by Steven Cea
New parents struggle with many child rearing questions. For instance, finance. What’s the best way to teach our children to be responsible with their money?
Ten years ago, when my children, Max and Emily, were 13 and 11 respectively, my wife Julie and I became increasingly tired of their repeated requests for money. I wish New York Times personal finance writer Ron Lieber’s recently published book, “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money,” had been available then. Lieber outlines three approaches to allowance. The first is “No Chores Required”, which is how he approached allowance with his daughter. He and his wife gave their seven-year-old daughter three dollars a week. She put a dollar in each of three jars: one to save, one to spend and one to give. Lieber believes that this builds a sense of empowerment and independence in the child. The second, “No Free Money”, approaches allowance from a real world perspective. Nobody gets free money and, therefore, we should link money to work and pay children for doing chores. Lieber asserts that allowance should be a teaching tool, and tying it to chores could be problematic. For instance, what do you do if your child is not interested in money and declines to do the chores you expect? Third, the “No Allowance At All” approach, requires the child to ask for money and the parents decide if the request is reasonable. If they decide it is not, then the child will have to make the money on their own to satisfy their need. This approach would develop good sales and presentation skills, but I’m not sure what, if anything, it offers for long term money management.
Alas, we didn’t have Lieber’s book. So Julie and I took a different approach. When our kids were five or six, to teach them the value of saving we offered to match every dollar they put in the bank. This worked a bit too well. Whenever they received cash for a special occasion, it went straight into the bank and I found myself cutting significant checks to match their deposits. After a couple of years, when Max withdrew some of his savings to purchase a $135 skateboard – a purchase I did not agree with, but rationalized as a lesson in delayed gratification – we decided to create some restrictions. Bank withdrawal of matching funds couldn’t occur until they were 18.
When they had a reasonable bank balance, we went to the local branch and invested in a CD. This was designed to be a lesson in compound interest, and how to make money from savings. Shortly thereafter, the economy tanked and interest rates plummeted. The few dollars in interest was illustrative, but did not have the impact I had anticipated. As I mentioned, in their early teens they would ask us for money regularly – reasons included entertainment, meals out with friends, clothing, electronics, etc.  Julie and I discussed and decided on a structured approach that would nurture behaviors and attitudes toward money that we value.
We decided to give each child a monthly allowance of $100 for all of their financial needs outside of room and board. If they wanted a new shirt, a meal with friends, arcade games, personal grooming, toys, electronics, music, etc., they would use this allowance to purchase it. We provided the essentials, including a cell phone plan, but they needed to pay for the non-essentials with their allowance or extra money they earned from various odd jobs. We had a family meeting and explained the new scheme. Later that night, Max came back to us with a spreadsheet outlining his anticipated expenses for the year, totaling $137 per month, and asked for a higher allowance. Impressed with his initiative, we determined his analysis was reasonable and increased the monthly amount to $125.
Over the next few weeks, then months, we saw a positive change in behavior. One memorable example involved Max’s prior insistence on getting a haircut every four weeks. When he began paying for haircuts himself, he determined that six weeks was a sufficient amount of time to wait. One Saturday he asked me to take him to the barber. I was busy, but offered to take him on Sunday. He declined and admitted that it was because the barber charged a premium for a cut on Sundays. Furthermore, my daughter promptly found Target as desirable as Abercrombie. It was at that point that I knew we were building a mindset that would benefit them for years to come. These are just two examples of how the extra responsibility helped shape our children’s money management habits.
Not all the results were positive though.  For example, when they went out to dinner with friends, they felt cheated if the friends ate more but wanted to split the check evenly. They are also still working out the balance between needs and wants. But for the most part, they are appreciative of the financial awareness our little scheme instilled in them. In fact, my son’s friend recently commented that he wished his parents did the same and indicated he would try it with his kids in the future. Max graduated from William and Mary in May, and Emily from American University this past December. She worked hard to graduate a semester early, mindful of the tuition costs. They are blessed, or perhaps cursed, with a strong sense of value and frugality. My friends are convinced that it is a genetic trait passed down from their father, but I think it had a lot to do with our decision to introduce a structure that fostered their financial independence and trusted them to make smart money decisions.
Steven Cea is a Nyack resident and the Business Administrator/Board Secretary for the Paramus Public Schools.