It’s no secret that many parents have an uncomfortable relationship with money. Whether there’s too little to go around, too much reliance on credit, or too many jobs required to make ends meet, money is the Number One issue young couples wrestle with. If we could, we would save our children from struggling with money in their own adult lives. How do we do that?

Well, naturally, we give them information we wish we’d had, things we’ve learned from hard experience. But studies show that parents don’t tell children everything. They leave some parts of the household economy out of their conversations with kids. And those missing pieces are the very ones children need to absorb if they’re going to have a sensible idea of how money works.

Researchers at North Carolina State University and University of Texas interviewed 136 children aged 8 to 17. The average age of the kids was 10½ . They found that, according to these children, parents were most likely to have talked with children about saving money, spending wisely, and ways to earn money. Think of this as conversations about doing chores for cash and putting some away in a kid-savers account, and arguments in Target over what the child should buy or not buy with the crumpled up bills in his pocket. Sounds pretty normal, right?

But some aspects of money management were missing. Children reported that while they had been taught how to manage their own allowances, parents had told them nothing about family finances, how much their parents earn, how their parents save or invest their money, or the sort of debt parents have. These larger issues expenditures and income were completely absent from children’s financial educations.

I understand why. Most parents might quail at the thought of sharing with their children how much income the household makes. They might shield children from realities of debt and credit issues. But by hiding this information from kids, parents set their children up. When these kids become young adults, with money of their own, they have no idea how to adhere to a budget, limit use of credit, avoid late fees, borrow money and make plans to pay it back, file taxes, and stay out of financial trouble.

In addition, the study found a difference in what parents tell boys compared to what they tell girls. Although few children reported much conversation about debt or investments, boys were significantly more likely to have been told about these areas of money management than were girls. Obviously, this difference makes no sense. Gone are the days when women can delegate all their financial business to a man.

So what to do? Lead researcher Lynsey Romo says, “even young kids are aware of financial issues, regardless of whether parents talk with them about money. And if parents aren’t talking with their kids about subjects like family finances or debt, the kids are drawing their own conclusions — which may not be accurate.” Just as in talking about sex or religion, one doesn’t sit a child down for a long lecture and think you’re done. In talking about how money works, little bits of information, delivered as things come up, is the way to go.

1. Let your kids see you pay bills. Many children don’t realize that their parents are paying for the house, the car, heat, lights, cable TV and the Internet. The extent of a family’s fixed expenses – things that have to be paid for every month – is a black box for most children. By age 10 – the average age of children in the study – kids should understand that their comfort costs money.
2. Let your kids in on your budget. You don’t have to disclose numbers, if you don’t want to. There’s no need to name the actual monthly income amount. Use a pie chart if you like: here’s a picture of all the money we have coming in this month and here’s the slice set aside for this and that fixed expense, and here’s the slice left over for fun.
3. Make obvious the ways you set money aside. If money is taken out of your check before taxes for savings or investments, talk about that, especially with older kids. If you set money aside from your monthly budget, make that action explicit. Children are more likely to save their money if they know you do too.
4. Budget money for charity and tell your children that you do. Have a family discussion about what charities to support and how much money can be shared. If there’s no money for charity this month, talk about ways to volunteer instead.
5. Talk about taxes. Police and fire protection, libraries and schools, roads and Fourth of July parades are all funded by various tax contributions. These things, like groceries and gasoline, children may take for granted. Clue them in to the fact that money makes the community work too, just as it makes the family economy run smoothly.

It’s time to bring money out of hiding. Give your children the tools they need for the future. Talk about money now.

© 2014, Patricia Nan Anderson. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. Join Dr. Anderson in an online conference for teachers and parents. Find out more at Quality Conference for Early Childhood Leaders.

Should you give your child an allowance? And if so, how? Let’s take a look.

Giving your child an allowance is different from just giving your child spending money on an as-needed basis. An allowance teaches your child how to save up for something and how to decide what to buy. Unlike coming to mom or dad for money, as if there were an unlimited, hidden supply, having to work within the parameters of a weekly allowance is closer to real-world money management.

You might be tempted to dole out money on demand instead if you want to control what your child buys. Your child has to make her case for getting the money from you and you get to reject her plan or change it. This is understandable. Kids do spend money frivolously sometimes. But when you control the purse strings, your child learns nothing about money. She learns instead a lot about making a convincing argument. She learns to manipulate you. That’s not really what you want.

So an allowance is a good idea. What should an allowance cover?

Not things that are necessary for health and safety. Don’t make your child’s allowance apply to his school lunch or bus fare to school or his purchase of food for the family pet. You don’t want your child to be tempted to divert money from health and safety needs to less important stuff. An allowance should be for toys, books, games, things the child wants in between birthdays and holidays.

