At the right age, involving children in the household financial planning process can be a good way to teach responsible money management. Children internalize best practices when they not only receive meaningful instruction, but have visible, positive role models as parents. If parents want to impart a lesson of “buy only what you can afford,” but the intended audience sees the parents struggling with debt, buying items obviously in excess of needs, the lesson won’t get through.
Involvement and modeling are the keys to passing on good financial lessons to the next generation (not financial management classes in school, which have been shown to do more harm than good). In a discussion about allowance for kids, Consumerism Commentary reader Kilae offered the following suggestion:
Another system I read about was a couple that gave their child 10% of their household income. While it sounds ludicrous, with that 10% the child had to pay an itemized bill that was 10% of the household bills: a 10% share of the mortgage, a 10% share of the utilities, a 10% share of the grocery bill, a 10% of the long-term savings and college savings, and so on. When all was said and done, the kid had around $15 left per month as play money — not a ludicrous amount, and it showed the child exactly what the parents’ money was being used on and why budgets were important.
While there is something to be said for shielding children from the stresses of household financial management so they can concentrate on their educational priorities, this system could be very effective. With an active role in the family’s finances, a preteen or teenager can build valuable experiences that will translate directly to how he will manage finances when his responsibilities include a household of his own.
There’s a possible social drawback. Parents should try to ensure that children do not take these lessons as admonition of a family that does not, at least outwardly, appear to manage finances with the same skill and dedication. A judgmental attitude or a feeling of financial superiority are potential effects of an intense focus on effective money management. While financial lessons are important, I prioritize teaching children not to be judgmental, particularly based on appearances.
Is requiring involvement and shared responsibility a good way to teach financial lessons to children?
Published or updated September 5, 2011.