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True Luxury: Six Lessons About Kids and Money

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Create opportunities to mimic the money issues children will encounter later in life.

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I'm the first to confess that dealing with kids and money is difficult. And I'm sure you come to Minyanville looking for well-researched and thoughtful articles on difficult issues. Sadly, this article won't be either of those. But with startling little effort on my part, I can outline what we do to teach our kids about money.

Our philosophy, which is an extension of how we parent, is to attempt to be a simpler, gentler version of the real world. We try to set consistent boundaries and create opportunities to mimic the money issues our children will encounter later in life. I've never felt ours was an "expert approved" strategy, but then again, neither is our parenting style (see True Luxury: Beginning at the End).

As an example, we think that:

1. Allowances need to be earned.


Adults spend several hours a week doing stuff they don't want to in exchange for money, aka work. No one hands out money, unless of course, you work for a company like AIG (AIG) and mess up large, important pieces of our financial systems. Oh, wait...this is a "Life & Money" article. Sorry about that.

Anyway, I'm not a fan of handing out money to our kids just because the calendar says it's Friday. Being ages seven and nine, we offer them paid chores at the going rate of a quarter each. (They also have several unpaid chores because they're part of our family.) My daughter has been more interested in the paid chores we offer than my son. Consequently, she generally has more money than her brother.

2. But then the money can be spent freely (within reason).

Adults get to choose how they spend their money. If children earn money -- especially at our slave-labor wages -- then they get to spend it pretty much how they see fit. We haven't tackled saving yet. However, there isn't much of need at this age.

Respecting my kids' money decisions creates an atmosphere of mutual respect. But I also have another reason for giving them as much control as possible: I want my kids to experience "broke" early. The pre-teen years mean no credit cards, small wants, and paid-for food and shelter. Going around with a quarter to your name for years on end is no big deal. Age 21, on the other hand, is a nightmarish time to first feel what it's like to run out of money. We want them to learn self-discipline when the stakes are much lower.

3. Encourage saving through the Family Matching Grants Program

Keeping allowances low means that it can take a long time to save for a more expensive item. If our kids want a "big" toy (my son loves Hot Wheels sets from Mattel (MAT)), we'll match anything they save. I'll warn you this strategy has been met with some indifference to date. My daughter doesn't have big wants and has plenty of toys. My son prefers free time.

Setting up this structure, however, both empowers a child and prevents wasting money. It gives kids a way to get what they want without whining/begging/groveling at you. And then again, if a child doesn't want to work for a toy, why should you?
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