When you were a child, you probably tagged along while mom and dad went to the bank to deposit their paychecks, and watched as they counted out the cash they handed to grocery store clerks and gas station attendants.
But in this era of direct deposit paychecks, drive-though ATMs and "who needs cash when I've got a debit card?" mentalities, earning and spending money has become an abstract concept — and one that is tougher to teach to children.
Although 96 percent of American adults believe basic economics should be taught in high school, only 40 percent of American high school students are actually taught economics. Over the past two years, the number of states with personal finance education requirements has dropped.
Yet at the same time, kids are spending more money than ever. In 2002, teens accounted for more than $170 billion in spending, an increase of 38 percent from five years ago. Teens spend an average of $92 per week, and most receive money on an as-needed basis from their parents as opposed to getting a strict, defined allowance.
Parents need to take an active role in teaching their children about the value of money as well as the importance of budgeting and saving.
Game of Monopoly, Anyone?
Discussions about money and investing fall between sex and drugs as the least talked-about subjects with children under 18, according to a survey by Charles Schwab & Co. In fact, more than 53 percent of all respondents agreed that their parents felt talking about money was "too personal."
As hard as it may be, children need to be educated about money. It doesn't have to be difficult. Introducing financial concepts can start early with simple board games like Payday and the great American classic Monopoly, which can be a springboard for basic lessons in real estate, taxes and general finance. Playing these games together is a great way to get the entire family involved in a discussion about money and investing.
Beyond board games, it is important to be up front with your children about the family finances. Your kids should have a basic understanding of what your family can and cannot afford. Consider sitting down with your children and explaining what you earn and how much of it needs to go toward housing, food, utilities and other staples. This exercise introduces them to the basics of budgeting and helps them better understand the difference between necessary expenses and discretionary spending.
Structuring a Child’s Allowance
Allowances have been rising at nearly twice the rate of inflation with the average allowance for a child today being $11.79 per week. One of the biggest questions parents have when it comes to allowance is whether to tie the amount a child receives to the number of household chores they complete.
Most parents — a total of 59 percent — align allowance with chores, according to a survey by the American Savings Education Council. Although this teaches children to work for their money, it is a double-edged sword in that children, particularly teens, may believe they only need to be helpful when paid. I suggest that you do not tie allowance to regular chores as children need to learn to help out around the house, regardless of payment. Instead, parents may want to consider adjusting their children's allowance accordingly to make room for additional earning potential derived from special household projects.