Timing of money choices separates kids’ money from their parents’ money because of past and future choices. Kids spend for the future; parents spend primarily for the past.
Money is exciting for kids because they can freely use it looking forward. When allowances arrive your children focus on spending.
As an adult, your money appears in your account with the purpose of paying for past decisions: housing, loans, credit cards, utilities and other regularly scheduled payments.
For most parents, after buying groceries and paying for immediate needs, there is not much left for discretionary spending. However, kids have few spending responsibilities with a lot of freedom to spend as they wish.
Comparing kid and adult spending
According to a 2018 survey by Rooster Money, more than half of parents believe allowances should be earned through chores.
While your income is primarily from work, that’s not the situation with children. Kids do chores to get money because the opportunity is available, but they know work is not the only way to get money.
They know from their experience and looking around at their friends that money sources for kids vary in amounts including: cash, gift cards, handouts, allowance, and earnings for chores, maybe some income from work outside the home.
When all money sources are tracked in one account, kids develop a better understanding of how their money choices affect their balance. Before spending, they have to think. “If I buy that my number will get smaller.” Or “If I want that I need more money.”
With a system as described in The No-Cash Allowance it’s up to the kids to figure out how to manage their money so they can pay for their responsibilities and have money left for fun.
18th birthday marks legal age of adulthood
Regardless of the sources of kids’ money, it’s a parents responsibility to prepare their kids for the adult world of money management. The transition to reality is the most consequential financial change happening when your child turns 18.
Overnight, your young adult is now legally responsible for every money decision. This sometimes puts parents in a difficult situation where they don’t want their adult children to have financial struggles.
A survey by T. Rowe Price shows that most young adults (64%) are surprised at how little they knew about managing money once they had to start dealing with real-world finances.
Nearly 3 in 4 parents with adult children say they help their grown kids with their finances, according to a study from CreditCards.com. Pew Research Center found that, on average, parents give their adult children $1,000 a month for food, health insurance, rent, cell phones, tuition and even travel.
According to a 2022 study conducted by Qualtrics on behalf of Credit Karma, 69% of the parents who financially support their adult children say it causes them financial stress.
Your charming children will be adults sooner than you think. That 18th birthday legally marks the difference between child and adult money management. You want your young adults to be capable of accepting the responsibility of paying for their financial obligations.
An excellent credit rating is one of the most valuable assets any adult can have. This book is a great primer for parents who want to instill responsible money management habits in their children. And, those habits will help ensure “credit-worthiness” in adulthood. ~ Patricia, retired bank executive
Allowance anecdotes
My money: While on a family vacation, a mother asked her 8 year-old if she could buy him a treat. He told her that she didn’t need to use her money for him because he had his own money.
Didn’t want to spend my money: A mother told her teen daughter that she’d split the cost of a sweatshirt when she went to summer camp. The girl came home telling her mother that she didn’t buy a sweatshirt because “I didn’t want to spend my money on that.”
In a recent Money Memories interview I was asked about my childhood. Being an early Baby Boomer, my childhood is incomprehensible for today’s teens. Imagine my surprise when the Teen and Young Adult Financial Panel gave their take-aways from my interview.
Read more: My teens money management skills amazed me
When your kids track all their money as a number, they become better money managers.
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Next week: Be sure to have these money conversations before starting your kids allowance
