Stir until Done
Peas -n- Carrots
By: Gail Vaz-Oxlade
Before children can learn to manage money well, they first need to be able to get their hands on the stuff.
The debate about allowance - how much children should receive and who should manage it - rages. Some people feel an allowance should have no strings attached.
Others think it should be tied to chores in the home, school grades or behaviour ("If you don't smarten up, I'll cut off your allowance!"). When it comes to whether children should or should not have jobs, some parents feel school is a child's job, and any other work detracts from potential success at school. Others think that a part-time job is perfectly fine, while still others believe that a part-time job is essential because it begins the development of a good work ethic.
Now, if you had the choice of learning to walk a tightrope with or without a safety net, which would you choose? Learning about money at a young age, when mistakes can be easily remedied or do not have a long-lasting impact, makes a lot more sense than learning about money when you also have to pay the rent, meet your loan commitments and all the rest. Because many people didn't have the opportunity to practise with a safety net, they fall and hurt themselves, sometimes seriously.
The strings attached to the money you received as a child will have a strong bearing on the strings you attach to your children's money. Perhaps you were never given an allowance and had to work for every penny you got. This may colour the way you look at allowances in general. Your allowance may have been tied to chores, or you may have been required to save all the money received as gifts.
HOW MUCH ALLOWANCE SHOULD MY CHILD GET?
The amount you choose to give your child will depend on how much you can afford, your child's age, and what you expect your child to do with her allowance. If, for example, the most you can afford is five dollars a week, so be it. That's a good way to start learning about money management. Naturally, younger children need, and are capable of handling, less money. If all your child is buying is candy and the occasional toy, you may want to start her off with a relatively small sum. At five years old, 50 cents a week may be more than sufficient. Some people use the age of their child as a guide; a five-year old gets five dollars, a seven-year old gets seven dollars. You're the best judge of the amount that will be most appropriate for your child. Just remember that it needs to be enough so that your child can save, share and spend (mad money and planned spending included).
Children who are old enough to set goals and budget need more so they have something to work with. While many parents are stuck on the two-dollar-a-week allowance, just think about what two dollars can buy now and you'll have a good idea of how effective that amount will be in teaching money management. If you got an allowance as a child, why don't you try using the inflation table on page 141 to see just how much your child will need today to have the same buying power? You'll be very surprised!
Once again, if you expect older children - 13 and up - to buy some of their own clothes, pay for their own haircuts and plan for big-ticket buys such as camp, a television or car insurance, you'll have to figure out what each of those things costs. To those routine (and budgetable) costs you'll need to add some mad money, some money for establishing a regular savings habit and some money for charity.
As your child grows older, you need to periodically review and adjust the amount he receives. It's a good idea to pick a specific time of year - the beginning of the year, your child's birthday week, the beginning of a new school year - and make the review routine. Keep in mind, too, that as your child grows, he should become responsible for generating some income of his own. At 12, your kid is old enough to start earning some of his own money.
In figuring out how much to give as an allowance, ask your child to list the five most important things he wants to do with his money. If he is an avid reader and wishes to buy his own books, he'll need more than a child who is only interested in candy. Listen carefully to what your youngster has to say.
If your son is looking for a hefty increase, ask him to give you a written proposal or a formal presentation explaining how much he wants and why. If you were asking for a raise at work, you'd have to justify your request. Perhaps he feels it is time he started buying his own clothes. You can negotiate the initial amount and attached responsibilities, and implement the plan slowly. Moving from no clothing allowance to a year's clothing allowance in one fell swoop is a recipe for disaster. Let your child assume responsibility in small increments.
Before you do your allowance review, take some time to think about what you want to accomplish over the next year in teaching your child about money. You and your spouse should talk about how much responsibility you feel your child can now take on. Perhaps you wish to start your son on an investment program. If so, you'll need to do a fair amount of teaching, and you'll need to up his allowance to take the money for investing into account. You'll also have to carefully monitor his progress to ensure the funds are being directed to the appropriate new category in his budget.
ESTABLISHING A RELATIONSHIP WITH A BANK
When your child is about six or seven, help him establish a relationship with a bank by going on a field trip and opening up an account. Before you do, however, consider your relationship with your bank. Many people are intimidated by banking. They don't understand how it works, and they don't have an appreciation of how important they are as customers. You need to be comfortable to make your child comfortable. After all, you want the experience to be a positive one.
If you don't already have a well-established relationship with your banker, now's the time to start building one. Your banker should be a little like your doctor - helping you when you're financially sick and checking you over when you're healthy. You should trust your banker and feel comfortable sharing information and asking questions. And you should respect your banker enough to listen to the things he has to say.
I've had several positive relationships with banks. At one point I dealt with a branch where I was greeted wholeheartedly whenever I arrived. They asked how my baby was, whether my husband was home or travelling, and how my business was going. Every man and woman working there dealt with me as a person first and a customer second. I really liked it a lot. And I was blindly loyal, giving recommendations and referrals to this branch whenever asked. Unfortunately nothing stays the same, and over a fairly short period of time almost the entire staff of the branch changed. My relationships were gone - and so was my business.
While banks are beginning to recognize the importance of building relationships with customers, often a trip to the bank can still seem like a winding road of procedures and rules with little room for friendly exchanges. Your child may well be intimidated by the atmosphere within the bank itself. Everything will seem larger than life (you'll notice there are no counters a small child can see over), regulated and roped (I absolutely hate those cattle lines), and abrupt ("Fill out this form and sign here, give me your money and go away because I have another customer waiting.")
To create the right atmosphere for your child's first encounter with the world of banking, call ahead to your banker and explain that you want to bring your son or daughter in to open an account. Since your child is becoming a customer of the bank, he is entitled to the same attention and care that adult customers are given. If your banker doesn't want to co-operate, find another bank for your child and for yourself. Bankers claim to be committed to educating consumers. If yours isn't prepared to spend some time orienting your child to the world of banking, you can surmise that he may have little time for you if things ever get rough financially.