Training Children How To Handle Finances

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In these economic times it is not only crucial that we reevaluate the way we handle our finances, but also the way we teach our children how to handle finances!

It should be stated first and foremost that children learn from watching their parents behavior, not from listening to what their parents preach.  I suppose then, the best way to train children on the proper use of finances is to use our own finances properly! You should also be aware of the fact that I do not currently have any children, though Lord willing my wife and I would like to have some soon; so please…take what I say with a grain of inexperienced salt!

My inspiration for writing today’s article came from a recent post by “Nickel” at FiveCentNickel.com on the topic of Paying Children for Good Grades.  Nickel pays his children an allowance which is mostly used to train them on budgeting and how to handle their finances, he does not give the allowance as a reward for completing household chores.  I agree with this philosophy entirely!  Children in a family should not be paid for their contribution to the daily upkeep of the home.  I do believe they can be rewarded for going above and beyond the normal call of duty, but they should not be rewarded for performing everyday tasks.

Allowance needs to be a tool used to train the child on the matter of money management.  Nickel also describes in this post how the allowance system works in his family.  I agree with Nickel’s strategy with one exception.  While he makes no mention of this, I believe children should have taxes taken out of their allowance in order to paint them a more accurate portrait of how money is handled in the real world.  Some may find this legalistic, but I’d rather they be as prepared for reality as possible.

Once I have children, here is how I plan to train them regarding the distribution of their allowance:

  • 10% tithe to the church (% based on the gross amount…taken first, before any taxes or anything else)
  • 15% to taxes – this I plan to put into their college savings fund that my wife & I manage.  It may not seem like a lot will be going into this, but every penny counts!
  • 25% to savings – to go into their savings account
  • 25% to bills – to go back to their parents in order to help pay for the household bills.  I hope to use this philosophy to teach them to conserve spending on household utilities, groceries, etc.  I plan to involve them in my bill paying/grocery shopping process and believe this will give them a “vested interest” in cutting costs.
  • 25% to spending – this portion will be able to be used for whatever they want.  If they want to spend it, they can spend it.  If they want to roll it into their savings, they can do that as well.  If they want to help out with bills, that will also be welcomed!

I plan on giving the children all their money up front, so they can see it and physically handle it.  Then divvy it up accordingly.  I don’t want to simply withhold a certain amount, because I want them to be as involved as possible.

What do you think?  For those of you that currently have children, what are some challenges I’ll face while trying to implement this system?  What system do you have in place?



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1 Norm

I think there’s a lot to be said for letting children be children. It’s for that reason that I don’t take taxes or bills out of my daughter’s allowance (she’s 4). Our breakdown is: at least 10% to church, 20% to long term savings, 10% to short term savings (to teach to save up for medium priced things that come along) and the rest she can do with as she pleases. I honestly can’t see ever doing the taxes thing. As far as bills go I think we’ll probably do that a little differently. As she grows up I’ll probably increase her allowance and say “Now it’s time for you to pay for your own clothes” (or whatever it may be). Personally, just not a fan of charging my kid to live with me (even if I’m giving the money in the first place.

2 DebtFREEk!

Thanks Norm:

Because I don’t currently have any children, these principles I’ve listed are all theory. I’m sure my world will be turned up-side-down once I have some kids!! I’m sure you can attest to that.

Once I have some children, I’ll probably look back on this post, snicker a little, then update it to reflect the actual system I have in place. I’m sure it won’t be all too different from what I’ve already written…although there will undoubtedly be some changes.

The only thing that will not ever change is the 10% tithe to the church.

Thanks for your comment.

3 Norm

The 10% tithe thing is also the only thing I can guarantee I’ll never change on. I do her allowance every Sunday morning so she’ll have her money to put in church. It’s a good opportunity (weekly) to talk about how it’s not ours to begin with and we’re showing thankfulness and trust by giving it back.

4 DebtFREEk!

I agree Norm, I look forward to being able to have children & teach them these important lessons. My wife & I are hoping to become pregnant soon. I’m sure I’ll post it on my blogs if it happens!!

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