I thought I’d take a break from Photography for a few minutes to talk about money. Specifically, about kids and money.
A study done (sorry, I can’t find the reference) in the USA showed that wealthy families are far more likely than middle-class or low-income families to teach their children about managing money. If you want your kids to be financially stable, or even outright successful, then we as parents need to teach them from a young age.
How? Start by giving them an allowance; $1 per year of age per week is a good starting point and it needs to be divided into categories such as “spending”, “savings”, “investment”, and “charity”. For proportions, 10% for the latter two is a good number and then divide the remainder equally between the first two. Round it nicely. (e.g. $8 => $3, $3, $1, $1) spending=”anything”; savings=”important things”; investment=”for retirement”; charity=”given to those less fortunate”
When? A child should start learning about money as soon as they are able to understand than a dime, though smaller, is worth more than a nickel. Physical spending money should come as soon as they can make change. My personal experience says that 7 years old seems the right time. 6 was a bit young.
Why? Because it’s our responsibility as a parents to teach our kids and that’s what we’re doing here. I don’t personally believe in paying an allowance in exchange for chores around the house — in our family, doing chores is how you contribute back to the family; the kids don’t get paid for their chores any more than I get payed for cooking or doing dishes. I give an allowance for the same reasons I give them food a shelter: It’s a necessity of life and I want them to learn about it when the mistakes will be small and harmless.
Once the child has money of their own, they need to be taught how to spend it wisely. They can divert “spending” into any of the other three categories or “savings” into “investment” but there’s no going the other way. If they want something for themselves, let them buy it, even if you think it’s wrong. Explain what something costs in terms of what else they could have instead (the “opportunity cost”) but in the end, abide by their decisions. It’s their money and they need to be allowed to make mistakes.
Encourage them to buy their own gifts for others on Christmas or birthdays rather than ride on the gifts from parents. I contribute 1/2 the cost when they’re buying for others. (…though gifts made by hand are still better, in my opinion.)
Make them pay if they break or lose something that then has to be replaced, like a windbreaker or winter gloves. I pay 1/2 of that, too, simply because it’s not practical for a $8 allowance, of which only $3 is available for reimbursement, to pay the full replacement cost.
If they’re short, be willing to loan them some money but set a strict repayment schedule and charge interest. 0.5%/month (6%/year) is an easy amount. That’s how the real world works so they might as well get used to it.
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