How Much Financial Responsibility Is Appropriate For Kids?

Consistent Lessons For Pre-Teens About Money Can Instill Lifelong Behaviors
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Young children often have trouble understanding why they cannot have every toy or piece of candy they see at the store. However, around age 10, kids begin to comprehend that money is a limited resource. They can distinguish that some purchases are worth making in the short term, while others are worth saving for.

This new level of awareness among pre-teens often prompts family discussions about allowances, chores and financial goals, making age 10-12 an opportune time for caregivers to begin working on developing financial capability with kids.

Giving allowances

Parents often struggle with allowances. Giving spending money for small discretionary purchases can be a good way to teach basic budgeting and money management. For 10-, 11- and 12-year-olds, the Panel Study of Income Dynamics reported that weekly allowances in 2007 generally ranged from $5-20, depending on what children are expected to pay for out of their own pockets. These rates were only for those 46 percent of parents who reported giving any allowance.

Being consistent is important, so parents should set an amount and a standard day and time for giving allowances.

Some parents prefer that allowances be tied to certain chores as a lesson on working for "income." They may even use a chart to document that weekly jobs are getting done before any allowance is paid. Others pay an allowance and then charge "fines" for failing to do chores or for certain misbehaviors. Whatever model is chosen, the most important factor is being consistent.

Saving for a goal

Adults who are successful in managing their own money share the ability to set and achieve long-term goals. To build those skills for adulthood, youth need to practice. Kids need to engage in discussing and eventually writing down their personal financial goals, such as saving up to buy a "bigger" item. This exercise creates an opportunity for parents to work with their children on creating a plan to achieve that goal.

Working through some math can even be useful, adding up how many weeks or months it will take to save up enough (and remembering to account for other regular purchases that might happen along the way).

Parents can talk about what happens when plans fail, as well as help children revise their goals as they learn more. The process of setting goals and making plans is critical in life – making this activity a great learning opportunity.

Using bank accounts

Many banks and credit unions offer very low cost savings accounts (often called custodial accounts) for children younger than 18. These accounts are in the young person's own name, along with a parent. Having an account, even one with a low balance, is another formative experience that parents can offer to kids ages 10-12. Going to the teller window, obtaining a statement and checking balances online can help pre-teens learn about the benefits of financial institutions and even how interest works.

Learning about interest

Parents and children can use an online calculator to see how much interest they would have to pay on a credit card balance over time. This activity is great for teens who may be interested in buying pricier items (such as a new gaming system). Showing kids that credit isn't actual money but rather a "loan" that can be costly over time can teach them about spending wisely given their expected or actual earnings.

Understanding adult finances

Kids who receive spending money and practice budgeting and saving begin to establish their own sense of financial independence. Parents can also begin to share more of their personal financial lives with their kids. Simply revealing how much things cost — from groceries to movie tickets to vacations is one example. Another instance is to share long-term financial goals, such as retiring from work (perhaps like the children’s grandparents). Parents also can explain how sales taxes work using store receipts and how income taxes work each spring

While parents do not need to offer too much detail, they should not "hide" their financial lives from their kids. Children are interested in and can learn from their parent's experiences.

Giving to charity

One last area of focus is charitable giving. Some parents will offer to match any financial contribution kids make to a charity or toward a gift for someone else. The more kids can be engaged in giving behaviors early in life, the better they can establish patterns of charity for a lifetime.

Actions such as charitable giving or volunteering can promote pro-social behavior in adolescence, which is linked to such behaviors across the lifespan. Parents and other adults can encourage youth in many ways to be pro-social while supporting their growing independence. For example, rather than asking for gifts at a birthday party or certain holiday, a parent can encourage a child to ask guests to bring donations for a specific organization. Teens can explore their identity and beliefs as they decide which causes that are meaningful to them.

Starting early

Parents often feel anxiety about their own finances, and often families make talking about money or budget challenges a taboo. But it's better to be open about finances, engage in money management with kids and give them opportunities to learn from their own experiences. As a presentation from the U.S. Department of Treasury suggests, a small number of steps can help kids grow up to have financially smart lives.

J. Michael Collins is a family and consumer economics specialist with the University of Wisconsin-Extension, director of UW-Madison's Center for Financial Security and an associate professor of consumer science and public affairs at UW-Madison. This article is adapted from an item published by Parenthetical, a resource for parents of tweens and teens sponsored by UW-Extension and UW-Madison School of Human Ecology.

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