BC Council for Families

by Carolyn M. Usher

Teaching children to be “wise consumers” and use money responsibly requires different tactics at different ages.

Born with their mouths open, children are natural born consumers. That makes the job of teaching them to be wise consumers half done before we even start. They're already motivated consumers, we just have to teach them the “wise” part. What any of us judges to be wise is tied to our individual values and beliefs about money and will be quite different, but the skills we use to arrive at those decisions are useful to us all.

First of all, you can't teach what you don't have an understanding of yourself. Some of what our children learn from use about money are the kinds of things we can teach them directly, but by far, most of what they learn about money concepts comes from what they observe us doing.

Even a toddler sitting in a grocery cart absorbs a great deal of information just by observing whether her parents reads labels, compares products and prices, shops from a list and puts things back when they're “over budget.”

If she can pick up this much information as a toddler, what other messages about money are we delivering as the years go by?

Money and values

Money is a very emotional subject. How we handle our money is directly tied to personal values, beliefs and attitudes. In any family unit, each parent grew up in a family of their own, with unique values, beliefs and attitudes about money. Some people, for example, highly value thriftiness, saving and long-term investment. Others put a much greater value on gift-giving and lavish hospitality as their way to show love. It's absolutely essential that parents examine their individual values, then reconcile them in some way with each other's, so that they can decide what message about money they want to pass on to their children. (Read our article: A problem of values - not money for more about money and the couple relationship.)

Learning how to manage money actually encompasses earning, spending, saving borrowing and sharing. An allowance is the most common method parents use to teach these concepts.

Allowance

There are two major points of view on allowances. One says that an allowance should be payment for work performed and whether that allowance is paid is dependent on whether and how well the work is performed. The other point of view states that as a member of a family, everyone is entitled to a share in the family income and that the allowance is not tied to chores.

Both points of view have some negatives, leading to a suggested third alternative: children are responsible for a base level of household chores and they are also entitled to a base level of allowance. One is not tied to the other. Over and above that, children earn extra money for additional chores.

This scenario makes sense because a healthy family structure results when all its members are working to keep the family ship afloat, as it were. Having each member responsible for certain chores means that the work is shared and makes for a healthier environment. Chores should always be real work and the family unit needs to depend on individual members to get these things done in a timely manner. Children need to be needed, and sharing the family housekeeping burden is a good tool for helping them develop self-esteem. Keeping payments of an allowance separate from chores also make sense because money is power and our family structures, out of necessity, are very lopsided in that department already. Parents start with basically all the power, but effective parenting means releasing that power back on a gradual but steady basis. The more autonomy we can give children, the greater their level of self-esteem and the more opportunities they have to develop responsible decision-making skills.

Enabling them to earn extra money over and above their allowance for house and yard work beyond their normal chores gives them some power over their own affairs. If they really want those designer jeans there's a way for them to get them. They may choose to spend the whole weekend raking leaves to get them, or they may decide a brand name really isn't worth that much work. Either way they've learned something about money management and been empowered to make a choice for themselves.

The information that follows makes suggestions for the kind of money-management children are capable of at given times in their development.

Preschoolers

Do preschoolers understand enough about money to be teaching them money-management skills? You betcha. At 18 months of age, they've been shown to recognize logos like Coke and MacDonalds. This too is the age when television advertising seems to most directly target children.

Preschoolers are in their peak “absorption” years, soaking up everything they see and hear. For instance, they'll watch you, time after time, step up to an ATM, push some buttons and scoop up the money. Why wouldn't they think money grows in machines?

Preschoolers are also prolific question-askers, so use those opportunities to educate them about money. Explain that an ATM machine only gives you back money because you've already put money in.

This concept will be easier for them to understand if they have some money of their own to spend and save. When a child starts asking about money (often around age 3 or 4), the time is right to start giving them an allowance. Since kids at this age need to see and touch their money, start by giving it to them all in coin, and to start with, the same coin. As their ability to understand numbers and values grows, and they ask about different kinds of coins, you can introduce different coins and then bills.

Have them decorate three jars or cans, then label them (with symbols perhaps) Spend, Save and Share. Have them put their nickels into each jar—what portion of their allowance goes into each jar will depend on your own values and attitudes about money.

Also provide them a small coin holder which they should fill with their “spend” money and take along when they're in places they'd be likely to want to buy something. It's important that you don't get into “lending” them the money too often because at this age they need to see and feel the money they're giving up in exchange for something.