The amount of a weekly allowance should be enough to cover reasonable desires if the child saves for maybe a month. So the amount depends on the age of the child: the older the child the bigger the allowance – and the more the allowance is expected to cover clothing, entertainment, and saving. But an allowance should never be more than parents can afford or an amount determined by what other kids (supposedly) get.  Your children shouldn’t be living better than you are!

When should you start an allowance for your child? Start an allowance when your child is old enough to have “wants” and is old enough to be able to count and have glimmers of understanding about money.  For most kids, this is about age five.

An allowance should not be tied to chores. Chores are done as a contribution to the well-being of the family. A child is not free to avoid chores because he doesn’t need the money that chores have been linked to and a child is not free to negotiate the rate of payment for chores. Chores, like housework and yard work, need to be done.

An allowance is granted as a benefit of being part of the family. It comes with no strings attached and can’t be withheld for bad behavior or for not doing chores. Remember the purpose of giving an allowance is to teach children money management and decision-making. The purpose is not to have a way of buying your child’s cooperation by setting a price on it.

So your role as the giver of allowances is to be scrupulously regular about payment. Set a day of the week and an amount and make sure you deliver on time. Doing so helps your child plan his money use and increases trust. Also, don’t borrow from your child. He may save it up to a nice amount that can seem tempting when you’re short of gas money. But if you’re trying to teach your child money management, you do that by example. Borrowing is not the example you want to set.

Finally, don’t manage your child’s spending for her. She will spend her money on stuff you think is silly. That’s her privilege. She’s a kid, with silly kid interests, and you’re an adult. Let her learn on her own if a purchase is worthy.

After all, learning how money works is the point of having an allowance.

© 2012, Patricia Nan Anderson. All rights reserved.

With summer nearly here, and your teen perhaps itching to start a summer job, it’s a good time to consider just how much your kid knows about money.  Now is the time to start practicing the sorts of financial planning that will serve him well when he’s out on his own in just a few years.

Here are seven conversations to have this summer, when money might seem to grow on trees and ways to spend it grow even faster.

1. Figure out what gets taken out of a paycheck. Before your child gets his first paycheck from that summer job, give him a heads-up about why his take-home pay will be different from a simple hours-worked-times-hourly-wage calculation. You may even want to have this discussion before he decides to take the job.
2. Calculate how many hours of work are required to… Buy a pizza? Go to a concert? Buy some new shoes? Help your child see how an hour of work translates into the purchases she makes. Remember to include sales tax in the purchase prices.
3. Read the fine print on a credit card agreement. This will alarm and amaze your teen if it doesn’t bore her first. But kids need to know. What interest rate is charged and how can the rate go up? Can the rate ever go down? What is the minimum monthly payment and what happens if it’s not paid on time? Long before your child asks for a credit card (or goes off to college and is pursued by credit card companies), make sure she knows that this privilege isn’t free.
4. Plan for ten thousand dollars. Imagine that your kid will make $150 a week at her job this summer and that she puts a third of that in a savings account at 2% interest compounded annually. If she keeps up this rate every month from June until forever, and never makes a withdrawal, when will she have $10,000 in the bank? Read some back and credit union ads and see what the best interest rate is in your area.
5. Figure out how much it costs to drive the car to the movies and back. For this, you’ll need the round-trip distance to the theater and your average miles driven per month. Divide round-trip-mileage by total-monthly-mileage to get a percentage of the total. Then figure out the portion of the car payment, insurance, auto club, repairs and oil changes, car washes and whatever else your car needs each month that gets used by that trip to the movies.
6. Figure out how much it costs to run your household for a month. This can be an eye-opener for Mom and Dad too! Sit down with your teen and one month’s stack of bills. Start by estimating how much is spent every thirty days. It helps to break this down into categories, like rent or mortgage, insurance of every sort, utilities, groceries, gasoline and so on. Then break out the calculator or a spreadsheet program and add everything up. How close was the estimate?
7. Go apartment shopping. Not for real, of course. But if your child were to move out on his own, what would he look for in an apartment and how much would that cost? Take a Sunday afternoon or two to actually visit apartment complexes after reading their advertisements in the newspaper or online. You can do this same exercise with other big purchases, if your kid is more interested in those: a big wedding, a trip to Europe, a new car, four years at a top-tier college.

Every teen needs to know how money is earned and where it all goes. Teaching this now, before your kid goes off on his own, is an idea that will pay dividends in the future.

© 2012, Patricia Nan Anderson. All rights reserved.