Thursday, April 8, 2010

Article for EveryDad-Teaching Kids About Money

Every dad sweats about money to some degree. No matter how much we make there's always the worry that it won't be enough--enough to satisfy the desired lifestyle, enough for Christmas, enough for the mortgage, the car repair, the future college tuitions, retirement, etc. Every dad has lost sleep on the subject at some point.

One stress is how best to teach kids about money. EveryDad had an allowance that consisted of two parts:

1) What EveryGrandpa described then as "being a boy money." Call it a base salary with no incentives. There were a certain degree of unpaid chores to fulfill as part of my role in the family and there was an expectation that the EveryParents would rarely if ever foot the bill for anything deemed discretionary. They weren't arbitrary about it so this was their way of ensuring that I had some capital to burn without having to ask for handouts.

2) What you could describe as bonus money. This was particularly important when saving for things like new baseball gloves, bigger-ticket items, souvenir money on vacations. There were jobs that could be done around the house that they probably could have expected me to do anyway (mowing the lawn, washing the car, vacuuming, etc.) but that we decided together as a family were worth an extra lump of change as part of my allowance, probably due to their only-semi-regular nature and extra investment of time.

My only gripe looking back is that they didn't more strictly regiment my savings, so as a result I developed a poor appreciation of it that was challenging to overcome. Maybe they could have incentivized it some by contributing a percentage of every dollar saved at the end of a given period. I didn't have a bank account until much later and so no way to grow my savings except by watching it pile up in my wallet.

Also, there wasn't very much talk of forecasting apart from leading up to family vacation time. As a result, I was often met with a "No" a week before the opening day of Little League when the hand-me-down glove didn't seem quite right or the week of the beach trip when I just had to have a new body board because I hadn't saved for it. I suspect that some of these needs could have been anticipated as a family and budgeted for.

Regardless, the EveryMom and I each have tremendously different backgrounds in terms of how family finance was handled during our own childhood, and as a result there's a lot of work to be done as our children get old enough to learn how to handle money. It's a good conversation to have, and probably no less important than discussions about family finance generally.

I suspect that it will be more and more important to give kids some sense of their credit rating and the potential damage that mistakes with money can cause to that rating. With online banking it can become a lot more practical to teach kids about credit cards, debit cards, savings accounts, etc. than it ever was when we were growing up.

Along that vein, the trusty Wall Street Journal's Personal Finance section provides tons of advice on the subject that the EveryDad has been filing away for future reference. Here's a recent article entitled "The 15 Money Rules Kids Should Learn." Highlights include:
  • Spending money only happens after you earn it.
  • Let your kids make mistakes that they can learn from.
  • One of the greatest gifts you can give your children is your own financial security when you're old.
What works for your family? When do you think it's a good time to start teaching kids about money? What do you wish you'd done differently or what have you learned from how you grew up?


  1. Great thoughts. It is so important to teach kids fiscal responsibility, and it can and SHOULD happen early. I think the biggest thing is to be consistent! And when your kids are tiny, I think it starts by teaching them that they can't have everything that they want when you're at the store. They are always watching, always learning :)

    Love the idea of this blog.

  2. Great topic, often in my mind. I've found that even small kids having piggy banks and a small allowance (we use 50c * age) helps them develop a the concept of "their" money, something that we as parents can then refer to: "Can I have that (pointing to a toy in the store)? Do you have enough money?"

    On that note, canceling cable-TV and not watching TV at all has proven to be a good choice for our family in many ways, one of which is not having to see the commercials. Kids see them too, and they tend to convey the message that "hey, look, you could have this too". We still watch films and shows we enjoy, but on a computer, without the commercials.

    While we want to set an example of always living well below our means and exercising frugality in many areas, I still plan on "spoiling" my kids on select occasions. I have a few golden memories of my parents doing the same for me in my childhood, taking me to a store on a regular day and letting me pick a toy or a game. The trick is to make a simple thing like as special for them as it was for me.

    Finally, as we say in Finland, Siberia teaches ( That's been true for me, and to some extent it will be for our kids, despite of our efforts to make it easy for them.

  3. Sorry for posting all this, you just managed to create a place for me to vent some thoughts I've had for a while ;-)

    In the longer term, one thing I want to do is to help my kids get a head start on saving for their retirement. I don't plan on doing it for them, but when (and even before) they start earning money, I want to do what I can to help them want to do it early on to really unleash the power of compound interest in their favor. Maybe have them open up an IRA for themselves and provide the first year's deposit. We'll see.

    Saving for something 30-40 years from now is a great lesson in patience, which, I was recently told, really is divine.

    I think it's a shame that in countries where the main (and for many, the only) source of retirement income is funded by the taxes you pay and maintained and finally distributed by the state, many will trade not having to think about it to having far less money at their disposal in their late years. Spending some of my working years in the USA will probably end up having the biggest effect on the way I retire, not so much because of my 401k contributions, but for opening my eyes to what's possible. And I'm planning on being the grandpa who treats his grandkids with the stuff their parents are too cheap to buy ;-)

  4. Mom and Dad said "no" to you?

  5. Love it that my family jumped in. Greaaaaaaaat.