School's Out, Class Is In
For Terri to Teach Her Son About Money
May 21, 2008
My son, Gerald, is looking forward to summer recess. More urgently, he's looking forward to his birthday celebration next month, which coincides with the end of the school year. Already Gerald is talking about ditching his books and enjoying the coming summer days -- and the inevitable gift barrage his ninth birthday will bring.
School will be out soon, but there's no reason the learning has to stop. I've found the summer months bring many opportunities for kids and teens to make decisions about money -- earning it, saving it, spending it and donating it -- that they often don't get during the school year.
If you don't already give your kids a weekly allowance, summer break is a great time to start. The summer months provide a number of unique opportunities for kids to make their own choices about what to do with money. But first, they'll need some money to manage: An allowance is one of the best ways to introduce young children to the concept of managing money because it provides them with a consistent income.
By receiving a weekly "paycheck," children learn how to plan to save for what they want, and even form a mental budget about how much of their own money they want to spend. We started giving Gerald an allowance of $5 a week at age 5. (We use this rule of thumb: a dollar a week for each year of the child's life.)
Many financial experts disagree about the benefits of tying an allowance to completion of household chores. Chores are an essential part of maintaining a household, some would argue, and helping to complete those chores is part of every household member's responsibility. In their eyes, paying a child to do routine chores is inherently wrong.
But I'm all for tying allowance to some chores, particularly in the summer time. I find that giving extra allowance for doing additional summer chores is a way of making the concept of earning money tangible for Gerald, in a world where money usually changes hands electronically. My son has a regular roster of household chores, including making his bed, keeping his room tidy, setting and clearing dinner dishes, and generally picking up after himself. But the summer months bring added responsibilities, including helping my husband Gerry maintain our landscaping and keep our boat clean.
Gerald gets $8 a week for allowance during the school year, but in the summer months he can earn additional cash doing chores he'd generally avoid. (Weed-pulling in my flower beds? That's worth an extra $5 a pop in his weekly allowance.)
Summer vacations are another great way to encourage a child to set financial goals. Last year, before our vacation trip to Walt Disney World, we let Gerald know he'd need his own spending money for souvenirs, sweets and the like. To encourage him to save more of his allowance toward vacation spending money, we offered to match his savings dollar-for-dollar. (Inevitably, the source of Gerald's "savings" still comes from us, but it's Gerald's decision on what to save and spend.)
When kids like Gerald have to spend their own money, they often spend a lot less. Our son was extremely keen to purchase a souvenir wooden toy musket he came across when we were on vacation, until he saw the $25 price tag. After carrying it around the store for a while, Gerald found a less-expensive toy pistol and eventually put the musket back. (No doubt, if Gerald expected Gerry and I to pay for his souvenir, he would have lobbied us to buy the expensive musket and the cheaper pistol.)
Summer is also a great time to encourage kids to be charitable. Last year, Gerald set up his first lemonade stand with his best friend. I suggested Gerald set aside a portion of the money to give away to a charity of his own choice -- an autism-research foundation we've been raising money for over the last year and a half. Not only was Gerald excited about the prospect of running his own lemonade stand, but he quickly included the concept of charity in his marketing.
First, Gerald needed to determine how much to charge for the lemonade. We calculated how much the materials to run the lemonade stand cost, and how much he wanted to earn to work the stand. Then, I asked Gerald how much he thought was too much to charge for a paper cup filled with lemonade ($1 was about right, he believed.) I suggested we split the $1 into quarters and he agreed: 25 cents for the lemonade supply, 25 cents for his earnings and 50 cents for charity. (Allotting the largest portion to charity was his idea.)
The lemonade stand was a huge success, as passersby eagerly paid for their lemonade on the hot summer day -- and in many cases, customers simply donated cash for Gerald's cause. In addition to encouraging Gerald's inner entrepreneur, the warm response he received from the customers helped him discover how wonderful it feels to work hard for others.
So school may be out, but there's no reason for the lessons to end. By learning how to manage money now, we hope Gerald will continue to make smart financial choices when he stops earning an allowance from the Bank of Mom and Dad and starts earning a real paycheck from his first summer job.
Do you give your child an allowance? Is the money tied to household chores? What do you do to encourage your kids to make smart decisions with money over the summer months? Write to me at email@example.com, and then come join me in a discussion about teaching kids about money.