One of the most important things parents can teach their children about money has to do with the delay of gratification. If children can only be satisfied with instant gratification, they will act impulsively. When they learn to delay gratification in the hopes of something better, they also learn a kind of resilience and the sense of success and accomplishment. Children who know they've made good decisions develop self-esteem.
The goal is to build up your child's ability to handle the complexities imposed and choices offered by life. If you do it for them (and if you pay for everything), they won't know what they're capable of accomplishing on their own.
These practical situations can carry a theoretical discussion into a real-life learning experience.
A first car is a big opportunity to learn about saving and budgeting, one that goes far beyond the purchase of the car itself. Parents often think about a teenager's first car as a single purchase, not as part a lifetime trajectory of purchases. Whether given as a sweet-16 birthday gift or the result of a serious effort by the teenager to save and pay for part of the purchase, there are valuable lessons to be learned and habits to be developed.
Allowances, Saving and Spending Habits
After teenagers acquire access or part ownership of a car, the cost of operating and maintaining it becomes the next lesson/habit to absorb. Introduce budgeting and saving by:
- Having the new owner/driver pay for gas, maintenance and repairs, and even insurance.
- Or establish rules that cover the cost of a certain amount of gas per week, and they must then pay for anything that goes beyond that amount.
- Or set up an upkeep fund or insurance fund (in a checking or savings account) to which they must contribute on a regular basis.
To help defray the price of this responsibility, they can be given opportunities to earn additional money, such as driving a younger sibling to school each day or taking care of certain weekly errands.
One of my favorite ways to teach children about money is to match what they save. Much like challenge grants, whatever the child saves, the parents match those amounts. This gives teenagers the incredible experience of bringing about something that they want by basing success on their own efforts, not just what is bestowed upon them. When we're teaching our children about saving, we are also teaching them about planning and working to get what they want.
Regular allowances and surprise windfalls, such as birthday money from grandparents, can empower children to make careful and considered decisions. They get to experience - through their own executive abilities - what it's like to spend that money and think it through. When it's their money and it is a limited resource, they can decide if it's worth it to them to spend that money. A little more thought goes into the purchase before it is made.
I also like the idea of giving a debit card with a limited amount, and that's how they receive their allowance for the month. They learn how to deal with spending their own money and what happens when they spend it all at once.
Senior year of high school is a good time for teenagers to open a checking account. They learn how to handle basic banking services and the responsibilities they incur before leaving for college. This is also a good time to help them write out a monthly budget, one that lists categories for the things they wish to purchase and the bills they will have to pay as a result. Two columns on a sheet of paper and a calculator are all that's needed to get started.
When children donate money to the causes they care about, they begin to learn that they are contributing participants in the world. There is a real feeling of empowerment that comes from helping an organization continue its good work. They also start to recognize that though there are often limited resources for the organizations they admire, they can be active supporters of their interests and concerns. It helps them think through and consider their values and causes, the logistics that favorite organizations require and the budgets they operate on.
Planning Family Vacations
People feel a real connection to their family vacations, especially at an early age. When children help plan the trip, they tend to feel more connected to the trip before, during and after. Here it's not about paying for anything. It's about being involved in the planning, contributing to decisions about what everyone will do and where they will go, and learning the consequences of that responsibility.
Taking a trip to Paris? Let them know how special this trip is going to be because it is a family vacation in a new and special place. Assign some of the planning responsibilities to each family member. Each child can be in charge of researching three places they want to visit, learning about the history and geography of their choices, and explaining to everyone why it should be considered.
Another topic would be personal purchasing while on vacation and planning for it, such as saving some of their monthly allowance in order to spend it on the trip for a special purchase or experience. When you consider all the planning that needs to be done to get ready for a family vacation, there are many opportunities for children to play an active role and feel truly connected along the way.
In summary, by making children active participants in significant money decisions, they can learn how to make smart choices not just for today but tomorrow as well.
About the Author
Marilyn Wechter, a psychotherapist and wealth counselor, has been in private practice in St. Louis for more than 30 years working with adolescents, adults, families and couples. She also works with estate lawyers, investment advisors and executive coaches. She has taught courses on normal and abnormal development at Washington University in St. Louis, and courses on images of women in film from a cultural and psychological perspective at Webster University in St. Louis. The opinions and comments expressed in this article are her own and may not accurately reflect those of the BAM ALLIANCE.