Teaching kids about money: Five common dilemmas

Parenting is full of dilemmas.

You’re constantly faced with difficult choices and your children expect you to have all of the answers. Not only that, if your answers aren’t the right ones, you’re going to end up setting a bad precedent for your child.

The art of parenting is simply doing the best you can with these dilemmas as they come at you. No parent is ever going to make every shot, but the more dilemmas you get right, the better off you and your child will be.

Here are five money-related dilemmas we’ve faced over the last year or two with our own children.

Dilemma #1: Should allowances be tied to chores?
 On the one hand, allowances are primarily useful as a tool for teaching money management skills. It gives you a regular opportunity to teach your children about the basics of budgeting and, if you tie it to chores, you place an obstacle in the way of that lesson. You’re dealing with the challenge of finding age-appropriate chores and ensuring that your child does them before you can ever get around to the money management lessons.

On the other hand, it’s a very valuable thing for a child to learn that there is a deep connection between the work they put in and the money they earn. If you don’t work, doesn’t it make sense that you don’t have money to spend, either?

Our solution is a hybrid of the two. We give our children a very small weekly allowance. We also expect them to do certain things around the house, mostly involve keeping their own things neat. This is simply expected and isn’t tied to any allowance. We also provide them some opportunities for extra chores that are really challenging for them, but enable them to earn a little more. We want them to connect hard work with earning money, but we aren’t willing to make money management lessons reliant on that connection.

Dilemma #2: How open should our family’s finances be to the children?
 On the one hand, there’s no better example they’ll ever have for sensible money management than our own financial situation. Sarah and I know our financial situation in depth and can talk about every possible question they might have.

On the other hand, children have loose lips. Also, a thorough look at their parents finances can paint some incorrect pictures in their minds, particularly when mixed with a younger person’s perspective on the world.

Our solution is to do this very gradually and limiting it to pieces that can really teach money management principles. Although our children are pretty young for it now, I do intend to show them our household budget when they start getting close to the age of going out on their own, and I’ll also walk them step by step through our bills and payment situations. Do they need to know every specific? No.

Dilemma #3: What limits should be placed on gifts for children?
 On the one hand, gift-giving occasions such as birthdays and Christmas are special times that often provide the foundation for great memories. I certainly have fond memories of some of the holidays when I was a child and some of the gifts I received.

On the other hand, such gift-giving occasions can turn into a consumerist grab for more and more things, creating a materialistic hunger in our children that’s difficult to turn back once it’s unleashed.

Our solution is to give only a small number of gifts at gift-giving occasions, but to make them high-quality gifts. We put a lot of thought into the few things we give them. In fact, for his past birthday, our oldest child received only one gift from us, but it was one that he had wanted for quite a long time.

Dilemma #4: Should we use savings accounts or physical currency to teach saving principles?
 On the one hand, physical currency is a wonderful tangible way to teach children about money. One can use multiple “piggy banks” to physically teach saving for different goals.

On the other hand, physical currency teaches nothing about earning interest on your money. Money in a savings account earns interest, as does money in investments.

Our solution is to handle our week-to-week allowance with physical currency. Then, when they’re old enough, we take the “investment” portion of their savings and move it into other things, starting with a savings account. In other words, part of their allowance is used as a teaching tool to learn about things they can do with their money.

Dilemma #5: Are impromptu “treats” an acceptable thing?
 On the one hand, buying a lot of impromptu treats can “spoil” children and create an expectation of treats on a regular basis.

On the other hand, there are few things more fun than treating a child to an ice cream cone from the ice cream truck.

Our solution to this dilemma is to make such treats a relative rarity. The tingling bells of the ice cream truck are usually not met with a cold treat. Instead, on a rare occasion, we’ll give them a treat. The goal is to keep the treats from ever becoming routine, because if they do, they become a large and regular expense. Instead, it’s a lot more fun to keep them as a rare and impromptu splurge.