everyone’s life more pleasant, I recommend writing down the allowance rules and having each family member sign the Declaration of Allowance! Be comprehensive. It will avoid much weeping-and-wailing-and-gnashing of teeth when your teenager can’t leave the house Saturday until all his chores are done. An app called iAllowance might be worth a test run to see if it can help you organize your allowance system.