7 Ways Smart Parents Teach Their Kids About Money
Continuously discussing money with your child can teach them valuable lessons about spending, saving and giving.
Steve Schaffer, CEO of the coupon website Offers.com, created a unique allowance system to help teach his three children, ages 10, 12 and 14, about money. He and his wife dole out $5 plus 50 cents per year old each child is. (For example, the 10-year-old receives $10.) Then, each child has a quarter of his or her money deducted for “family taxes,” and they have to put 15 percent into a savings account. An additional 10 percent goes toward giving. Each kid can then decide how to spend the remaining money.
“It’s a mechanism for teaching them the value of the dollar so they can decide if they want something or not,” Schaffer says. Each child can also use the money to purchase lunch at school, although his children always opt to bring food from home instead. “I can’t remember the last time a child bought lunch,” he says. He estimates that in addition to teaching his kids about money, not paying for lunch will save the family about $5,000 per child through graduation.
This month, Schaffer shared what he calls the “Schaffer Allowance Method” on Offer.com’s website after hearing various reactions to “The Opposite of Spoiled,” a new book by New York Times personal finance columnist Ron Lieber. In his book, Lieber advocates for speaking openly about money with children, even if it pushes parents beyond their comfort zone.
When it comes to allowances, Lieber suggests a similar bucketing method as the one Schaffer and his family uses, with money going toward spending, saving and giving. That last one is important, Lieber says, to help impart a sense of gratitude and generosity.
Even when it comes to salary – one of the most taboo topics in our culture, which is seldom discussed even among close friends – Lieber suggests sharing the information with your kids before they leave home. Talking about money, he argues, takes away much of the mystery surrounding it and ultimately makes it easier for kids to make smart money choices for themselves.
Inspired by Lieber’s book or their own experiences, parents are using the following strategies to teach their kids about money – and if you have kids of your own, they might help give you some new ideas, too.
1. Show kids how to spend within their means.
While Schaffer and his wife give their children free reign to spend their allowance savings as they’d like, they also make them stay within that budget. When one son asked for an iPhone and said he thought he had enough allowance money saved up to buy one, Schaffer asked him if he could also afford the monthly bills. “He said, ‘I can’t afford that,' so he never asked for an iPhone again,” Schaffer says (until he was older).
2. Let kids make their own purchasing mistakes.
Even if you think your child is about to waste her money on a toy she'll soon tire of, you might want to let her go ahead and buy the item anyway, because it might just teach her a lasting lesson. Schaffer says he’s noticed his children feel like they wasted money on toys they enjoyed only one or two times and thinks they learn from it.
3. Take them shopping with you.
Laura Harders, a U.S. News contributor to the Frugal Shopper blog and founder of BeltwayBargainMom.com, says that even though it’s easier to shop solo, she tries to bring her children with her so they can watch her make choices and seek out discounts. She remembers learning those same lessons from her father as he browsed pawnshops when she was young.
Harders is also careful not to give in to last-minute requests from her two children, ages 4 and 8, to show them how to resist impulse purchases. “It can give kids the impression that money can be used up on nonessential items without careful consideration,” she says.
4. Encourage them to set goals.
Harder recalls learning how to save up for a big goal, like purchasing a special toy, out of her allowance money as a child. Having an item or a goal in mind can help kids learn to delay gratification, and it’s also good practice for saving for big things like retirement or a vacation as an adult.
5. Find a piggy bank alternative.
Jennifer Saranow Schultz, a U.S. News Frugal Shopper contributor and founder of the site HintMama.com, says that after reading Lieber’s book, she’s going to give her children clear plastic bins for saving money instead of piggy banks. Lieber points out that kids can more easily watch their money grow in clear bins, which they can decorate, and it also avoids associating pigginess with money at such a young age.
6. Skip TV advertising.
Advertising, even during kids programs, can be relentless and even disturbing. Schultz says after reading the research Lieber laid out in the book about the negative impact on values that advertising can have, she’s limiting her 2-year-old to only commercial-free TV.
7. Use the line, “Why do you ask?”
Lieber says when your child throws you a challenging money question – or sex or drug question, for that matter – responding with this line helps get at what they’ve already heard or been thinking about the matter, and also gives you more time to figure out your response.
While each family can customize Lieber’s recommendations in a way that fits their lifestyle and values, his book offers plenty of inspiration for new approaches to try – even if you already have your own systems in place.