Smart Strategies to Teach Kids Money Management — Without Micromanaging
As financial interactions move away from cash and checks and toward cards and online purchases, teaching children to handle money becomes increasingly difficult — or at least daunting. But professional blogger Ashley Nuzzo, whose blog Frugal Coupon Living has been featured on such platforms as Dr. Phil, Good Housekeeping, The Washington Post and the Orlando Sentinel, contends that teaching children money management is still simple with parental involvement and a little transparency.
“Being a role model” is crucial in teaching children to manage their money, advised Nuzzo. Parents must set good examples, spending money reasonably and responsibly. “We’ve become a little bit of a materialistic generation, and now it’s a time of toning it down,” she added.
For children to learn the age-old “value of a dollar” lesson, parents must ensure that they don’t take possessions and money for granted. Family allowances vary widely, and some households don’t give allowances at all. Nuzzo pointed out that regardless of amount, how kids receive their allowances is the bigger lesson. The key is to teach children that allowance is not deserved or expected, but a privilege to be earned.
Linking allowance to chores is an easy way to do this. Nuzzo suggested families compose chore charts and place them somewhere visible, where children can cross off chores as they are completed. At the end of the week, allowance can be given based on what has been accomplished.
“There’s a lot of comparison going on between children,” Nuzzo added. As friends exchange notes about household allowances and chores, some kids might protest the way things are done at home, citing another family’s expectations. Nuzzo stressed that parents must remain consistent.
“It’s really important for [kids] to see we all have responsibilities when it comes to the home,” she said.
In addition to structuring how children receive their money, Nuzzo adds the key to ensuring they learn to spend it well is to visually engage them in how financial transactions around them work. While paying for services with direct deposits is more convenient, Nuzzo said seeing parents write checks for services and donations gives money a tangible quality it lacks with digital transactions. She added that the spending most children see is only a part of what households spend. Allowing children to watch you save, invest and donate (and pay bills) will give them a better understanding of how multi-faceted money management really is.
“They need to be visually engaged,” Nuzzo explained. “If they have a bank account of their own, they’re getting practice.”
This bank account can be a piggy bank when they are younger (as young as toddlers, Nuzzo suggested), or a bank account of their own as they get older. Regardless of where the money is held, Nuzzo stressed the importance of monitoring children’s spending rather than policing it. Foolish purchases can be learning opportunities that will encourage more thoughtful spending in the future.
“Instead of saving our children from their mistakes, we should be monitoring them,” she said, adding, “There can be a lot of lessons learned in buying the wrong thing.”
At some point, many families opt to give older children (teens in particular) debit or credit cards. Nuzzo agreed that this could be great practice and build credit for the future but cautioned that overspending on a debit or credit card can be harmful, and could have long-term effects on their credit. To avoid this, she suggested parents hold onto the card and give it to the child upon request, asking for a receipt and the return of the card directly or soon after use. After some time, once the child has proven responsible, he or she might be allowed to hold onto the card — but only after earning it.
New Ways to Save and Spend
» The piggy bank has a new body that is increasingly popular. The four-slotted piggy bank visually represents good money management, with slots for saving, spending, donating and investing. This will get kids thinking about how to distribute their money, and offer parents an excellent teaching opportunity.
» Prepaid debit cards have become a very popular way to teach kids how to manage money and balance a bank account. The reloadable prepaid Serve card from American Express can also give parents easier control and functions like a gift card — if the card is lost or stolen, the only loss is what was already on the card. A mobile app also makes it easy for parents to transfer money to or from the card, and money can be added to the account through various sources including direct deposit, a bank account, a debit or credit card.