Money School

Financial advisor Carol Wilshire’s tips on teaching children about finances.

Carol Wilshire is a Certified Financial Planner™ and managing director at RBC Wealth Management based in Manhattan Beach. She has more than 25 years of experience helping families plan for the future to reach their financial goals. Here, Carol shares guidance about how to inspire a lifetime of wise choices in your children by starting their financial education early.

There are many ways to raise financially aware children, but the best way may be to look in the mirror. When many parents think about teaching their children about money, they may focus on providing an allowance or planning for college. But kids learn more about money by observing how their parents interact with money and how they make financial decisions.

What are your attitudes and values around money? Personal finances touch every aspect of our lives. Children are observant and may absorb your own financial behaviors, as actions speak louder than words. How do you manage credit cards, working overtime or financial setbacks? Does managing your day-to-day finances create stress and frustration? Or are you able to coordinate them seamlessly?

As a parent, you learned at least some of your financial attitudes and behaviors toward money from your own parents or family. When I was a child, my mother would never allow me to buy clothes that had to be dry-cleaned. That was too expensive. As an adult, it took me years to be comfortable purchasing clothing that required dry-cleaning.

Beyond modeling healthy behavior, there are some practical ways to begin to educate children about money. Learning to manage an allowance is often a child’s first experience with financial independence. It is up to you to decide how much is appropriate, based on your values and family budget.

Some parents ask their children to earn their allowance by doing chores around the house, while others give their children an allowance without strings attached. If you are not sure which is most appropriate, you can consider a hybrid approach. Pay your child a small allowance, but give him or her a chance to earn extra money by helping with tasks around the home.

A good message to communicate is that the goal is not just to earn money but to save money to buy something you really want in the future. When discussing an allowance, set some parameters. Sit down and talk to your child about the purchases you expect him or her to make and how much would be wise to put into savings. Stick to a schedule, and give your child the same amount of money on the same day each week. Encourage your child with positive feedback for managing his or her allowance well.

When your children receive money from relatives for birthdays or holidays, you may want them to save it for college or a longer-range expense. But younger children may lose interest if the goal is too far in the future. Help your child set a reasonable goal that will give him or her an incentive to save.

Encourage your child to divide his or her money into three buckets: spend, save and share. You can use three jars or piggy banks and assign percentages to go into each container. Spend is for day-to-day smaller purchases (snacks, entertainment or small toys). Save is for a larger, more costly item for purchase in the future. Share is for charitable donations through school, clubs, etc., designed to help others. Parents can help their children determine how much to dedicate to each bucket.

Even though children may not always understand where money comes from, they realize at an early age that it can be used to buy things they want. As soon as your child becomes interested in money, start teaching him or her how to manage it wisely. The simple lessons you teach today will give your child a solid foundation for making a lifetime of healthy financial decisions.

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