Money & Children
Building good fiscal habits
Introduction
Money is another topic, probably like screen time, that is a very debated topic in parenting. Some parents prefer to pay children for doing chores or as rewards. Some parents rather give children some allowance that they can use and some others prefer to refrain from giving kids any till they are older. There’s no right or wrong approach and I am only trying to give a perspective about money in parenting.
Personal experience
I grew up with my grandparents and my grandfather was retired from the Indian postal services. He believed in teaching children about the power of saving. Being a mathematician himself, he figured he could tickle my interest in both topics using currency. Under his guidance, I opened a minor savings account in the post office — a service that was offered by the postal services then. In a few years, my account balance reached a sizable amount. Thanks to my grandfather, I learned a valuable lesson at a young age.
Now, back to the main topic of this article.
A tool
Money is a tool. When they grow up, this tool will be in the hands of our children. It is hence important for children to learn to use this tool. As with any other tool, the proper use of money had to be learned. Overuse, and underuse can both be problems. Statistics show that recent generations have rather poor budgeting and saving skills. Hence money isn’t an easy tool to handle.
Abstinence
What happens when something like money is kept away from children? If the parents have talked to the children and rationalized why they are keeping them away from money, then children who’ve understood the parents’ logical explanation grow up fine. However, when there’s no proper reasoning provided, the forced abstinence is something thrust down the throat. The child grows up with a craving for the forbidden fruit and this craving becomes an obsession! Hence, forced abstinence isn’t helpful to the kids.
Life skill to learn
If the children can be without learning to use money ever in their lives, then this skill isn’t necessary for the kids. However, money management isn’t optional. From physical handling of currency to budgeting and saving, money skills have to be taught in a very detailed manner. As with any learning, there will be mistakes. However, when the mistakes are relatively low cost, the learning is higher with lower risks. In order for swimming in the ocean, one needs to start learning in a small pool first.
Budgeting and Saving
Learning to live within one’s means is not a useful skill but a crucial one. In today’s age of credit payments and online shipping, it’s easy to loose track and rake up some serious fiscal problems. Imagine discussing with a college aged child to budget, for the first time! I’m not sure how that conversation will go. But a seed sown at an early age will go far.
When we give our young child some steady allowance and list of their expenses that they need to spend for using that amount, that’s the first step to a creation of a budget. But it doesn’t stop there. Channelizing and guiding the children in a controlled environment helps create a lifelong healthy relationship between money and children.
Piggy bank vs. real bank
A piggy bank is a good aide for children to save the excess of the allowance after sticking to or doing better than the budget. But that piggy bank is a static savings account. What that means is that the money doesn’t grow and stays the same. In addition, the piggy bank is more accessible to a child than a real bank. Hence, the kid can use up the money.
A bank account is a non-static savings account. Big or small depending on the place of residence, an account will gain some interest. Therefore, the money grows with the child in some rate. In addition, the money is considerably inaccessible. The desire to use the money is lower than a piggy bank.
Giving back
An integral part of many religions, giving back to society is something that children should be taught. Some people follow an algorithm for using their money. They divide the money they earn into 6 (probably unequal) parts as below:
- Present day expenses
- Retirement fund
- Children’s future security
- Parents’ care expenses
- Travel fund
- Giving back
When children learn these components and the rationale around them, it becomes a habit. Giving back also builds a community spirit in the children. Learning to appreciate what we have, learning to share, and learning to care about each other develops a strong and caring individual who doesn’t grow feeling entitled.
Burdens of a debt
Many of us gets loans — for house, car and even monthly expenses via credit cards. The important thing though is that we need have determined the ability to repay. Having a loan bigger than our affordability is a burden. Eventually it eats us up.
Children need to learn the consequences of debt. That doesn’t mean that we make them take a loan. However, it might not be a bad idea to have them learn in a smaller, controlled settings. This way, they can understand how things could get out of hand.
Paying for chores & other money rewards
A chore is:
- Life lesson
- A contribution to the family
- Done by a member of the family
By its definition, a chore isn’t a salaried position. Then why should we pay our kids a salary for doing chores? As members of the household who are learning a skill, it’s actually insulting to receive a remuneration for a chore. Kids might be happy to get the money and not show their insult but eventually they show their dislike for this gesture by demanding more money, refusing to do the chore or in other ways.
Ceiling on desires
Anyone should go through the needs versus wants thought processes and put a cap on their desires. However unless some one has been practically taught, it is not something that can happen easily. Ceiling on desires is an iterative process. The earlier it starts the better. Placing a limit on others’ wants is very different from doing it for oneself.
Conclusion
Money skills are essential for children. It’s important for them to learn in a safe and secure environment under the tutelage of the parents. Good fiscal habits are necessary for a strong foundation when the child blooms into an adult. Obsession, craze or even fear are better addressed earlier than later.
