Today's Fiscally Fit column in the WSJ offers advice on how parents can help their kids learn about money:
If you don't already give your kids a weekly allowance, summer break is a great time to start. The summer months provide a number of unique opportunities for kids to make their own choices about what to do with money. But first, they'll need some money to manage: An allowance is one of the best ways to introduce young children to the concept of managing money because it provides them with a consistent income.
By receiving a weekly "paycheck," children learn how to plan to save for what they want, and even form a mental budget about how much of their own money they want to spend. We started giving Gerald an allowance of $5 a week at age 5. (We use this rule of thumb: a dollar a week for each year of the child's life.)
Many financial experts disagree about the benefits of tying an allowance to completion of household chores. Chores are an essential part of maintaining a household, some would argue, and helping to complete those chores is part of every household member's responsibility. In their eyes, paying a child to do routine chores is inherently wrong.
But I'm all for tying allowance to some chores, particularly in the summer time. I find that giving extra allowance for doing additional summer chores is a way of making the concept of earning money tangible for Gerald, in a world where money usually changes hands electronically. My son has a regular roster of household chores, including making his bed, keeping his room tidy, setting and clearing dinner dishes, and generally picking up after himself. But the summer months bring added responsibilities, including helping my husband Gerry maintain our landscaping and keep our boat clean.
Summer vacations also present learning opportunities for the kids on how to spend the money they've earned. Instead of Mom and Dad paying for all of the outings, souvenirs, and snacks -encourage the kids to foot some of the bill. This will help them to set priorities and manage their summer budgets.
The column continues with an idea of how to work charitable giving into the lesson:
Summer is also a great time to encourage kids to be charitable. Last year, Gerald set up his first lemonade stand with his best friend. I suggested Gerald set aside a portion of the money to give away to a charity of his own choice -- an autism-research foundation we've been raising money for over the last year and a half. Not only was Gerald excited about the prospect of running his own lemonade stand, but he quickly included the concept of charity in his marketing.
First, Gerald needed to determine how much to charge for the lemonade. We calculated how much the materials to run the lemonade stand cost, and how much he wanted to earn to work the stand. Then, I asked Gerald how much he thought was too much to charge for a paper cup filled with lemonade ($1 was about right, he believed.) I suggested we split the $1 into quarters and he agreed: 25 cents for the lemonade supply, 25 cents for his earnings and 50 cents for charity. (Allotting the largest portion to charity was his idea.)
The lemonade stand was a huge success, as passersby eagerly paid for their lemonade on the hot summer day -- and in many cases, customers simply donated cash for Gerald's cause. In addition to encouraging Gerald's inner entrepreneur, the warm response he received from the customers helped him discover how wonderful it feels to work hard for others.