My wife has a little sister in 5th grade, and like to make fun of her, because she loves asking us to buy her stuff, but when it comes to using her own money, she’s about as staunchy as it gets. I always say that she gets it from her big sister, and that is usually around the same time that I get punched in the arm by my wife. This brings up a great question about when young people first start learning about personal finance and how to handle money. How old were you when you started learning about the value of a dollar? Did your parents teach you, or did you have to learn about it the hard way?
I was very bad with money in middle school and high school. As soon as I had money in my pocket, it was spent before I even realized that I had it. My grandmother was one person who helped me learn a little bit about saving and investing. She opened up a gift mutual fund for me and contributed to it on my birthday and Christmas (in addition to other gifts she gave us), and she taught me how stocks work and how to track my mutual fund’s performance in the newspaper. It was pretty cool to see how $50 when I was 8 years old turned into $2,500 when I graduated. That’s not a bad graduation gift. It’s a shame that my parents never helped contribute to it or else it could have helped pay for more of my undergraduate degree, but hey, i’m not bitter or anything!
Whether you have your own children, nephews or nieces, or younger siblings, take it upon yourself to help them learn good money values. Just like any other good habit, it sticks best when you learn it at a young age. I believe that if we were truly teaching our children how to handle money correctly, then we wouldn’t be the country with one of the highest debt loads in the world. We wouldn’t have one of the highest divorce rates in the world, and we wouldn’t be so physically and emotionally depressed!
The best way to teach a young child about money is the simple concept of receiving compensation for doing some form of work. Put your kids on the pay-for-performance plan, and you’ll be surprised how much stuff gets done. You’ll have to categorize chores into three categories: Chores you do because you are a part of this family, Simple chores with small a pay out, and bigger chores with a larger pay out. The chores that you do because your a part of the family are things like taking out the trash, cleaning up your room, running a quick errand for you, or doing the dishes. Those are just chores that need to be done to maintain the flow of the house, and you shouldn’t pay them for those kind of tasks. Chores with a small pay out like $1 – $5 would be things like washing windows, mowing the lawn (unless your lawn is huge, then it goes in the large chore category), deep-cleaning bathrooms, and other household chores that are beyond the everyday maintenance. Large chores with bigger payouts like $5 – $20 would be something like mowing and maintaining a large yard, organizing/cleaning the garage, helping you with work-related tasks, and things like that. Don’t let your kids try to sucker you into paying them to babysit their siblings. YEAH RIGHT! If they can drive, there may be some instances that you would pay them to do something out of the ordinary errands. Obviously, your not going to give them $5 just to get them to run to the store for you.
Let me make clear that I don’t think there’s anything wrong with rewarding your child for good grades or other academic accomplishments. I just don’t think kids should be given a weekly allowance for doing nothing. All that teaches them is how to collect welfare! In my next post, i’ll explain the three envelopes that Dave Ramsey suggests for kids to set up to divide their money. They are Fun, Saving, and Giving.