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Sending our kids mixed messages about money?

July 13, 2017

by Krista Zuber

Our household income varies from month to month. While my husband and I both have full-time jobs, we also do freelance and contract work. That means some months are more flush, and others we’re tight on cash.

I recently realized that I send my kids drastically mixed messages about money. In a particularly skimpy month, my 13-year-old daughter asked me to buy her another protective case for her phone. Besides the fact that she has a double-digit collection of cases, I knew we didn't have much cushion in the budget (or the checking account). I told her that I couldn’t afford to buy it that month.

She said, “Oh no, are we poor?” I then tried to explain that as a household, we make a certain amount of money each month, we spend money each month on bills and other items, and then we save some of it. I realized that she couldn’t relate to what I was saying because she’s never managed money or created a budget.

I’ve decided it’s a good idea to teach my kids how to manage their finances. When kids learn how to budget money before they’re out on their own, they’re more likely to build good money habits early on. Even very young kids can understand the basic concepts of budgeting.

Including your kids, at the appropriate level, in your family’s financial planning will give them important tools they need later in life. You can eliminate a lot of the mystery and confusion about money and financial matters.

Here a few quick tips that can put your kids on the path to smart money management:

Use chores as a teaching tool
There are different schools of thought on chores and giving an allowance. From my personal experience, I think it makes sense to tie work that’s done well to getting paid for it. After all, isn’t that what all of us grown ups have to do?

Pay your kids when they complete their chores to your satisfaction. The money they earn can then be theirs to manage. 

Explain the basics of a budget
Keep it simple for younger kids. A basic budget consists of income (money coming in) and expenses (money going out). We also recommend that our kids divide their income into Spend, Save, and Give categories. For our kids, spend represents around 70% of income, Save is 20%, and Give is 10%. You can help your kids divvy up these groupings however works best for them.

Show your kids how the flow of money works with a simple chart for the month:

Money earned from chores per month: = $40.00 ($10.00 per week)

Spend:                                   $ 28.00
Save:                                      $  8.00
Give:                                       $  4.00

Explain to your child that she has $28 to spend during that month. After that, it means waiting until you’ve completed more chores to earn more money. She is saving $8 each month. This money can be accumulated to make a big purchase or act as a cushion if she goes over her Spend money one month. She can give $4 to her favorite charity.

Building on the basics
As your kids get older, you can start to include them in actual household plans. Introduce them to the concept of bills, such as mortgage/rent payments, utilities, cell phone bills, etc. My kids were shocked to learn how much our family paid in regular monthly bills. However, it doesn’t stop them from asking for the latest iPhone. That is, until I let them know they will be paying for their next phone.

Or, as your teenagers start to drive and have more independence or a part-time job, you can introduce them to car payments, auto insurance payments, and buying gasoline. Even if you don’t make them pay for some or all of these expenses, it’s good for them to understand that the privilege of driving costs money.

You may also provide your young driver or preteen with a debit or credit card for buying gas or to use in emergencies. That’s a good time to talk about the dangers of relying too much on credit and over-extending one’s means. We pay off our credit card bill each month and have explained to our kids that it’s not free money - you’ll be paying it back sometime. And you’ll be paying interest.

Now, when my daughter asks for something she doesn't need, I explain that it’s not in the budget. And remind her that she can use her own money she’s earned. For some reason, it suddenly becomes less important to her to buy it. Funny how that works!   
Simple budget chart