Wednesday, June 13, 2007

Educating one's child on economics

This is something I have some concerns about. I read an article today that made me think of this, though it is something I always have wondered how to handle. (The article refers to an older article that I also actually read a while ago).

I particularly like the older article. It says basically that the best way to teach a child about how to handle money is, well, let them handle money. Rather obvious, but then, sometimes we need to point out the obvious. I rather like the idea of giving allowances a month at a time and then letting that experience teach a child the value of planning. I wonder what is the right age to start with that. I think it is best to start early. I think even before you get to that, you can teach your child not to expect to get everything they want if you don't buy everything asked for even if you can afford it.

I seem to have good money habits. I don't go into debt - ever (not counting Mortgage on the house and buying a car, but even that I minimized as much as possible and now my car has been paid off for over five years and I expect to drive it another 10-15 years). I don't blow huge wads of cash on totally stupid things, and even when I do buy something some would consider dumb, I never spend money I don't have or can't afford to spend. But I don't remember my parents ever specifically teaching me anything about money. Maybe some of my money management skills are just part of my personality - I like to plan way way ahead and when I do have debt, like on my car, to me it feels like the money is already gone because I think of everything in terms of net value. (To the point that where I do have a debt, I really really want to pay it off so my cash on hand (or invested) as close as possible matches my net worth).

But I'm sure I also learned from my parents' example. They do the same thing I do. They don't spend money they don't have. They never have had any debt except that from buying a new car or house, and now they have cars and house paid off (and have been that way for a while). So that example must have counted, but then I'm sure not every financially irresponsible person has irresponsible parents. So there has to be more than just a good example.

I hope I can teach my daughter how to handle money well. I want to teach her about saving, investing for retirement, and all of that stuff and I'm actually eager and excited to tell her about it. I hope I don't bore her to tears when I finally talk to her about these things. Probably she's a tad young for it (almost 22 months now...) But I want her to grow up always knowing about money and how to be responsible for it. That's one of the most important things you can give someone for their independence.

I already have decided that when she gets into her pre-teens, she's going to be pretty much on her own when it comes to buying what she wants. I want her to know the value of money, to know that it takes hard work to get it, and to appreciate that when spending it so that she spends wisely. I don't necessarily want to mandate she get a job or anything - I think kids need to be kids, but I certainly would be glad to see her doing something to earn her own money, even if it is just extra chores (as I would not pay her for the ordinary chores I'd expect her to do - as part of the economic lesson on the fact that you don't get paid to do something for yourself - if she ever complains I'll ask her to pay me for doing all of my chores ;) ).

It is too bad they really don't teach this sort of thing in school. And not just in one class, but every single year, getting more advanced as time goes on. That would be terribly helpful and useful.


Maya's Granny said...

You have got a good start on it by recognizing that she shouldn't get paid for doing chores and why. It is important that she should not be punished for other things by losing her allowance -- how can you learn to manage money if you can't predict when it is going to come?

I gave my daughter a clothing allowance and she discovered all sorts of things about paying too much for something being "in" and trying to get too much by paying too little. She is now 41 and an excellent manager of money.

DBB said...

You know, this reminds me of my previous post about the alleged monetary value of stay-at-home parents - in that I think the same logic of why you don't pay your children for doing chores covers why no one should expect to be paid to stay at home and take care of their own household.

And yes, her allowance will not be tied to anything (and I like the idea of giving it monthly) - though I wonder at what age it is appropriate to stop giving an allowance? I also am thinking that it should never be adjusted for inflation (or anything) - giving my daughter an incentive to find other sources of income as her desire for more expensive things grows (which I'm sure it will).

Glad to hear your daughter turned out to be an excellent money manager. Do you remember where you learned those skills?

Maya's Granny said...

Well, I had a step father who grew up very poor and helped support his family from the age of five. He had given it a lot of thought, because he was raising us in a much more secure atmosphere and wanted us to learn the good things he had without having to suffer what he did. And then, I was a Montessori teacher, and we believe in allowing children to do for themselves what they can do for themselves. I am going to do a couple of posts for my blog on allowances and chores and will let you know when I do.

I didn't adjust for inflation, but as my children got older, they needed more money. A five year old doesn't need what a 15 year old does.

My kids got an allowance at six and knew from the beginning it would stop at 16. My daughter had a job at 14. My son leaned how to live on minimal money for a while. Both were good outcomes, and both handle money well now.

hedera said...

I see I'm not the only one concerned about this issue. I have no kids of my own; but I was raised by people like your parents, who paid cash for everything. In fact, I can top you - we don't even go into debt for cars. Every month we put a set amount into "the car fund", and when we're ready to buy (at about 10 year intervals), there's the cash.

I absolutely agree with your plan for your daughter. My sister and I got an allowance, and independently had a certain list of chores we were expected to do; and then there were extra chores that Mom or Dad normally did, that we could take on for pay if we chose.

I'll be retiring soon - VERY soon, Friday in fact - and one of the top volunteer efforts I have in mind is to hook up with a group called Operation Hope, which teaches basic financial literacy in middle schools. I don't know if I can make a go of this but I feel it's something I want to try.

DBB said...


That's very cool - I have never heard there was such a thing. That's the sort of volunteer work I think I'd enjoy doing. I don't know if I'd be any good at it, but maybe enthusiasm counts for something.

And congrats on retiring - do you have mixed feelings about that? My parents are both semi-retired now, though both of them keep very busy still working part time and doing other things. I think they'd go crazy if they just had nothing to do.

hedera said...

You could Google Operation Hope and see if they have a chapter in your area; I'm not sure they're everywhere. I feel about it pretty much the way you do - no experience, but a feeling that it's the right thing.

I have very mixed feelings about retirement. I can't wait to get enough sleep, get to the gym regularly, and not to have random 7 AM conference calls. I'll miss all the people very much. I couldn't possibly sit on my tokus and do nothing, I'd go nuts; I have a list of organizations I might like to volunteer at, Operation Hope is just one. The top of my list is actually the California Academy of Sciences; we'll see if that comes to anything.

Maya's Granny said...

I published my post about children and money today.