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Money lessons put kids on right path

How did you learn about money management? For most of us, parents were our first teachers, and many of them were not the best money managers. As a university business professor, I have been shocked by stories my colleagues and students have shared about their money “troubles.” As parents, my husband and I vowed to at least expose our children to good money management tools so they could make better decisions than many of my students do.

When our children were 3 years old, we began giving them an allowance. They are older teens now, so this was years ago, but they received a monthly allowance equivalent to one dollar times their age. So when our son was 3, he received $3. To teach them about giving to others, we required that they give 10 percent of their allowance to our church. They split the remainder (in the case of our 3-year-old son, $2.70) in half. One half ($1.35) went into what we called their SAVE account. They each had a piggy bank for this purpose to prevent access to this money. The other half ($1.35) went into their SPEND account. They had access so they could buy whatever they wanted. When they were very young, they spent very little, but as they grew, the half they could spend grew and they began spending more. During their birthday month, they received a “raise” of $1 for their allowance.

To reinforce giving to the church, I took their allow-ance to church and gave it to each child for them to place their 10 percent in the offering plate. They loved doing this.

We made splitting the allowance into three funds easy by giving the money in change. The child had to use his or her math skills (obviously when they were a bit older—they could not do the math when they were 3!) to determine how much 10 percent was. Then they had to equally divide the remainder into their SPEND and SAVE funds. Not only were they (unknowingly) learning about money, they were also practicing math skills!

We also created a savings account at our local bank for each child. About once a year, we opened the piggy bank (the SAVE account), emptied it, and made a trip to the bank for them to deposit their money.

When the statements arrived, we reviewed them to share how much money they had accumulated.

On birthdays they often received checks from grandparents. We encouraged them to consider saving some of the money, but did not require it. Because they liked seeing the growth in their bank savings account, they often would save half (or more) of the grandparents’ check.

By the time they were teens, we ensured their allowances were high enough for us to say ‘NO’ to their requests for money for “this and that.” If they wanted to go to the movies with friends, they had enough in their SPEND fund to do so. At some point, we made sure their allowance would cover things like birthday gifts for friends (not surprisingly, we learned that girls buy more birthday gifts than boys do!) . They actually had to think about how much they were spending and, in later years, began making gifts for their friends. Sometimes they baked cakes or cookies or painted canvases with cool sayings.

We learned that they became creative when they could not just come to the “Bank of Dad” or “Bank of Mom” with their hands out.

As teens we also began giving them a clothing allowance twice a year. In late summer, we gave them some amount (it varied by age) of cash and indicated that it was for their clothing and shoes for the fall/winter. We did the same for spring and summer seasons. We reinforced that when the money was gone, it was gone. It was fun to see how their buying decisions changed when they had a finite amount to spend. Instead of buying the $50 pair of jeans, they were willing to consider a $25 pair. They thought two or three times about whether they really needed that trendy shirt. They shopped for bargains and continue to make smarter buying decisions today.

It is tough to teach children about money, but there are disciplined approaches that can help. But you have to start. Our goal is for our kids to become adults who don’t spend more than they make. This is a good goal for each of us.

This is one in a series of columns by University of Mary Washington College of Business faculty on various aspects of finance and economics as they affect our readers. Lynne Richardson is dean and professor of marketing at the University of Mary Washington College of Business.

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