Advocis, the Financial Advisors Association of Canada, publishes a monthly magazine. There is an interesting article in the April 2015 issue of Forum.
“Timing Allowances” by editor Deanne Gage clearly shows the struggle that parents go through on this difficult subject. The article is not yet on line but the link above will take you to the area.
- How young is too young for an allowance?
- How much is right?
- What is money for?
- Where does it come from?
There are no perfectly age-appropriate answers, but the idea that money comes from a machine or from the “tooth fairy” are indicative of the challenge that parents face. It is a little like children in cities who have not yet connected cows to the milk they drink. They don’t seem to get it until they see the event.
Talk to children about your work. Why you do it? What you do and how that is so valuable to others that they will give you money in exchange for your ability and time? The next step would be to show how invested money earns more money and money borrowed takes money away.
Children, especially very young children, learn anything they are presented with and the indication that they learned may not show up right away. Be a little careful and try to be complete even if you think they do not get it. Repeat as necessary.
Of course children will waste most of the money. Maybe all of it. That waste is only defined in terms of what they exchanged it for. Chocolate is Deanne’s concern.
But that narrow view of waste hides other and more important values. Wasting money may still be a useful exercise. The lesson will be that money gives you choices. That is its most important value. Once you spend it, it is gone. By choosing one purchase, you automatically exclude all others. Choices are gone.
In simple terms you can only spend a dollar once and you cannot recycle wasted money. If that is the only lesson children learn about money and allowances, the price will have been well spent.
Children learn from doing and not from thinking about it. All of life is about mistakes and learning from them so as to not commit them again later on a bigger scale. Mistakes children make with money are inexpensive and parents should be sure the lesson plays out. No bailing them out.
Learning the lesson of spending wisely when it is cheap is far better than learning it when it matters. Blowing a week’s pay at 6, is easier to accommodate than doing it at age 26.
People do not learn a lot when they are right. Give children the opportunity to be wrong and be sure the important lesson is clear.
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.