Practically speaking…raising money-smart children

My earliest childhood money memory was with my father kneeling beside my bed and counting out my 10-penny allowance.

“One for Jesus, one for your savings, and the rest for you to decide,” he would say.

The priority of giving and saving was never a struggle as an adult because the habit was deeply embedded in my life from a very young age. One of my favorite areas to explore with new clients is how they saw money modeled. My unscientific conclusion after decades of working with people: the way we handle money is more often than not greatly influenced by the money habits we learned growing up.

Let’s explore three tools that can help raise money-smart children: an allowance, a spending plan and credit cards. And in case you haven’t already guessed, it all starts with modeling good money habits ourselves! It is hard to teach with conviction what you do not practice in reality. Bring your children along on the journey and let them learn from both your successes and mistakes.

An allowance

While there is much debate about the merits of tying allowances to performance of basic household chores, we chose a different path with our children. Our end goal was to raise responsible, self-motivated and productive children.

Therefore, they assumed age-appropriate responsibilities from toddlerhood through young adulthood simply because they were members of the household. Basic chores like putting away toys, gathering trash or setting the dinner table, were expected because those inherent skill sets would be necessary to function independently in their grown-up world.

Privileges and responsibilities were closely linked, but we did not tie basic responsibilities to their allowance. That allowed us to use their allowance to teach basic money management principles much like my parents did with me. Giving, saving and spending less than they “earned” were the top priorities. If they wanted something beyond what they could reasonably save for, a list of special projects with an associated earning value was posted on the refrigerator. This worked particularly well as our children entered their teen years. If a name brand item was important to them, they could work extra hard for the funds to pay for it. It helped them determine if the want was worth the work attached to it.

There are many resources available to help you determine the appropriate amount for allowances at various ages. Much of it is based on the family’s resources. The bottom line is this: It’s not so much about the dollar amount but the teaching opportunity this tool affords.

A spending plan

This was the next logical step as our children matured. When they became teenagers, we carved out items related to their needs from our family Spending Plan and turned these over for them to manage with their own Spending Plan (for example: clothing, birthday gifts, etc.).

The first few months it looked like a lot of money to them! When they found their month lasted longer than their money, however, it didn’t take long to learn how to wisely manage their increased funds. This exercise, while still living under our roof, allowed us to observe their maturity and gradually turn more over to them as they proved themselves responsible.

Credit cards

Knowing that building a good credit history is imperative in the world we live in, we opened credit card accounts for our children when they turned 17. We closely supervised the card use and they learned to use this tool wisely while we still had the opportunity to influence them. Since credit cards can be either a terrific tool or a terrible master, paying off all charges incurred during the month was a non-negotiable. The credit cards worked well throughout their college years. They learned how to wisely use a valuable tool and graduated from college with high credit scores and a well-established history.

One of the most predictable ways to handicap your children is by giving them too many privileges without corresponding responsibilities. As adults we understand there are always consequences for our actions. If you provide them with life skills that will serve them well—no matter what their age or net worth—you will give them the foundation needed not just to survive but thrive!

— by Janice Thompson

Thompson is a certified financial planner, and co-founder and CEO of One Degree Advisors, Inc. She speaks on financial topics and is a mentor for financial professionals, she also serves on the board of directors for Kingdom Advisors. Learn more at onedegreeadvisors.com. Advisory services offered through One Degree Advisors, Inc. Securities offered through Securities America, Inc., Member FINRA/SIPC. One Degree Advisors and Securities America are separate companies.