Money has become the new sex. No, not in the way you think. Parents who unblushingly give their kids the lowdown on the birds and bees clam up when the topic turns to nickels and dimes. It's not just worry over the high cost of daycare, or how to best save for college. It's what, and how, do I teach my kids about money?
Not discussing money openly with your kids is a wrong turn, says CUNA director of youth outreach Phil Heckman: "Parents make a huge mistake when they're not sharing decisions about what to do with limited income. And everyone has a limited income, it's just at different levels."
Heckman believes one of the best ways parents can teach kids about money is to talk openly about their own financial decisions. "There's a lot you can share with kids about how you make decisions. If you don't do that, you're ignoring the opportunity to teach and model."
Madison-based personal financial counselor Connie Kilmark feels that parents need to clarify their own values in the process of providing financial education to their children -- just as with sex education. "It's all about values," says Kilmark. "What is important? What are my beliefs?"
Kids will rejoice in the fact that both Kilmark and Heckman advocate allowance-giving that is unconnected to grades, chores or behavior. Kilmark explains why kids must be given an allowance in order to learn about money: "It's the cradle of teaching. It is to money education what food is to nutrition education. You can't teach kids about money if they don't have any."
But why not connect the money to work done by the child? After all, adults have to work for pay. Both Kilmark and Heckman are adamant that allowances should not be contingent on anything. Otherwise money "gets all tangled up in disapproval and unhappiness," explains Kilmark. Heckman agrees that having the allowance hinged on chores "introduces a contingency that interferes with learning. Getting into power struggles with kids over money can be as destructive as having a four-hour standoff over a serving of green beans."
Both instead believe that kids should be expected to do age-appropriate chores, not for money, but simply because it is an expectation. Failure to complete those chores should instead be punished with loss of privileges. Otherwise, parents are likely to find that children will often simply choose to forgo allowance in order to avoid helping around the house.
Similarly, withholding money to punish a child for misbehavior teaches the wrong sort of lesson. Kilmark explains it this way: "We don't want money to be [seen as] the universal solvent that dissolves all difficulties."
What positive associations, then, do we want to teach kids? Heckman believes that one of the chief goals of financial education is inculcation of the benefits of saving. "The earlier you start saving, the less you have to put aside. You are constantly hearing from peers and parents, 'I wish I'd started earlier.'" He adds, "Not that 8-year-olds need to be thinking about retirement."
Kilmark believes that 8-year-olds don't even need to be thinking about college. She describes a scene she witnessed in which a preschooler threw a tantrum in the lobby of a bank, screaming, "I want my college money! I want my college money!" Kilmark encourages parents to help children with saving for smaller, obtainable goals -- a bicycle or a gaming system, for instance. "You need to teach deferred gratification gradually," she says.
A second benefit of teaching kids deferred gratification is that they will have more resources with which to avoid the temptation of easy credit, which Kilmark describes as a "looming danger," now that credit card companies begin aggressively marketing themselves to teens as soon as they turn 18. In Kilmark's view, credit not only enables young people to spend "next year's money today," but "destroys the intrinsic and intimate relationship between money and time."
A basic game plan for financial education, then, begins with an allowance, one not tied to chores, grades, behavior or anything else. The size of the allowance is a complicated decision, influenced by the age and interests of the child, and also what the child is expected to pay for.
Kilmark recommends a threefold approach: money for now, money for later (savings toward a bigger purchase), and money for sharing (set aside for gift giving and philanthropy). She likes to keep things simple, recommending simply dividing cash into three envelopes. The parents and child should develop an agreement that states explicitly what the child is expected to pay for with the money in the allowance; the usual costs include snacks, CDs, admission to movies or other entertainment and expenses associated with hobbies or collections.
As children grow older, they should progressively be given responsibility for managing larger amounts of money. For instance, lunch money, scouting dues, sports fees or clothing allotments may be included in the allowance, with the expectation that the child will be responsible for covering these costs, and will accept responsibility if the money is not adequately managed. (Parents also have the right to set limits, such as requiring lunch purchased to be at least marginally nutritious or insisting that a clothing allowance cover the cost of socks and underwear in addition to trendy designer jeans.)
Obviously, deciding what a kid is expected to pay for need to be based on common sense and knowledge of how the kid operates -- it's probably not a good idea to give a profligate spender lunch money for a month and expect that child to eat for more than a few days before going broke. Holding on to the lunch money entirely or doling it out three days at a time may be a wiser bet.
"The personality structure of each child should guide the quality and content of the experiential learning opportunities you offer," advises Kilmark, noting that impulsive kids need help with delay of gratification, while methodical, cautious kids may need help setting a goal and then permitting themselves to follow through with that goal.
That doesn't mean a parent can save a kid from the consequence of a bad decision. In fact, says Phil Heckman, "kids learn from making bad choices" if they are allowed to experience the consequences of those choices.
That sounds good on paper, but in practice is probably more painful for a parent than for a kid. Heckman's advice to parents who squirm while watching a child make stupid decisions with money and then blithely continue down the same path, is straightforward and simple: "Be patient. Kids learn at their own pace. You can remind them of things, point out consequences to them, and they will get it eventually. The most powerful motivation is internal."
Giving that hard-won but long-lasting gift to your child is, as the credit card commercial says, priceless.
Bucks for Buckaroos
Grace Weinstein's Children and Money: A Parents' Guide earns high marks from Kilmark for its simple, no-nonsense advice. It's long out of print, but can be had on Amazon.com used for a song.
Heckman recommends The Sink or Swim Money Program: The 6-Step Plan for Teaching Your Teens Financial Responsibility by John E. Whitcomb, especially for parents of kids 10 and up.
CUNA offers online financial education for kids from elementary school through high school with its Googolplex program, as well as on the websites of many credit unions. CUNA is launching a new program for parents of preschoolers soon; it will be available here.