Writer: Linda Anderson, (979) 862-1460,lw-anderson@tamu.edu
Contact: Dr. Joyce Cavanagh, (979) 845-3859,jacavanagh@ag.tamu.edu
COLLEGE STATION - Saving money is a life-long habit, and one usually picked up at first within families. Even children as young as 3 or 4 years old can be taught to put coins into a piggy bank, said Dr. Joyce Cavanagh, Texas Cooperative Extension family economics specialist.
But real lessons in saving money begin as the child’s understanding grows. “It depends on how old the child is, and what he or she is able to understand about the concept of saving,” she said. “At 6 or 7, it’s hard to grasp much about very far into the future.”
Children that young are not going to understand the importance of long-term financial goals, such as saving money for college, and parents must keep that limitation in mind when guiding their children into a savings habit, she added.
By about 8 or 9, children are old enough to understand that some gratification is not instant, and that saving money for a specific purpose say, the purchase of a new computer game is a good way to reach that goal.
This is a good age for children learn about savings accounts too, Cavanagh said. “By age 12, they should have their own savings account,” she said, adding that older children are better able to understand the principle behind saving money to reach a specific goal.
Children also learn by what they see. “Parents have to set an example,” Cavanagh said. “The best teaching tool is having kids see (their parents) exhibit behavior they are trying to teach.” For example, she said, how can a child learn to save money for something he wants to buy when his own parents are running up credit card charges?
Saving money is a life-long habit, but money must be available for children to save. And that’s where that childhood institution known as the “allowance” comes in.
“There are two schools of thought when it comes to allowances,” Cavanagh said.
One theory is to pay children an allowance and make them responsible for spending that money on specific things for example, a child might be expected to purchase her own school lunches. If the child wishes to make money beyond what the allowance provides, she could do extra chores around the house, outside the everyday chores expected of her as a member of the family.
The other theory of allowance-giving is that children should be paid an allowance that is tied to their chores at home. Cavanagh sees one problem with this theory in that a child might not care if he has any money and so might choose not to do any chores.
“If the main purpose (in getting an allowance) is to help kids understand money and learn how to manage money, one way is to make sure they have some money to learn with,” she said.
One rule of thumb is giving the child $1 per week per year of age. In other words, a 10-year-old might receive $10 a week for his allowance, while his 15-year-old sister gets $15. But, Cavanagh cautioned, when it comes to allowances, one size does not fit all. “What works for one family might not work for another family.”
When setting the amount of a child’s allowance, parents should keep in mind what the child will be expected to purchase with the money. When children are younger they might be responsible for purchasing school supplies such as paper, pens and notebooks. As they get older and more financially experienced and have bigger allowances they might also be in charge of buying their own clothes from their allowance money.
“As they get older, their allowances increase and so does what they are expected to get with that allowance,” she said. While parents can give advice with that process, they don’t want to exercise too much control over it, she added.
“Some of the most powerful lessons we learn about money are when we make mistakes. Kids learn from their mistakes. Helping them see what they might do differently is a more powerful tool than punishing them for making mistakes with money.”
Teaching children these lessons about financial responsibility while they are still young can help prevent them from creating financial and credit chaos for themselves when they are older. Checking accounts can be an extremely useful tool in helping older children learn money management, she said. In fact, Cavanagh suggested that high school, when many teenagers get their first jobs, is the ideal time for students to open their first checking accounts.
“Hopefully by this time, they (also) understand the importance of putting money aside (for emergencies),” she said, adding that as children become teenagers and head toward adulthood, saving money should be a fact of financial life to them.
“Ideally, you want the child to leave home (for college or work) and have the skills needed to live within his income, and not get over indebted,”Cavanagh said.
“Kids who had this kind of learning experience when they were living at home are better prepared (to be financially wise) when they leave home.”
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