It's absolutely amazing how tight-fisted a four-year-old can get when it means giving up 12 of her nickels for a packet of gum! It's also interesting to see how different children develop. Some are natural-born hoarders, others are born to shop.

Money management at this age teaches several concepts:

• keeping something (money) in a safe place;
• you can only spend as much as you have, so you have to make choices
• if you save for several weeks, you will be able to buy something that you couldn't have afforded with just one allowance
• sharing what we have with someone else is part of how we live.

Early elementary

At this age, kids delight in getting into some hardcore consumer activism. There were more than a few times that my kids at this age embarrassed me by declaring in a loud voice, “This is a ripoff!” as they examined the price tag on something.

Encourage them to continue making good choices, but this is also the time when they'll start making mistakes. It is hard to watch your child waste his money on junk, but if they insist it's what they really want, back off. It is their money and they'll learn a lot from the mistakes they make at this age.

Kids are very vulnerable to television and comic-book-type advertising at this time. After they've seen something they “must have” on television, take them to the store to examine the item. It is really as big and exciting and wonderful as it appeared on television? Would it really be able to do all the things it seemed to be doing on television?

This is a good age to start talking a lot more about banks and ATM machines. If they show interest, help them open an account for savings. Talk about longer-term goals—they're capable at this age of saving for several months. Agree on either an item or an amount that they're going to save towards. Negotiate the proportion of each allowance that's going into spending, saving, sharing and now, long-term saving. Inevitably, they'll try to convince you to abandon the longer-term saving goal somewhere along to way, for something they just have to have now. Try very hard to stand firm though, because children don't really believe they can reach a big financial goal (like $50) until they do it. When they do, a whole new world seems to open up for them.

Those who habitually abandon their goals before they reach them continue on in life that way, never believing they can. It doesn't bode well for their future as money managers.

Late elementary

These are the years of “wheeling and dealing” as in “If I can borrow $50 from you now, I'll pay you my next seven allowances, plus I'll wash your car and weed the front garden. Puulleese?” If you won't go for it, they'll move on to siblings!

Now is the time to start seriously teaching budgeting. Of course, they can only budget if they have something to do it with, so by this time their allowance needs to have increased to realistically cover some of their needs. For instance, if you always pay for their school lunch, or give them money for bowling or swimming, make these expenses part of their allowance. Sit down together and help them plan a budget that includes their daily spending, sharing, saving and long-term saving. Their long-term saving could now be for goals that take up to a year to reach.

Make them responsible for the portion of purchases that you consider over and above what you'd reasonably pay. For example, if they want a specific pair of brand-name shoes for $115, and there are plenty of good shoes available for $60, make them responsible for the difference of $55. They will decide quickly enough whether the shoes are really worth the work and money it will cost them! There's nothing to argue about since they can certainly have them if it's worth it to them.

They should also definitely have a bank account by now and be using an ATM card. They will make mistakes, there's no doubt about it. But these are the mistakes that will turn them into wise consumers. When they buy shoddy goods and realize their mistake, help them try to return them (if it's appropriate) or at the least, write a letter of complaint to the store and manufacturer.

High school

Their allowance should now cover most of their expenses. Clothes purchases seem to come in two big clumps—September and late spring. Some kids can handle having clothes purchases included in their regular allowance, for others it's better to give them a bulk amount twice a year. In any case, making the decisions around what clothes to purchase and how much of their own money they want to use to beef up the budget should be their decision.

It is also good during these years to give kids a taste of what family expenses really look like. Hopefully, you've been talking to them about it all along, but now, give them some real insight by having them make all the deposits and write all the cheques for a month. Show them how to reconcile a bank statement and talk about why you choose to pay things at certain times.

In banking areas, start teaching them about some savings alternatives like term deposits and Canada Savings Bonds. Help them choose the best place for their money. Help them set a really long-term goal like a car or college tuition. If possible, offer to match them dollar for dollar on saving for things like tuition. You'll probably be helping them with this down the road anyway, so why not use it as an opportunity to stimulate them to greater savings.

These are also the years when kids start taking part-time jobs. Together, negotiate what you expect to continue paying for, what their allowance is expected to cover and, what you expect them to now pay for themselves.

Finances are a family affair

Hopefully, children should not have to worry about where your next pay cheque is coming from, but on the other hand, too often we shield them so completely from reality, they don't realize that money doesn't breed in bank machines.

A balance needs to be found and that often starts with family council meetings where family members can discuss, among other things, how they're going to balance everyone's need and wants, with what money is really available.

This article first appeared in Family Connections (Winter 1994/95), published by the BC Council for Families.