Money is like fuel for a car; fuel is measurable, gets used up and has to be replenished. How does this compare with teaching kids to manage money?
Money is also measurable, gets used up and has to be replenished. So where and how do our kids get their hands on that lesson?
Even if your school offers a financial literacy class, it’s more likely to include learning about credit, interest, and investing, all good information. However, the nuts-and-bolts part of learning to manage the money tank is a different skill.
Kids need to learn a skill I define as financial competency, being the ability to manage one’s financial resources to pay bills on time, make reasoned use of credit when necessary (especially credit cards) and to plan for future expenditures. This requires monitoring of the constantly changing number that represents the amount of money available.
Using the fuel analogy, your kids see you fill up the gas tank in the family car. Through observation, your kids understand that you need to put fuel in a car, not just once, but over and over again. They know that “out of gas” is a bad message. How can you give your kids a “money is like fuel” lesson?
In my book, The No-Cash Allowance, I provide guidelines for setting up an allowance account system that works like a fuel tank for money. A child tracks all funds received from parents through a written account, on paper, on a computer, eventually in a bank. The child withdraws, transfers and deposits funds while keeping a running balance.
For a child, seeing the balance (a number) is like looking at a fuel gauge. The number shows when the money is getting low. The number prompts the child to wonder if there will be enough money for that next purchase. The number becomes an entity that the kid has to manipulate.
When a kid realizes that money flows in and out, he also realizes that he has the capability to control that flow. He can defer some spending so there is more for that next purchase. He can do more work around the house to earn additional money to increase the balance.
By learning that money is like fuel, your kids will start developing the ability to make better decisions about when and how much money to use at any given time. This is similar to looking at the speedometer on a car and knowing it’s time to slow down. With money management, as with gasoline, it’s all about control and awareness of what’s in the tank.
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