How Parents Are Teaching Kids About Money
Surveys show that most parents are helping their children learn to be financially responsible, but there is room for improvement.
Every year at this time, I prepare for a deluge of cherry-blossom petals in my driveway and a flurry of surveys about kids and money in my e-mail. April is National Financial Literacy Month, so a lot of groups take the opportunity to study how much children know (and don’t know) about money, and how they interact with their parents. Here are some of this year’s highlights, with my comments.
Parents know they have a key role to play, but they often lack confidence. In the 2014 Parents, Kids & Money survey from T. Rowe Price, 69% of parents said they were very concerned about setting a good financial example for their children. However, 74% were reluctant to talk with their kids about financial topics.
My advice: Parents, rest assured that you have more influence with your kids than their peers or the media. In a survey by H&R Block’s Dollars &Sense program, 75% of teens said their parents are their most important source of financial information. Furthermore, 62% of teens view their parents as good money-management role models. As long as you tackle issues head-on and give kids a clear explanation, you can set any standards, teach any lessons and pass along any values you choose (see Saying No to Your Kids and How Parents Can Be Financial Role Models). And remember, even if you have doubts about your own money skills, you always know more than your children.
Teaching kids to save is a top priority. In a survey by Citibank, 60% of parents said they had gone to the bank with their children, and 53% said they had set up bank accounts for their kids.
My advice: Until children are about 8 years old, they have trouble understanding how a bank works. They often see it as a place where their money is swallowed up, never to be seen again. Setting up a bank account is a great idea, but kids should always keep some money at home in a fun savings bank so they can watch their money grow -- and see it disappear when they use it to make a purchase (see Teaching Kids to Save).
As bank branches disappear and more financial transactions go online, it’s even more important to give children a hands-on experience with money. And in the T. Rowe Price survey, 65% of kids said they still pay for their purchases in cash.
Allowances are popular. In the Citibank study, six out of ten parents said they give their children an allowance, starting in most cases when the kids are 8½ years old. Nearly 40% give $5 to $10 a week, and 21% give more than $15; the average is $10.53.
My advice: An allowance should be a fixed amount of money that children get at regular intervals, and it should come with well-defined financial responsibilities. I think you can start as early as age 6 or so, when kids are learning about money in school.
An allowance is one of the best teaching tools in your kit -- as long as kids actually have to make choices about how to spend or save the money, and it’s not just extra cash on top of all the other money you spend on them. Start with a weekly allowance equal to half a child’s age, and adjust from there depending on the child’s age and his or her responsibilities (see How to Handle Allowances and Don’t Tie Allowance to Chores).
Parents sometimes resort to bribery. In the T. Rowe Price study, 48% of parents said they bribe their kids with money to encourage good behavior.
My advice: First, let’s clarify our terminology. My definition of a reward is something given after the fact to recognize good behavior or a job well done. A bribe, on the other hand, is money offered in advance to prevent bad behavior (such as throwing a tantrum at the grocery store).
Bribes are always bad; rewards can work if you dispense them judiciously under the right circumstances. But I think it’s always better to recognize a child’s accomplishment with a hug, a compliment or a spontaneous treat. For more, see Pay Kids for Good Grades?.