Money management for kids has two parts, process and principles. Kids need to know how to manage money as well as why. Identifying these components in allowances is significant as we prepare our kids to leave the nest.
To prepare kids for their future, they need to learn the how of money management using a consistent process, such as the no-cash allowance. Process is the nuts and bolts of adding and subtracting numbers in an account.
In this aspect of parenting, you are an instructor helping your kids manage the numbers that represent their money decisions. Accuracy is the goal.
Principles of using money in your home are based on your family values, You now act as a mentor to encourage development of abilities and support your child learning a new skill.
Recognizing process and principles
However, when setting up allowances, parents may not recognize the difference between the how (process) and the why (principles). For us, it wasn’t until after our kids were grown that we recognized process and principles, something that would have helped us early on.
Passing on values and principles using allowances is more complicated than adding and subtracting numbers. A reasonable principle is limiting purchases of candy, because of a health concerns. This is an example of “candy is a treat” to only buy sometimes.
Having a money conversation with your parenting partner before you set up your allowance system will help you establish principles, that may change as your kids grow up. When you have shared goals it will be easier to be consistent over the years, making the experience better for your entire family.
Families are the tie that reminds us of yesterday, provide strength and support today, and give us hope for tomorrow. No government, no matter how well-intentioned or well-managed, can provide what our families provide. ~ Bill Owens, former Colorado governor
Introducing your family principles
Just as there are no guidelines for giving children money, there are no guidelines for how you use money as a tool in raising your children.
As a parent you decide what behaviors you want to encourage or discourage. When parents grant their kids the authority to make their own money choices, parents need to let them. Your parental authority allows you to reward or penalize that specific event within the confines of the allowance itself.
Even though we gave them control of their money we retained our overall parental authority. To put a money cost on certain services, I created Helping Hands aka personal services you’ve aways wished someone else would do for you.
I posted my fees and deducted directly from their accounts when they neglected their responsibility. Example: Not rinsing sink after brushing teeth–15 cents. They soon changed their behavior when they realized they were losing money. After a few deductions, Helping Hands went out of business.
Other ways to influence behavior included incentives, projects, rewards, games and contests. Also, they were responsible for any fines, late fees, or other money consequences of their actions.
Eliminated nagging: I wanted my daughters to be responsible for themselves and hated the idea of nagging them. I knew there would financial consequences for certain behaviors as they got older–parking tickets, late fees and other fines. In creating Helping Hands I gave them a monetary penalty and subtracting from their account. Made me a happy camper when I didn’t have to nag.
Getting the job done: One sister saw this as an opportunity to earn money by doing her sister’s task. She was correct getting the job done, but it wasn’t my intention for her to earn that money. I let her do it once and make sure the rules were clear for the future.
Another mom lesson: Our daughter had her own learning experience. While on vacation her son bought a toy spaceship after agreeing he would subtract the money at home. At home he changed his mind and didn’t want to pay for the toy. In one of those parent moments, she gave him an ultimatum. “Either pay for the toy or give it to me.” Much to her surprise he gave her the toy. She realized she had changed the rules by giving him a choice. He took advantage and she now owned a toy spaceship.
When your kids track all their money as a number, they become better money managers.
Read more: Be amazed when you give your kids money power
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