The saving decisions–yours or the kids?

A recent article Help Your Kids… gives parents some ideas to make allowances more meaningful. While I agree with many of these, the suggestion about savings points to the problem with allowances in general. Parents, with the best intentions, just can’t stop telling their kids what to do with the money.

Consider the suggestion that parents increase the allowance by 10% and tell the kids to save 10% for something long-term like college. Kids simply write off that money as still belonging to mom and dad. They don’t really believe it was ever theirs in the first place. The money simply disappeared.

Not only did the money disappear, the thought of ever being able to spend it is completely out of a child’s perspective. The child never really owned the money, isn’t really making the decision, and doesn’t have any comprehension what college is or how much it costs.

Imagine if your employer gave you a 10% raise and required you to put that 10% into an account for a something so far in the future a to be completely beyond your comprehension. Furthermore, even if you put that 10% away regularly you may arrive at that future event with only enough money for a few days worth of expenses. The reality is, kids cannot save enough money to make a dent in the first semester expenses for college.

Let’s remind ourselves that kids have money because adults give it to them; they don’t earn their entire living, nor do they support themselves.

Even so, a 10-year old can make a decision to not spend today because he wants to do something that costs more next week. It is decision-making about money that helps a child learn to manage money responsibly.

A child may not consider “not spending” a form of saving, but rather a method to get what he really wants–something that costs more than he has at the time. In my opinion, kids learn more about “saving” when the goals are short-term and decided by them.

For kids to understand the concept of savings, the action of savings and the result of the savings need to happen in a short time frame. A child also has to feel ownership of the money. Regardless of how we try to encourage long-term savings, in a child’s world it’s all about me and all about now.

A kid can save money by not spending, generally decided by a self-motivation for a short-term goal such as tickets for an upcoming concert. A kid can save while spending, finding something for a lower price. It is in this day-to-day decision-making about their money that kids learn from the results.

This is where parents can provide guidance with a system like that in my book, The No-Cash Allowance. I explain how to set up a system where kids have money, responsibility for some of their own expenses, and control over their decisions. When kids can look at their resources and consider whether to spend or not spend (a form of saving) they can quickly see the consequences of their decisions.

Follow me on social media: