Financial Training Wheels

Posted on March 15, 2010

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[Note] Allow me to appologize: it’s been less than a month, and I’m already late with my posts.  Further, I’m attending a wedding this weekend and won’t have time to update on Friday.  If I can swing it, there will be a post before (by Wednesday or Thursday), or soon after (on Sunday or Monday).  Please refer to “The Nitty Gritty” for details about why. [/Note]

I was watching Good Morning America.  They had a segment about financial responsibility and how to teach your children about finances.  This led to a conversation with my wife about how to instruct our daughter when she’s old enough.  I believe that parents should be intensely involved in their children’s lives — not to the point of smothering them, but in such a way that they learn how to behave properly.  Interestingly, this has resulted in a lot of self-reflection on my part: I have to act the way I want my children to act, or the whole thing will be for naught.

We came to the following conclusions:

  1. My daughter will have an allowance.  I want her to know about the value of money and the best way to do this is to give her some that she can spend however she wants.  I will advise, for example, that she not waste it on candy and soda, or other consumables, but I won’t insist that she only spend it in certain ways.  I want her to make her own decisions and to learn from them.
  2. She will be required to do chores to get her allowance.  This is the seocnd part of understanding the value of money.  There are very few individuals in this world who get something for nothing.  I want her to know that the money she has comes from doing work, especially work with some sort of value beyond the dollar — such as a clean house or nice looking lawn.
  3. The chores will be pro-rated: some chores will be worth more than others, by virtue of difficulty or nastiness (animal pens or toilet/bathroom cleaning).  I find this to be reflective of life.  After all, people clean up our trash, and they get paid reasonably well for it (especially when you consider the benefits), because most of us don’t want to do the job ourselves.
  4. As she gets older more chores will be made available (cutting the lawn).  Age and experience play in to one’s marketability, so as her skills improve more options appear.
  5. Also, as she gets older the chores will be worth more.  This concept has little to do with anything in the real world, as far as I can see, but I can’t justify giving a five-year old a weekly allowance of twenty dollars.

This should establish an appreciation for work, an understanding of the value of certain types of labor and a sense of ownership.  Further, she’ll be given a bank account (in our name, until she’s old enough for her own) with a debit card.  Since debit cards can be used as credit cards, we intend to let her buy the occassional purchase online in order to build a credit score.

Finally — and most important — no impulse purchases: if she has chash in her pocket she can use it as she sees fit, but all transactions that use the card need to be thought out ahead of time.

These rules apply, in some form or another, to myself and my wife, especially the last one.  In this way I intend to raise a financial aware and responsible child.  Should more people do the same, we might be able to influence a new generation and avoid the sort of rampant economic ignorance our current society is displaying.

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Posted in: Parenting, Philosophy