Your Kids and Your Money

I have always thought that the parenting sub-genre of personal finance was a bit odd. Yes, I recognize that for many of us kids are a big part of life, and anything that is a big part of life is a big part of personal finance. But there is more to it than that.Birthday party - Tudokin

The parenting sub-genre is not just about saving money on school supplies.  When people talk about their offspring and personal finance there is at least a subtext of teaching the next generation valuable lessons that, it is implied, will keep them from being as screwed up as their elders. Good luck with that.

A case in point is an overwrought piece at the WSJ Is It a Harmless Gift…or Is It an Indulgence? Now, for the sake of argument, I am willing to concede that there could be such a thing as a harmful gift for a child. For example, a shotgun or a bottle of bourbon, or both, for somebody too young to appreciate the dangers of misuse could end very badly.

But the column is about the author’s husband, who spontaneously buys such childhood destroying items as Lego and Hot Wheels for his sons, aged 4 and 5. And it gets worse: on occasions when they have cake at Dad’s office, he brings home two slices for the boys. It is a wonder that Mom has not yet filed for divorce.

She does admit that she is trying to improve on the way she was raised, in a “a cocoon of softness and plenty,” by creating a false scarcity for her kids. Hubby, having been brought up in actual scarcity in Uruguay, wants to improve on his upbringing by buying his boys some cool stuff. I am with Dad on this one.

Four- and five-year-olds are self-centered and materialistic hedonists interested only in their own amusement. Later in life they will learn that the best things are free. Or not. Restricting the Lego supply now will not teach them a thing. But it will give Mom and Dad something to argue about while stuck in traffic.

When you get down to it, much of the intersection of personal finance and parenting concerns the conflict between the natural urge to give your kids stuff and the fear that doing so will ruin them.

This week’s go-round of the Carnival of Personal Finance, edited by a high school senior (that is, an actual child) contains a clutch of parenting items, all variations on the same theme.

Should Parents Pay Children an Allowance? Concerns the relatively subtle question of whether or not the money you give to your kids should be tied to chores that they perform in the house. The writer thinks so, and he teaches his kids the “principles of stewardship by providing opportunities for them to earn money and budget it with give, save and spend banks.” His eldest is seven.

The Parent Tax passes along a scheme under which you impose a 10% tax on all monies acquired by your children, allowance, gifts, and outside wages included. The kids, of course, will object.

Much like the government charges you for its services through taxes, the parents need to charge their children for the services they provide. They provide housing, food, clothing in addition to luxuries like cell phones, cable TV, computers and more. The children of course hated the idea and wanted to spend the money on what they wanted. They complained often but the parents continued to collect the tax. I know as a kid I would have hated it, but there is a lesson to be learned.

The punch line is that you actually save the money and surprise them with a check to help them on their way when they leave home. And in the meantime, valuable lessons are learned.

And When should you let your kids get a cell phone? addresses what I think is a popular head-scratcher for us parents, if only because we do not have our own childhoods to use as a guide. And it shares some stats that surprised even me. Not only do 85% of 15-18 year-olds have cell phones, but 31% of 8-10 year-olds have them too. I know a few adults who still do not carry them.

The post points out something already known to those of us with pre-teens and teens in the house. Cell phones in the hands of kids are useful and convenient for the parents. I can talk to my daughter any time I want to, no matter where she is on the planet, by picking up my phone and pressing a button. For a little extra money, AT&T will provide a service that will tell me her exact location within a few feet. (I have not signed up for that yet, but she starts high school in the fall.)

Remarkably, the little fools are oblivious to the Big Brother aspect of this important tool of control and actually think it is a great benefit to them. Which introduces the threat that perhaps by giving them a phone you might be spoiling them. Of course, the author of the post tells us that the kids should pay at least a portion of the cost themselves, and maybe all of it when they are old enough.

I once met a woman at a party who claimed (I am pretty sure she was joking) that she was keeping a list of all the childhood traumas she was inflicting on her kids: the time I forgot to pack you a lunch for the field trip, the time I ruined your teddy bear in the washing machine, etc. Her plan was to give them the list when they became adults so as to save time and money in psychoanalysis.

The problem with that is that the incidents you as a parent think are scarring will likely have no effect on the child, if they even remember them at all. And although they will have plenty to complain about to their analyst, it will be a set of events that did not seem all that important to you at the time.

I do not think that constructing scale model personal finance worlds for your kids, complete with chores they do for money which you tax and then charge them for utilities like cell phones, teaches them anything very useful about actual personal finance. Kids do not learn how to drive on the bumper cars. They learn by watching adults do it and by being put behind the wheel of an actual car.

My advice is to teach your younger kids all you know about economics and business. When they are older, start giving them the money for the necessities they need such as clothes and books, and let them budget and spend.

And if you really want to teach your teenager what it is all about, have him do your taxes. Lots of real world lessons there.

[Photo – Tudokin]

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