The Money Talk & Your Kids

Having The Money Talk With Your Kids: Part 2

In part one of this topic, I discussed why you should have the first of many “money talks” with your kid, busted some of the myths on why parents avoid it, and covered some of the risks if you avoided it. So when should you start talking to your kids about money? My advice is don’t wait too long.

When to start the conversation

Start explaining what money is at age two. Let them touch money (coins and cash), play games with money…then wash their hands because money is pretty filthy (physically, not conceptually).

Start giving your kids weekly money at age three, but don’t put it in a piggy bank and tell them they can never spend it. The piggy bank approach turns money into an abstract concept rather than a real-world tool. They won’t entirely understand this whole “money” thing at first, but it will give you the tangible opportunity to have regular conversations about saving, spending, and giving. It’s also a great way to encourage counting, addition and subtraction skills.

The issue of whether money should be given only for chores – a commission for work as Dave Ramsey would say – or simply as a financial learning tool isn’t clear cut in my view. We chose to implement it in multiple steps based on our son’s age.

OK, how much do you give them?

With our son Logan (about to turn six as I write this), we started giving him a weekly allowance at age three but he had no chores to speak of (other than “help mommy pick up toys”). We opted for something simple to start: one dollar per week per year he is old. So, $3/week at age three, $4/week at age four, etc. Does it seem weird to be giving your four year old $16 a month? That’s two Netflix accounts, right? You can use a number that works best for your finances, but it should be enough money to be usable in the real world. For example, giving your kid 25 cents a week is meaningless, unless you want them to know that money will only ever buy them vending machine bubble gum. It has to be enough to matter.

When Logan was five, we made the switch to his allowance being for chores – simple things (clearing the table, cleaning up his toys, making his bed, etc.) This gives us a good opportunity to explain “Money is what we get when we work”. I never want my son to think that he deserves money “just because” – money always has to be earned.

We also sometimes give Logan the opportunity to earn extra money by doing special jobs above and beyond his regular chores. These don’t come around that often, but it’s a great teachable moment where he learns working extra hard will reap extra benefits (just like the real world). Examples of this would be picking up pine cones in our back yard, or doing some weeding along the fence.

As he gets older, we openly discuss the fact that his allowance will go up – which excites him – but we also reinforce that he’ll have more chores to do. More work means more money.

A HUGE parenting #WIN

Giving your kid a weekly allowance at a young age can drastically lessen, and may even eliminate, the temper tantrum in the store for toys, candy, etc. Your child can buy what they have money for, and nothing more. Not enough money? They can’t buy it. This process takes time for them to understand, so it requires patience and sometimes deep breathing exercises. Persist and it will work out.

When we started doing this with our son, there were a couple of “BUT…I WANT THAT TOY NOW!” incidents early on; we didn’t give an inch and used every opportunity to re-explain the concept of needing to have to buy what you want (after we were out of the store with our crying kid). Once your child understands that even mom and dad can’t buy things in a store unless they have enough money for it, they’ll internalize that knowledge for themselves. Explaining credit cards comes later, but if you’re buying things on your credit card that you can’t pay off that month, you’re doing it wrong anyway. 😉

When your kids wants to buy something, but they don’t have enough money for it, this is the opportunity to discuss saving up for big things.

Don’t be surprised if the concept of saving takes a while to stick – human beings are fairly impulsive as a species (just look at average consumer debt numbers), and little humans much more so. Delaying gratification for something better, versus just getting something – ANYTHING – right now does not come naturally to most young children.

Don’t Skip This Next Part

I’ll add this very critical caveat to the above approach: in order to have your kids understand that they only get things if they can afford them, this means you need to stop buying them toys “just because”. If your kid knows that mom or dad might buy them a toy at the store sometimes, guess what they’re doing to do? Ask. A lot. Then ask louder. Then ask through tears.

This makes sense if you think about it: if your manager at work gave you $1000 bonuses randomly when you asked for one, never linking it to anything you actually did, but didn’t have a good reason for you when he said no…you’d be pretty confused, always hopeful, and prone to disappointment when you didn’t get the bonus. You’d think “He gave me a bonus last week – does he not like me this week? What did I do wrong?” The best structure you can create for your kids is when things are based on how the world really works.

There are obviously exceptions to the above – in our family, our son understands that he gets things on his birthday and on special occasions (holidays, sometimes before a long car trip, etc.). The key is to explain to your kids what the parameters are – you’ll be surprised how quickly they adapt to this. Most kids have an innate desire to follow rules that seem fair. A sense of justice is hard-wired into all of us (some people bury it as they get older).

Wait, but what about…

After reading this far, you might be wondering some of the following:

  • Do you let your kids spend their money on anything they want?
  • What kind of guidelines do you set in place for their purchasing?
  • What if they want to “waste” the money you gave them?
  • What about saving and giving?

All fascinating topics for part three in this series – watch for it!