This article is preceded by some starting points that lead up to determining how much is enough and finishes with other points that introduce you to what to do next. All of these points are covered in other articles.
Start As Early As Possible: It is never too late to start this. We work with adults that have money management challenges and use these same basic concepts to help them overcome the stress and burden. I will say, the sooner you start the easier it is and more likely to be successful.
Change the Way They View Money: until a person realizes what money is, a tool to be used for your benefit or detriment, they will have a difficult time managing it. If your child believes money comes in benevolent packages from you and there is an endless supply, it's likely you both will be frustrated and broke.
Get Rid of Allowances: Allowances teach a free gratis mentality. They get something for nothing. They get money just because they exist. Having this attitude as an adult can make for a very discouraging and difficult life.
How Much is Enough: This is where age and ability really come into play. Think of the things you are already purchasing for your child. A short list might be: Their current allowance, clothes, food, snacks, candy or treats while at the store, school lunches, activity fees, books, school supplies, entertainment items, toys, (big and small), gifts for others, charitable giving, etc. Then decide if he or she is old enough to make good decisions related to these various items. Obviously you wouldn't want to have a six year old be responsible for any of these beyond treats at the store, smaller toy purchases or charitable giving. As they get older you adjust the list accordingly.
By the time our son was in high school, he was responsibly managing the purchase of his car and all of the associated costs, including his portion of the insurance; the purchase of all of his clothes; all of his entertainment expenses; the purchase of his school lunches; and just about everything else he needed to make it through life as a teenager.
Initially, this seems like a lot of money. And it is. But, if it is money you would already be spending on them, you're really not out anything. The key is to break them in easy and as early as possible so they will be ready for a list like our son's by the time they reach high school. We did not start him on any of this until he was around eleven and it still worked out for him and us quite nicely.
The reason we waited so long is we hadn't really thought about it until we were looking at soccer shoes for him one day and he went right after the ones that cost 120 dollars. The pair next to them seemed to be just as nice, but only cost 70 dollars. When we asked him the difference, he really couldn't say other than the brand. That caused us to realize we needed to help him understand why he was making the choices he was.
We began this journey together and it has worked out really well. I won't say he has always gotten it just right, but I will say he has done it right far more often than not. We began by explaining what we were going to be doing and why. We then challenged him to come up with a number he thought he would need to take care of some basics, like school lunches, sports and activities fees (he played three sports), how much for charitable contributions, what about entertainment, any long range expenses, and additional savings required. My husband and I did the same and then we came back together and began the negotiations. We were actually quite surprised at his insight to the cost of these various categories.
Once we decided on the basic amount we did the same thing with his household responsibilities. When it was all complete, we put the whole package in writing.
We then helped him figure out how to set up a spending plan so he would have the money when he needed it for the things he needed.
I won't say it always went as planned but it was surprising how much easier it was to get him to do things around the house. And we did have to revisit and adjust some of the initial numbers, but all in all we were pretty close.
The idea is to give them just a little less than what you think they need. This will compel them, just like you, to choose between purchasing one thing over another. Don't set them up to fail, but it's good if they make a few mistakes along the way.
Keep in mind this will work for virtually any income amount. For some it will be easier than others, but it can work. You definitely don't want to put more on the table than what you are currently spending on them today. In fact, you will definitely want to keep some back in case they are not ready for the responsibility of managing what you entrust to them. Do let them make mistakes and fail.
Establish a Spending Plan: This will definitely need to be age dependent and based on your child's ability to manage it; the younger the child the more basic the plan. The range would be from a very basic spending plan of savings, general spending on the day to day items, and charitable giving all the way up to a more complex plan for an older teenager. Rework and adjust the plan as they become ready and the as the need arises.
Let Them Manage It: As you allow them to manage "their" money you will be amazed at the change in their attitude toward money. Depending on the child, when they realize there is a limited supply and they are in control of what they have you will see a myriad of reactions and responses.
You Must Be Able to Say, "No": If they make a mistake it is OK, let it happen. For some parents, it is really difficult to watch it happen and not want to bail them out. You need to be able to say no and let them grow. If you can't say no how can you expect them to be able to resist the impulse when it presents.
Savings Will Save Them from Disaster: The thing that wipes most people out in the area of managing their money is not including savings in their spending plan. Teach them to be prepared for at least the basic unknowns and to have a plan for those know future expenses.
Giving It Away Will Help Them Grow: By giving some of their time, energy, and money to help others your children will learn an invaluable life lesson: There are circumstances in the world that are bigger than they. By helping others they can be a part of solving it and making a real difference.
It is OK to Talk About Money: You know your child and what they are ready for. Talk to them at their level of understanding regarding some of the more general expenses you deal with and how you handle them. Ask them for their opinion, they will appreciate that you value them enough to ask.
Tell Them About Your Choices: Share with them, at an age appropriate level some of the mistakes you made and how you learned from it. Do the same for things you got right and why you chose to go that path. They will grow from it and hopefully not repeat your errors.
Teach Them About Compounded Interest: This can work against them or for them depending on the choices they make. Borrowed money makes them a slave to the lender.
Don't Give Up and Don't Give In: No matter the argument - the longer you wait to begin this process the more likely you are to get one - you and your spouse need to be united as a single front. Even if you both don't agree, have the discussion away from the kids and come back as one. Do not let your kids divide and conquer. At times it is going to be difficult, but if you stand firm today, your kids will stand strong tomorrow.
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