In Margaret Johnson’s view, kids are woefully uneducated about money. “I once asked a group of school-aged children where money came from. One little girl said, ‘From the machine,’ and when I asked what happened when the machine ran out, she replied, ‘You just go to another machine.’”
Her advice to counter this attitude? “In order to learn about money, kids need to have some of their own. An allowance is a great way to do this,” says Johnson, who in addition to being president and CEO of Solutions Credit Counselling in Surrey, BC, volunteers her time teaching elementary school students about money.
Johnson says six- to eight-year-olds are ready for a little money of their own, even though some will head straight to the candy store. But parents shouldn’t place restrictions on what happens to it. “Better to learn from their mistakes at this age than when they’re older,” says Johnson. And there are ways to teach saving as well as spending. Here’s how:
Make it real: Johnson recommends giving the allowance in coins. “Kids love to look at them and touch them, and they can put them into their banks.” Show her that five pennies equal a nickel, two nickels equal a dime, and so on. “They start to see how it works,” says Johnson.
Decide on the amount: Chelsea Reynolds gives her daughters, Bryn, eight, and Tegan, six, $2 a week. Other parents use a rule of thumb like 50 cents for every year of age. Johnson suggests parents consider what they can afford and what they expect their children to use the money for. Be sure to give the allowance consistently, perhaps every Saturday morning.
Encourage goals: “Learning to manage money starts with goals,” says Johnson. “Ask your child, ‘If you had a lot of money, what would you do with it?’ If there’s something he wants to buy, price it out together and figure out how long it will take him to save for it. This gets kids thinking a little more long-term,” says Johnson.
Share family values: Talk with kids about how you spend, save or donate the family income, and why: “Mom and Dad put aside money every week for our vacation. Would you like to save some of your allowance so that you have some extra spending money?”
Get to know the bank: “Making a deposit is one of my girls’ favourite things to do,” says Reynolds. “We go to the teller and they love to get the little slip.”
“The child sees savings grow over time and understands that banks have a responsibility to care for people’s money,” says Johnson. Most banks offer no-fee children’s savings accounts.
Don’t tie allowances to chores: “The purpose of an allowance is to teach kids about money, not pay them for work,” says Johnson.
“My girls are expected to make their beds and put their dishes in the dishwasher,” says Reynolds, “and, in fact, they brought up the idea of an allowance by asking what they could do to get one. But we’ve never withheld it or threatened to take it away if they didn’t do their chores.”
Be careful about credit “If you give children money when they’ve burned through their allowance, the lesson is: If I run short, I can always get more,” says Johnson. And, if you allow them to borrow from you, you’re actually encouraging debt.
Reynolds, however, thinks a short-term loan is OK once in a while: “We were at the farmers’ market and Tegan wanted to buy a bouquet of flowers. She had $3.63 with her; the flowers were $6. I lent her the money and she paid me back out of her piggy bank as soon as we got home.” Reynolds thinks that experience actually helped Tegan understand how money works. “There was an immediate connection,” says Reynolds, between how much money she had and how much the flowers cost her.