4 important questions (and answers!) about kids and financial literacy

Financial expert Ron Lieber offers up advice on teaching your children about money
By Avital Norman Nathman  Published on 10/17/2018 at 10:00 AM EDT

A friend recently posted to Facebook, seeking suggestions for how to handle allowance for her fourth grader. The thread exploded with ideas: how much to give, what chores should/shouldn’t be included, how behavior should/shouldn’t factor in, etc… I felt a slight sense of relief that the way our household does things seemed to be in line with the majority. But are we doing it right? What is the best way to teach financial literacy—the ability to understand how money is made, spent, and saved and how it relates to you and those around you?

I checked in with Ron Lieber, author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money, to find out what parents can do to help their children when it comes to financial literacy.

When should kids start getting an allowance?

We started with allowance on a super infrequent basis when our son was in third grade. It wasn’t really until my son hit fifth grade that he sat us down to request a more regular arrangement. I was curious what the right age was for introducing concepts like allowance and asked Lieber.

“We don’t necessarily get to choose,” Lieber explains. “Because money is such a source of curiosity (due to its power) and mystery (due to grownups being so secretive about it), kids will ask when they ask. What’s appropriate is keeping the conversation and the tactics and tools age appropriate. While it may be tempting to start a 3-year-old on allowance when they start asking for money, can they count? Will they eat the money? Yes, this happens!” Lieber suggests the tooth fairy’s first visit as a good opportunity to begin financial literacy education.

Should kids be paid for chores?

In our home, we try not to attach allowance to household chores. After all, nobody pays me to wash my clothes, cook dinner, or wipe down the toilet. These are simply tasks that need to get done so the household—and those within it—thrive. I feel a bit of smug parenting satisfaction (it rarely happens, so please allow me this one!) that Lieber agrees with our not tying allowance to chores.

His reasoning is similar: “We’d all agree that doing chores is as much about contributing to an orderly household as anything else. And why should kids get paid for chores when grownups don’t? There are plenty of other ways for them to learn about earning.”

My son gets $10 a week, as we realize he should start learning how to manage money. Each month he puts 10 percent aside for tzedakah (charity in Judaism), 10 percent gets put away as savings, and he’s free to do whatever he wants with the rest of it; he usually puts most of it into his savings. When my son was born, we started a special savings account for him, with money to be used for higher education. Occasionally birthday or holiday money will be deposited there. And, eventually, probably within the next couple of years, he will have his own checking account.

Beyond allowance, my son can choose to earn more cash by doing chores that I would otherwise pay someone else to do (usually related to snow/leaf/grass/weeds removal). And, if he still wants even more money, he has to get creative and figure out ways to do so on his own.

What happens when your kids start earning money outside the home?

My 11.5-year-old son is currently learning about earning outside the house. He decided he wanted to do street magic to earn some extra cash via tips. We researched how to get a street performer’s license from the town, and he spent a handful of days over the summer on the sidewalk, doing coin and card tricks to the amazement of random pedestrians. One afternoon, he made more than $50 in two hours, causing me to wonder if I could have a steady career in street performing…

His summer gig (which he plans to continue on weekends during the school year until it gets too cold) allowed him to earn more money than he has really handled before. My husband and I were up against new financial challenges. After all, what happens when our son wants to buy something that we think is a waste of money?

I shared a story with Lieber, about friends of ours who have a 15-year-old son. The teen wants to purchase a $200 pair of shorts, paid for with money he makes working at the family restaurant. The parents are not on board with this financially charged fashion choice. Lieber says that despite it being their earned money, you’re still the parents. “You draw the line at a banned-item list,” he says. “There are things that you don’t want to buy and then there are things that you will not stand for, no matter who buys them — a grandparent or generous aunt or the children themselves. Perhaps yours is not a triple-piercing family or a gun family or a family that wants their children carrying a Chanel bag or wearing $300 sneakers. If so, so be it. Your house, your rules. But when things go on the list, we ought to provide an explanation.”

When your kids have flown the nest and are out on their own, then hopefully they will make thoughtful choices all on their own when it comes to finances.

When it comes to money, what do I even talk about?

If you’re still stumped with what to teach your kids when it comes to money, I had Lieber offer up the top three things all parents should teach their children when it comes to finances:

  1. An understanding of the difference between wants and needs
  2. Lots of practice making ever-larger financial decisions (in preparation for the big one: college for those who go)
  3. An understanding of the emotional power of saving for a while for something really important

Lieber notes that the worst thing parents can do is to think they’re protecting children by shielding them from all of this “dirty money stuff” until they are grownups. As long as you broach the topic when their ready and keep those conversations going, you’re on the right path.

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