As children, we are like little sponges. We soak up everything about our environment and every lesson we are taught. Things from sharing to being nice, the lessons taught in our formative years carry with us for life. Is finance any different?
I don’t believe it is. Children should be taught from the beginning the value of a dollar, and how one comes about those dollars. If you simply buy kids everything they ask for, they will have no appreciation for the value of anything and will have to learn this lesson later in life, when it will cost way more.
It’s not as simple as just giving kids money to spend however. If you give them money to spend themselves without any work, they will learn some value (how to best spend limited money), but also will gain a sense of entitlement and the dollars themselves will lose value.
So what’s the best way to instill a good financial life for your kids? I believe using a system of chores for allowance is a great way to get this start. Once kids are old enough (middle school), they can start “earning their keep”.
Something important at this point though is that you are teaching your kids other life skills. So you need to be careful what they are getting an allowance for. Pay them to clean up their room and brush their teeth, and they’ll never do anything without expecting to get paid. Try to think of tasks above what their normal responsibilities are. For example, emptying the dishwasher, mowing the lawn, picking weeds, helping an elderly neighbor.
How much should they get? This really depends on your own financial situation. I don’t believe there is a right number here, except that it should reflect an adult’s situation, enough to get by, but not enough to get everything they want.
Once you start an allowance system, it’s important that children understand if they want something, they need to use their own money. If you continue to buy them fun things outside of special occasions then much of the lesson will be lost.
Extra points go to parents who teach their kids to be entrepreneurs. Nothing makes me happier then seeing a lemonade stand set up on a hot day. When children learn they can make an “unlimited” amount of money by producing value on their own, they will be well on their way to providing you with a comfortable retirement :).