Money has at least one thing in common with sex. In many American families, neither is talked about openly, if at all.
And when the subject of money does come up at home, financial experts say it’s more likely to be a negative discussion about not having enough of it rather than a positive discussion about budgeting to keep more of it.
“I don’t think many families have family meetings (about money issues),” said Randall McGill, a financial planner with Homer Financial Resources in Palos Park. “I’m a firm believer that as kids get older, you should say, `You (write the checks for) the bills this month and see what it costs to run a household.’ It would blow them away.
“Children should be actively involved in planning for the family’s future, and the financial aspect should be a part of that.”
In part because it is considered a private matter and a value-laden one and because the schools have so many other things to teach, kids pick up most of their knowledge about personal finance at home.
For parents who have trouble managing money well, teaching their children to do better can be a daunting task.
Help, though, is increasingly easier to find. Book stores have a number of new titles on their shelves geared to parents who want to teach good money habits to their children. The San Diego-based National Center for Financial Education recently put together a list of 42 money books, and nearly half were geared toward children. Even investment firms like Fidelity Investments and Liberty Financial Companies now offer free parent guides with tips on teaching money management.
The No. 1 question and the No. 1 money problem facing families, experts say, is the doling out of allowances. There are two prevailing views.
Sharon Danes, an associate professor of family social sciences at the University of Minnesota, terms one view “earned income allowance.” That’s when the child is given some household responsibilities and gets “paid” with the allowance when the tasks are completed. The other, called “entitlement income,” is when the child gets the allowance for being a member of the family; there is no tie to chores.
Danes said she has found no research indicating one way is better than the other. One disadvantage of the earned income method, however, is that there can be a power struggle as the child gets older and feels the parent has complete control over the amount of money the child gets. A disadvantage of the entitlement method is that there’s no opportunity to teach the child the connection between working and earning.
“There are disadvantages if you go to extremes with either one of the views,” said Danes, who doesn’t suggest one over the other. “What I support is that parents decide between themselves which is the most important view, or combination of views, for them. It’s important for them to have a united front.”
Once the parents make a decision, they should discuss it with the child. “Include the child in the decision about how much, what day (it will be given out), what expenses it will cover. The message should be that this is something we do as a family.”
Philip Bonelli, a clinical psychologist in Plainfield, said he doesn’t think parents should directly tie allowances to tasks, but there should be some “connection, or the whole thing becomes meaningless.”
“Kids just given money without any responsibilities will grow up thinking all they have to do is yell and they’ll get what they want. They don’t see . . . money as a medium of exchange connected to their own behavior. So while money shouldn’t be a direct payment for chores, it should be shown we still expect you to do something around the house.”
A combination allowance/payment system has been gaining increased acceptance. It involves giving kids an allowance not tied to chores, then letting them earn more money by doing other household jobs. It’s a method supported by Elaine L. Collins, a Libertyville financial planner.
Parents get into a bind, she said, by paying kids for making beds or taking out the trash. She suggested giving kids unconditional allowances, then letting them earn more money by going above and beyond the usual duties, “to teach them about working and earning.”
Krista Ferguson, a sophomore at Naperville Central High School, said she used to get an allowance for chores, but as she got older, it became harder to keep track of whether her chores were getting done.
Now Ferguson gets by on babysitting jobs, “and I save up from birthdays.”
Ferguson is still expected to do chores. “There’s a set amount of things I have to do. My parents will kind of split the cost of something I want that’s expensive. But I can’t go up every day and ask for money. It has to be a specific reason.”
Ferguson added that she and her friends have learned financial lessons just from watching what has happened to some of the adults around them. “We live in a pretty wealthy community,” she said, “but with a lot of (people), money is tight around the house. You can’t just go up and ask your parents for money. A lot of people buy houses they can’t afford, so you end up just trying to get by. I think kids learn from (observing) this.”
Indeed, experts say one of the best ways to teach children good money habits is to be a good role model. That involves not buying everything on credit and being a consistent saver, McGill said. His four children, ranging in age from 5 to 10, already are encouraged to put away some of their money for college.
If they’re taught the savings habit young enough, it will stick for life, McGill said, adding that goal-setting also is an important money skill to teach. McGill supports the method Krista Ferguson’s parents employ, making her save for part of what she wants, then sometimes kicking in the rest.
“Anything (children) want badly enough, they should contribute something to,” McGill said, “as opposed to just saying, `Mom or dad, I need this.’ “
One of the best ways to teach good money management is to set a good example, Collins said, and to convey to children the family’s financial goals and values.
“So if the family is saving toward college,” she said, “and the kids say we need new roller skates because everyone has this kind, then give them the idea that (saving for college) is what we’re doing. As adults, we’re putting aside money, and it’s not something we’re angry about, it’s just something we have to do to reach our goal.”
While there’s no way to change the materialistic nature of young children (child development experts say it’s a natural developmental stage), parents should realize the difference between the child’s wanting something and really needing it. They also can make their children into better consumers by comparison shopping with them and talking about the commercials they see on television.
James McNeal, professor of marketing at Texas A&M University, has studied kids and cash for 30 years. He said the amount of money given to kids in the last six or seven years has increased enormously, in part because “parents are worried about their kids having it as good as other children . . . and parents are focusing on giving the child money as a vehicle (to happiness).”
The children aren’t getting more allowance, though, McNeal said. Instead, their income has gone up because of money earned working around the house. Also, the amount of money received from relatives, particularly grandparents, has grown rapidly.
With that money, children prove to be better savers than their parents, McNeal said. They’re also savvy shoppers, despite what their parents might think.
“They are discerning consumers,” he said. “They make more mistakes (in spending) at first. But they learn from the mistakes, and it produces more discernment.”
