Kids and money sense

When Sarah Willson's five-year-old son, James, begged her to buy him a $99.99 T-1 Typhoon helicopter Lego set, she told him if he saved up the money, she'd pay the taxes. James faithfully plunked his $2 allowance into a mason jar every week and did extra jobs around the house to get closer to his goal. After Mom taught him to add up his money on paper and with a calculator, he even posted a running tally of how much he had saved.

Six months later, mason jar in hand, James spilled out his coins on the toy store counter and walked away with his coveted Lego set. “He was beaming from ear to ear,” says Sarah.

James learned some powerful money-management lessons that day – the value of steadily saving toward a goal, working hard for what you want and paying with cash (principles many of us grown-ups have yet to grasp).

In an age when it appears that money magically spits out of bank machines and we buy stuff with the simple swipe of a plastic card, it can be hard for our kids to recognize the value of a dollar. That's why it's important to think about the money skills you want your child to have by the time he or she is 18 and start laying the groundwork today, says Alyson Schafer, a parenting expert in Toronto.

“It's like developing baseball skills: you have to practise. And the earlier you start, the better,” adds Joline Godfrey, author of Raising Financially Fit Kids (Ten Speed, 2003). Here are six ways you can help your child master money management.

PROVIDE AN ALLOWANCE
WHAT TO DO: Regardless of what you give them (the range is generally 50 cents to $1 each week for every year of their age) the key is to talk about what they are expected to do with it. Decide together how much they should save and how much to set aside for charity and let them spend the rest as they see fit.

At each step along the way, decide on which items your children can pay for instead of you. A six-year-old could buy his own treat after the soccer game, for example. Schafer's daughters, who are 11 and 12, both get $10 a week and are expected to pay for birthday presents for their friends.

If your teen is clamouring for an $80 pair of runners and you're only prepared to spend $40, have her contribute the balance from her allowance. It may make her think twice about whether those shoes are worth it.

TIP: Don't expect your kids to always spend their allowance wisely. “Parents want to give all this advice and save their kids from making mistakes,” says Schafer. “But we have to let their mistakes be lessons.”

THE PAYOFF: Karen Hobson, a nurse in Point Claire, Que., gives each of her three teens $55 a month and expects them to pay for all their entertainment, clothes and shoes with this money. “They've really learned how to plan ahead and they never blow their money,” says Hobson. “Our kids don't waste things, they've learned to be thrifty and they will shop second-hand. But best of all, they seem to be more appreciative than other kids.”