At the beginning of the summer, I sat down and had a talk with my twelve-year-old. No not that talk. We started talking about that when she was five or six. If I hadn’t talked to her about sex by now, someone else would have. In order to avoid making the subject taboo, I wanted to be the first to talk with her about sex. (You have talked with your pre-teen about sex, right?)
I’m talking about money. Healthy personal finance is something I know a little bit about. Based on my work experience, I even wrote a book on the topic. So I wanted to let you in on the two principles which guided my conversation with my daughter.
In Life There is No Such Thing as an Allowance
Unless you are a trust fund baby, as an adult, your income comes from your work. Thus, I don’t believe that I do any service to my children if from a very young age I teach them that they are entitled to an income simply by existing. Yet this is exactly what an allowance does. It is money given to children simply because they exist. For many kids their first exposure to money brings with it a sense of entitlement. Is it any wonder that some children grow up expecting money to come to them without any work?
In our household, our children can earn a set amount of money per week for doing chores that assist in helping the family run smoothly. These are extra chores beyond their normal responsibilities. For example, our children are expected to keep their rooms clean but can earn money for helping vacuum the living room. I have to admit, I have some mixed feelings about this system because I believe that, as part of the family unit, chores for the family should be their responsibility. After all, they eat the food and make the laundry; shouldn’t they be required to help make food and do the laundry? In the end, I believe the value of teaching my children that they can create an income from their skills and work outweighs this concern. It is certainly miles ahead of simply handing kids money on a regular basis simply because they exist.
Needs First, Then Play
One of the major reasons I sat down with my twelve-year-old and had a serious conversation about money early this summer was because she was in a position to make a “significant” amount of money for the first time in her life. So what do I mean by a significant amount of money? I mean more than the few dollars per week offered for doing chores in our house. As a babysitter, she has had the chance to earn an amount of money which would have allowed her a much better entertainment budget than the one we can afford as a family. But again, my concern is that my child will learn to spend money on her wants without consideration for her needs. That seems to be a recipe for failure later on when she begins to make serious financial decisions as a young adult.
So I asked my daughter to use her money to pay for two items she needs, which we paid for out of our budget. I asked her to pay for her cell phone — a pay as you go phone. She is free to buy as many minutes as she would like. I also asked her to pay for most of her clothing. This may seem to be a difficult responsibility for a twelve-year-old, and I certainly agree that many twelve-year-olds wouldn’t be ready. Here parents should use their discretion. However, I am convinced that with the privilege of earning money must come the responsibility to spend that money on things she needs.
How did she respond? To be honest at first she wasn’t happy. Who would be? She had dreams of iPads and endless Slurpees. So my plan was an adjustment for her. But here is the counter-intuitive part: once she adjusted, and I reassured her that she would never go without anything she needed, she was happy. She felt in control of her money and much more like an adult. Recently, she told me that she thought my plan was “cool” and gave her a useful purpose for her money. Not the response I expected either.
The best part for me: watching her become a very wise consumer when shopping for clothing. Suddenly the five dollar t-shirts look a lot more attractive than they did previously. She is getting it, and I believe that the financial education will help her avoid a lifetime of headaches and mistakes that I wish I had avoided myself.
