Kids are expensive little creatures — adorable but costly. Often, children do not understand why they cannot have every new toy or electronic gadget that comes out on the market, but most parents and grandparents must live within the constraints of a budget.
Helping kids to understand money management can help to alleviate the stress on grandparents who feel that they are constantly doling out cash for their grandchildren’s requests. One of the simplest ways to teach children how to manage money is to give them a bit and see how they handle it.
There are two basic schools of thought when it comes to pocket money and allowances for children. The first is that children will appreciate the value of money most when they must earn it.
Children who are asked to perform specific household chores in order to receive the money they need for little extras will soon understand that there are limitations to funds and that they must decide which things they most desire.
Frequently, chores are assigned weekly and then payments are made after successful completion of the tasks. It is important for children to understand that they will be paid only if their chores are done in a timely and quality manner.
Non Chore-Based Money
In some families, the adults prefer that children learn to help out around the house without expecting monetary rewards.
The thought is that all members of a household should contribute simply because it is the right thing to do, and they fear that by basing the children’s allowance on performance of chores, kids will get the idea that they are doing something “extra,” rather than merely doing their part.
While this line of thinking certainly has merit, it is still important to allow the kids some control over spending money so that they learn to budget and to prioritize their wants.
A weekly allowance, often based on the age or individual needs of the child, is a good way to help kids to learn simple money management.
Especially in the beginning, children will need guidance when learning to handle money. Grandparents who give children spending money should also give a bit of advice on its wise use.
Children often do not understand the difference between the things that they need and they things that they merely want, and it is up to the adults in their lives to help them to differentiate the two.
One of the best ways to assure that the kids will grow up to be responsible with their money is to teach them the basics early on.
Spending, Saving, and Donating
When children get their first taste of handling money, their instinct will likely be to spend it as quickly as they get it. In order for them to learn fiscal responsibility, however, they’ll need to understand that since some items are too costly to be purchased immediately, they will need to set aside money.
One of the easiest ways for children to learn this concept is to allocate portions of their allowances into categories.
Typically, four will do: Spend, Short-term Savings, Long-term Savings, and Donations.
Deciding the specific percentages of the child’s allowance that should be put into each category is a matter of personal preference, but some should be consistently placed into each.
Spend: Children should be allowed to use this money in any way that they wish. Often, kids who are inexperienced with money will use this money on the day that they receive it, but with time, they will learn to make it last through the week.
Short-term Savings: Toys, CDs, movie tickets or other items that cost more than a week’s allowance, but are not terribly expensive fall under short-term savings.
Long-term Savings: More costly items, including bicycles, video gaming systems, designer clothing, cars, and even college educations all require saving for a considerable amount of time.
When they make regular contributions into their long-term savings, children will realize that they can have big things — it just takes time.
Donations: Social responsibility is best learned young, so children should be encouraged to set aside a portion of their money to donate. Grandparents can help the children to decide on an appropriate cause, preferably one that holds special meaning to the child or their family.
Learning Takes Time
As with all new things, learning to properly handle money will take time. Grandparents should expect that their grandchildren will make some poor choices initially, but with a little practice, most kids will get the hang of making wise spending decisions.
Ideally, lessons in money management begin young so that by the time that they are grown, kids will have a good sense about how to best handle their funds.