Now that I have my own child I often reflect about the way I was raised when I’m faced with new parenting dilemmas. As my daughter is learning to count and we’re beginning to add and subtract I’ve started thinking more about ways she can take responsibility, earn money and practice good money management. I don’t have a lot of negative things to say about the way I was raised but if there is one thing I wish I had learned early, and to do better, is manage money.
My dad has what a lot of people would call an “old school” approach to parenting. We didn’t earn allowances for doing chores. We did our chores because he put a roof over our head, clothes on our back and food on the table. He shouldn’t have to pay us to chip in on house and yard work. While I can’t and won’t argue with the logic I wish we had done things differently. I wish I had the knowledge to manage money before I got my first job.
It took me a long time to learn how to manage my money well – and many costly overdraft fees before it really sunk in. Just when I thought I had a handle on finances I got my first credit card was introduced to a whole new world of consequences for mismanaging money. I’m not proud to admit that I made mistakes with my first credit card either. I learned the hard way to manage money and it took a long time to understand that because I had cash in my account didn’t mean I had money to spend.
Thus, I’ve decided to take a different angle on allowances. One of the most simple “rules” of money management is 70-20-10. Spend 70% of your income, Save 20% of your income and Invest 10%. To keep the numbers simple we have chosen to give her a $10 a week allowance. In addition to the obvious money management skills there are other immense values that come from earning and allowances.
By completing chores for a weekly pay kids not only become responsible for performing those functions but understand there are tangible consequences for not carrying out those responsibilities. It also teaches a child that money most certainly does NOT grow on trees, it comes from hard work. Someday she will go off to college, graduate, find a job she loves and real life will start. Perhaps that will involve buying her first home. More than just teaching her how to manage her money we’re paving the way for financial literacy. Which might include decisions like getting a mortgage and all the responsibility it involves.
Starting at a young age is so important. We want her money management skills to be habits engrained so deeply that it’s not hard for her to make the right decisions, it’s simply habit. According to a recent Women and finances: Growing older makes women better with money article, “Having a higher level of financial literacy translates into making better investment decisions, managing health-care costs better, increased savings, better debt management, and better retirement planning.”Thankfully, Genworth Financial has some very helpful tools and information about budgeting for many of life’s financial concerns.
How are you passing on money management skills to your children? Do they get an allowance?