Teaching Financial Responsibility
Lately I’ve been reading and hearing about the predictions of total economic doom for our young people who will be graduating from college with loans that will keep them in debt for the next 30 years. Stories abound about college graduates with 20 to 30 thousand dollar loans and few job opportunities to help them meet those obligations. It makes me wonder how our children have gotten themselves into this predicament and what messages we are sending them through our own behaviors and attitudes toward money.
Before the days of ATM’s and debit cards we all made purchases with cash or checks. Most of us would keep track of how much money came into our bank account and how much went out, hopefully we still do. When children needed money they would be handed cash or new college students would set up a checking account with a balance that would change in relation to their purchases. Money was something that was more concrete and when you ran out of it you had to find a way to replenish your account. Credit and debit cards have changed all that and money is now represented by a plastic card with the magical powers of getting us what we want. Our children have very little opportunity to learn how to manage finances when money is so abstract and not something you hold in your hand that diminishes as you spend it.
We all start out as concrete thinkers, learning by watching, touching and experiencing the physical world through our senses. As our brain develops we’re able to connect these experiences with our thoughts and ideas and we learn how to use the information to meet our needs. For example, a very young child watches mom prepare meals, getting food from the refrigerator and snacks from the pantry and before she can even speak she points to the refrigerator or cabinet when she gets hungry. She’s learned the connection between her feeling of hunger and how to get it satisfied. As she gets older she’ll learn that there are many different foods to satisfy her hunger and sometimes if she can wait a little while she’ll have access to her favorites.
Like food, money is essential in our lives but unlike food we rarely see it disappear before our eyes, therefore it’s much harder to keep track of. How do we help our children make the connection between meeting their needs and being accountable?
- Start with a piggy bank. Putting coins in a bank is a physical act that starts out as a fun game for young children. As children get older they can count the change, start a savings account or spend it on an item that it will cover. By spending it they will learn its value and what money can buy. Eventually they will learn to delay gratification to save enough and feel the satisfaction of knowing that “I bought it with my own money!”
- Start a savings account in your child’s name. When your children are given a gift of cash have them put a percentage in savings and let them spend the rest. They’ll learn the value of waiting and watching their savings grow while still being able to make decisions about how to spend some of it.
- Decide, as a family, if your children will receive a weekly allowance to learn to manage or if they will be paid for certain chores when they need to save for a treasured item. Make a plan for earning and saving money until they meet their goals.
- Discuss your own financial plan with your children. As they get older be candid about your spending habits and what they may want to avoid or adopt for themselves.
- Expect them to be accountable for their wants. It’s one thing to provide for our children’s needs but it’s helpful to distinguish the difference between a necessity and a luxury. It will be different in every family but the discussion will help your children learn how to delay gratification, not take things for granted and feel good about accomplishing a goal when they can afford that luxury.
- Think about ways you can allow your children to make choices about money you are already spending on their behalf. For example, if a five year old is going to a birthday party set a budget for how much you will spend on a gift, take your child shopping, allow her to see what the budget allows and let her make the choice accordingly. An elementary age child could be given lunch money and the choice of purchasing the school lunch or packing a lunch from home and keeping the money for other things. Middle school and high school children can be given an allowance for clothing or other essentials and experience the freedom to make their own purchases and keep the savings for themselves (which helps them appreciate if you do gift them with clothes and other things because it doesn’t come out of their budget!).
By teaching our children how to manage their finances we are helping them develop positive values and a positive identity. If they are confident and in control of their spending habits they are developing a sense of personal power, self esteem, self-regulation and responsibility. These are all assets they’ll need to become happy, productive adults who can set and meet goals in order to enjoy their lives.
Questions to consider:
- What is your philosophy of money?
- How does it match with your co-parent’s?
- Do you have a plan for teaching financial responsibility to your child?
- What small steps would you like to put in place in order to increase your child’s financial knowledge and experience?
- Money is a part of our every day lives. It’s important that you understand how it works. I think you’re old enough to be responsible for …
- We don’t talk about money very often, but learning how to manage it is important as you grow up. What do you think about how we allow you to make money decisions?