Three Ideas About Kids and Money That Do More Harm Than Good

As parents we enjoy watching our children giggle, bounce and tumble through childhood. Yet deep down, we know our kids will grow up. We know it’s our job to guide them as they learn the many skills needed to become self-sufficient when they leave home.

Perhaps one of the most important skills, although not at the top of every parent’s list, is learning how to manage money responsibly. There are many ideas on how to teach kids to manage money. Unfortunately, many long-standing ideas just don’t make sense for kids growing up in today’s society. In fact, many of these never made sense if you believe, as I do, that kids can be responsible money managers even before they learn to read.

In kid terms, we can define money management as getting money, spending money and using money for certain spending responsibilities. By doing this we create a kid-size experience similar to that of an adult.

So let’s look at three current ideas about money management for kids. How do these influence a child’s ability to learn to manage money? Do they really get the opportunity to make meaningful decisions? Do they relate to the way kids see money spent in our society?

Idea One: Whenever a child gets money, have him divide it into four categories: spend, save, donate, and invest.

Analysis: Kids believe what they see. In this case, they only “see” the spend portion. The rest of the money has been taken out of their control. In fact, they never had control because their parents did the decision-making. One must have control in order to make decisions.

Idea Two: Kids can’t make decisions about money because money is too complicated.

Analysis: If a child can decide whether to wear the red or blue jacket, she can make a money decision. When it comes to money, children can decide whether to buy the book or game. If they don’t have enough money, they can decide to buy something that costs less, or defer spending until they have more money. Children who make complex decisions in game playing situations can also make money decisions.

Idea Three: Kids should only use cash so they can feel pain of seeing the money disappear.

Analysis: By using only cash, kids are not learning anything about how to spend and manage money they can’t see or touch. Money, for most of us, is a number in an account. Kids who spend only cash do not learn to develop the thought process to manage an ever-changing balance in an account.

Actually, kids can understand that a number in an account changes. Just as they “feel the pain” when playing games, they can also “feel the pain” when their account balance shrinks.

Instead of giving our kids the worn out and unrealistic mantra of spend, save, donate, or invest, give them total control of their money resources.

Instead of thinking kids can’t make complex decisions give them the opportunity to make their own money decisions and learn from kid-size mistakes before they are adults.

Instead of protecting your kids from money realities, help them make the transition to the adult world of money. Create a semi-independent stage where your kids learn how to use both cash and non-cash spending methods. Use a consistent process as explained in The No-Cash Allowance.

Give your kids the opportunity to learn the skill of money management through the tried-and-true experience of making choices. Let them see the results of both their good and bad decisions.

Kids gain wisdom only through making mistakes and learning how to correct them. The same is true for money management.

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