Do children have to decide how to spend their money?

Toronto mom Blake Eligh was determined to teach her kids key financial lessons before they had to step out into the world on their own. She did this, in part, by giving her two daughters decision-making power over their own money from a young age. She and her husband offered the girls an allowance and a savings plan when they were eight and eleven years old. Now her children are 12 and 15 and Eligh only wishes she had started sooner. “By giving them the chance to learn how to spend money at this point, they can make financial mistakes when it doesn’t really matter. “

But what do the experts say? If grandpa gives your child money or if he saved a bunch of weekly allowance, should they spend it all the way they want?

Learn Financial Literacy The Hard Way

When it comes to teaching your kids about money, there’s one simple rule to remember: kids learn best from their own actions. That’s why Nancy Bisogno, a district leader at TD Bank who has worked with elementary schools on programs that teach children about money, encourages parents to give their children as much financial freedom as possible. “There are two big lessons to be learned from letting a child spend money the way he or she likes it,” says Bisogno, who is based in Stratford, Ont. “One that we can all relate to is buyer’s remorse, when we buy something before realizing it’s not worth it. The second is to realize that I can’t afford it. It puts the cost of things into perspective, which kids don’t always understand until they have their own money to spend.

Chelsea Brennan, former hedge fund investor and founder of Boston Smart Money Moms, recognizes how difficult it can be for parents to watch their children waste money or be demoralized by poor spending decisions. But that’s an important lesson to learn while the dollar value is still relatively low. “We want to stop them from making these mistakes, but we need them to experience making a bad decision,” she said. Eligh’s daughter Grace has already saved up for a peculiar doll with articulated joints, which she coveted for a long time. “Within a week, both hands were irreparably detached. It was really disappointing for her because she had spent a lot of money, ”Eligh recalls. Still, Grace has learned to stop buying that brand of doll and to think carefully before spending so much money on just one toy.

Start silver lessons early

Brennan suggests starting an allowance as early as four or five, or when kids start asking for money or wanting to buy things from the store. “Start by giving them pocket money, and then when they get a little older, start spreading it out on different kinds of goals,” says Brennan.

In Eligh’s house, they started the stipends at $ 2 and $ 5 a week, just enough to buy a treat or trinket at the dollar store, and recently increased it to $ 5 and $ 10. Once your child is able to understand how pocket money works, you can set up a system that includes spend and save. For Eligh’s children, one-third goes straight to a savings account and the other two-thirds can be spent however the girls want. “If they want to invest those two-thirds in gumballs, that’s fine. They can do whatever they want with that part of the allowance. But the stuff in the bank, we have to have a discussion of how it’s going to be spent. Brennan’s young sons divide the allowance into three-thirds: one-third to spend, one-third to save for larger purchases, and one-third to give to someone else.

Added values

While we shouldn’t micromanage every dollar our kids spend, that doesn’t necessarily mean they have free rein, either. Brennan talks about what she calls a family monetary values– and that it is important that parents decide on their own financial mindset before guiding their children. “What values ​​do you want to focus on through your spending? What emotions are you trying to create with your money? Are we prioritizing education? Do we prioritize the feeling of charity or the feeling of joy? ” she says. These values ​​can then help set the parameters for how your kids are allowed to spend their own money. Some parents will insist that their children set aside a certain amount for charity (or for “sharing,” as Brennan calls it with her own young children), for example. Or they can impose a strict ban on certain types of items, such as toy guns, violent video games, or makeup.

Financial growth

As children grow older, the basic principle of letting them spend their own money within family values ​​doesn’t really change. What changes with age and independence is the type of things they want to spend their money on. Brennan sees this as a great opportunity to give your kids more responsibility for their expenses, in addition to, perhaps, a more generous allowance. “When we give our kids money, one of the things that helps them is telling them what the money is for,” says Brennan. With younger kids aged three to eight, say, you might tell them their money is used to buy toys or treats.

As your kids move into their teens, you might want to expand this to include going out with friends. And then, by the time your kids are teenagers, they may also become responsible for paying a cellphone or subscription services, for example. “It could mean increasing their allowance by taking the money you would have spent on them and putting it in their hands. Say, for example, that we budget that much per year for your clothes. We would expect you to have a winter coat and as many pants and an outfit for the holidays, but you decide what it is, ”says Brennan. This gives the opportunity to start budgeting and thinking about bills before they are alone in the world.

Modern tools for modern families

Money is the best learning tool for younger kids because they can watch their money accumulate and count it themselves. But Eligh found it was harder than she had expected to keep enough cash on hand for allowances. So, for consistency, his family keep a filing cabinet in which they track the money coming in (from allowances) and out (via online and in-store card payments), and then they settle in cash every now and then.

Older kids might like to keep some cash on them, but there comes a time when it makes sense to have their own debit card. By the time kids are walking through their quarters on their own, around 12 or so, Bisogno recommends setting them up with a debit card. Remember to teach them how to use it safely.

At the end of the day, we want our kids to make their money mistakes when they are still young and the stakes are low. “One of my core beliefs is that money is involved in everything we do,” says Brennan. “Every time we choose to spend money, we vote on the type of world we want to live in, the type of businesses we want to support, the type of policies we want to adopt. And we can show it. to our children from an early age, because they know how to understand this very well. “

Need help managing allowances and household chores? Your phone is your friend:

Mydoh: RBC’s new app teaches kids about money basics, helps them earn money from household chores, and offers tips for spending it wisely. It all starts from a parent account.
CockSilver: This virtual chore and money tracker app is well designed and easy to use. An improved version allows you to tie the allowance for household chores and set an interest rate for savings.
iAllocation: Children earn rewards for completing chores, and parents can set recurring allowances that will go into any of the unlimited “piggy banks” you set up.

How Parents Should Handle Big Cash Gifts

Grandma surprises your children by giving them a $ 100 bill. What do you do after? When children are given a good chunk of change, it is important to have a consistent rule of how that money is to be accounted for. Smart Money Mamas founder Chelsea Brennan says many parents she talks to are okay with letting their kids spend around $ 20 however they want, but prefer to forfeit larger amounts and put them directly into their savings. She is not a fan of this approach. “When you do that, you take away their autonomy,” she said. “Some kids can build a mental relationship where saving makes my money disappear, and that won’t help as adults.” In his house, his children can spend half of all gifts in cash as they wish, and then the other half is divided into three thirds (spend, save, give). Other rules for spending cash gifts can work as well, as long as you’re consistent. What you want to avoid is that the kids get excited about a big gift and then feel like someone has taken their money.