Teaching Kids About Money Management   

        About a year ago, I noticed that my 9-year old daughter would spend unlimited amounts of money as long as it was mine.  And, she didn't just want to spend money, she'd try and give it away to the dog next door. . . she'd misplace it "somewhere" in her room that was (not coincidentally) grossly overstuffed with "things"... or, she'd even offer up extra cash to the pizza guy as a bonus tip for "just being the pizza guy." 

        Things escalated when she kept asking us if she could have a credit card-she didn't even really understand what a credit card was.  So, it was about that time that my husband and I realized we had failed our daughter.  She thought money grew on trees and was sorely in need of money-management lessons.  And, yes-she REALLY asked us where the money tree is.

        Our first thought was to give her a weekly allowance in exchange for contributing around the house.  Most money experts agree that children should be given an allowance in order to learn financial skills at an early age.  But, we soon learned that there had to be some parameters on the allowance. 

        She was asking us things such as, "How much will you give me if I am nice to my brother?" Or, "How much will you give me if I don't ask you for money today?"  She was getting the general concept of money-which was good-but not really understanding that you shouldn't get paid to be part of a family. 

        "Children think money magically appears in mom's or dad's pocket whenever they say they want something," said Jared Frothinger, local KeyBank district retail leader. "While some experts may disagree on whether children should work around the house to earn an allowance, most agree that they should be paid for extra chores such as washing the car or mowing the lawn.  Children should learn that this is how money appears in parents' pockets-they earn it, and children can too."

        Ron Crane, Idaho State Treasurer, echoed similar thoughts on allowance related to chores.

        "I definitely think allowance should be tied to chores," said Crane. "What a great way to teach the labor and reward connection.  When we work, we earn money.  There is no such thing as a free lunch!  Children need to learn this at an early age.  And you are ‘killing two birds with one stone' for your money."

        As soon as a child begins to express a sincere interest in material wants-"I want that!"-it's probably time for an allowance. Depending upon the child, that's around ages three to five. The first mistake most parents make is starting too late. The majority of parents wait until their children are "tweens," 9-12 years old, and they miss out on the opportunity to discuss money with young children who are more apt to listen to, and take, their parents' advice.

        So, how much allowance should children receive? Many experts recommend a weekly allowance that totals a dollar for each year of a child's age. But rather than determine the amount by your child's age or follow what other parents give their kids, make an informed decision based on what you expect your children to do with their allowance.

        "In my opinion, the amount is dependent on two factors-the age of the child and the financial condition of the family," said Crane.  "For example, a 2-year-old doesn't know the difference between a nickel and a quarter.  They both make the same amount of noise in a piggy bank.  To a 5- or 6-year-old, the size of the coin is usually a factor.  And by the time a child is 8 or 10, they have discerned that paper money is more valuable than coins.  I'd recommend that a 2-year-old get a nickel or quarter each week.  The 5- or 6-year-old gets fifty cents or a dollar bill.  And, the

8- or 10-year-old gets $2-$5 per week."

        As children get older, they will have to take on more responsibility for their spending habits as their allowance is increased. Decide as a family how the allowance is to be used. Will your children be expected to purchase movie tickets, clothes, birthday gifts for friends, and school lunches? If so, the allowance has to be high enough to cover those expenses. Then, if your children overspend before the end of the week, they won't have any money for a movie or a trip to the mall on Friday night.

        Now that my daughter has started understanding the basics of money management, what about that credit card? Crane had a definite opinion on credit cards for kids.

        "No! Giving a kid a credit card is transferring the wrong concept to them and it is dangerous," said Crane.  "Suddenly this plastic card can buy anything they want with no work or effort associated with it.  In essence, it appears to be free money.  The risk is huge and the potential for disaster is astounding!" 

        He went on to explain when a card might be appropriate.

        "When a child enters college, it might be appropriate to give her a credit card with, perhaps, a $500 limit.  There are some legitimate uses, such as travel and emergencies but it must be explained to them how to use it, how not to use it, and the dangers associated with the credit card."

        It seems that the best way to teach young kids to manage credit is to have them start with cold, hard cash- "cold" and "hard" being key words. Spending money will become more real to kids if they have to count out their cash and then look into an empty wallet when they have spent all of their money.

        Parents should be leery of marketing gimmicks that include offering credit cards to young children-even the prepaid cards. Parents are encouraged to get these cards for kids as young as age 10 and reload when they are empty. But beware. These cards are loaded with fees and can be used to make purchases or get cash out of an ATM. Purchases can be tracked online, and pushers of this plastic promote it as a way to help kids manage finances.  But studies show that kids don't get it. To them, plastic is magic money. Credit cards, debit cards, prepaid card- you name it, they're all just a direct line to mom and dad's wallet.

        As a child, my parents used to remind me repeatedly-ad nauseum-that money does not grow on trees.  And, I have to admit that I don't think I realized the truth in this old adage until I had my own children.  Things have gotten more complicated these days with rampant consumerism and credit opportunities.  It's even more important that parents teach (and model) good financial management behavior. 

        And, no more money for the neighbor's dog!  Last week our daughter told him to get a job.  It was a proud moment for my husband and me.  It means lessons learned and the money tree is finally a myth.  .  . as it was in the first place.

Stephanie Worrell is a Boise-based wife and mother of two young children, who also enjoys a busy freelance writing and speaker career.  Worrell decided to focus more on financial management with her family a few months ago, upon realizing she'd been taken her kids to Target 12 times in one week.