Can Children Learn to Manage Money?

Today’s society is an affluent one. Many people have more money to spend today than in any other period of history. Unfortunately, too many people do not have the ability to handle this money skillfully. Lack of this ability often results in debt, frustration, and heartache. For instance, repeated studies have shown that disagreements over money management are either the most important or next most important cause of divorce.

Many people spend money impulsively. Since children are becoming more and more the targets of the advertising industry, a challenging problem for young people of today is the sensible management of money. Unless they are taught skill in planning the use of their money, wisdom in purchasing, the advantages of regular saving, and how to use credit wisely, they are headed for even more difficulties than their parents have had.

Most children receive help in school in the use of money; however, it is usually only a minor part of their total educational experience. In most instances, without realizing it, the family provides the child with the greatest amount of training in the use—or misuse—of money. In helping children learn the use of money, parents should ask themselves the following questions:

1. Does our child, according to a definite plan, receive some money that he is responsible to manage?

In order to develop skill in using money wisely, it is necessary that the child have some money to manage, even though it is a small amount. He may know what the different coins are, but this is quite meaningless unless he learns their value in terms of what they will buy. One study has shown that children who were given actual experience with money had more knowledge of money and its use than children who lacked such experience. Even though incomes may be limited and all purchases carefully considered, there are still opportunities for children to take some responsibility in making purchases.

Children usually acquire money in one of three ways: as a dole, as an allowance, or through earnings at home or away from home.

Receiving money through the dole, whereby money is given by the parent as requests are made by the child, provides the child with some opportunity to learn money management. But this system has many disadvantages. Many teenagers prefer this arrangement because experience has taught them they can get more money through frequent appeals than in a lump sum. Some parents who prefer the dole to the allowance do not realize just how much they are giving the child as he comes to them with repeated requests for quarters and dollars. Through such a dole system, he may become more skillful in managing parents than in managing a budget. This happens if the parents give extra money against their better judgment. Thus, while this dole system provides the child with money to handle, it fails to provide training in managing a sum for an extended period of time and retards the development of a proper sense of values.

The child who earns his money, either in or out of the home, is learning more about what money means in terms of time and effort than the one who receives his money either as a dole or an allowance.

In our society a child usually begins to use money long before he can hope to earn any. To provide him with the educational experiences of handling money, the allowance—a specified amount given at a regular interval of time—is recommended.

To learn more about how Latter-day Saint parents teach their children to manage money, the authors made a study of eighty-six Mormon families from four representative stakes, three in Utah and one in California. These families were visited and asked questions about how they manage their money. One question asked was: Do the children in your family receive an allowance? Among the families with children five years and over, 47 percent of the parents gave their children an allowance, while 53 percent did not.

The parent should clearly understand that the giving of an allowance also carries the responsibility of giving guidance as to its use. Standards need to be set and policy decisions made as to how the money is handled. The child feels greater security if there are limitations. When young children want to spend all their allowance on sweets or soft drinks, parents have to step in and set a limit. The allowance shouldn’t be a bribe for good conduct. The child should know that the allowance will be given to him regularly, if the parents’ income permits.

When it is possible to do so, parents should involve the child in deciding how much his allowance will be and what responsibilities he will assume in its use. In nearly 49 percent of the Mormon families studied, both the mothers and fathers decided how much allowance the child should receive. In 27 percent of the families, the mothers alone made this decision; and in 14 percent of the families, the mothers, fathers, and children made this decision together.

2. Should we gradually increase the amount of our child’s income and the responsibilities that he assumes?

Getting a sum of money at a regular time and making it last is a way to teach the child to make choices and assume responsibility in money matters. It helps the child to think of money in terms of the value of things it will buy, to save toward future goals, and to shop carefully. This is the beginning of budgeting.

How much allowance a child should receive depends on his maturity and the financial circumstances of the family. Even one as young as five years of age begins to understand that money involves buying. An allowance can be started for a child this young. He may be very happy with a nickel or a dime a week, while older children expect to receive more.

As a child matures and can accept greater responsibility, he should be given progressive increases in income and in the associated responsibilities. A study made of children’s experiences with money indicated that the more items in the budget the child was assigned to pay for with money given him, the greater was his knowledge of money.

Among the eighty-six Mormon families studied, spiritual and intellectual development of the children relative to money appeared to be important. Close to 75 percent of the families gave their children the responsibility of paying tithing. One-third of the families required the children to save some of their money.

A large share of the family income is spent for clothes, food, health, and education for a child. Through the years he can be taught to assume a greater responsibility for the buying of his own clothes.

3. Do we give our child the opportunity to share in family financial planning so that he can see the relationship of his allowance and his responsibilities to those of the entire family?

A child may be unreasonable in his demands on the family income if he has no knowledge of the family finances, whereas he may be very considerate if he does have this knowledge. Early responsibility in family conferences will help in creating a positive attitude on the part of the child. Parents ask, how early should a child know the important facts about the father’s and mother’s problems and the obligations of the family? Child development authorities advise that this should come as early as he can understand what it is all about, and this point is often reached earlier than we think.

The Mormon families interviewed gave evidence of working together to solve problems. Although 79 percent gathered together to solve such problems as family activities, family projects, and vacations, it did not appear that the children were being involved in financial planning. Less than one-third of husbands, wives, and children discussed together the home they bought or rented. Just over one-third of all families discussed together the car that was bought. Three-fourths of them discussed plans for vacations, and about one-half discussed food purchases.

4. Do we let our child assume the consequences of unwise spending?

Parents may upset the whole educational system of an allowance plan if they do not let the child suffer the consequences of unwise spending. If he spends all his money before the next allowance, and if he is not required to wait until the next allowance or if the parents give him additional funds, the purpose for which the allowance was intended is upset. If the parents want to help, they may let him borrow, with the understanding that the money is to be repaid at a specified time.

5. Do we give our child an opportunity to learn saving for a concrete objective?

When people save, most of them do so with a definite purpose in mind. A child may spend all of his allowance between the periods when he receives it. But if he is given money of his own to manage, even if he makes mistakes in judgment, he will eventually realize the reason for saving and the satisfaction it brings. Trifles he might buy will probably lose their attraction in favor of items of greater quality and lasting satisfaction.

An Iowa State University Cooperative Extension Service publication of 1962 made the following suggestions, which seem to be an appropriate summary:

“Positive guidance recognizes (1) that each child needs help in his own way, and (2) that guidance is parent-child teamwork. It involves good coaching (suggestion but not dictation of every decision) and praise for worthy accomplishment, not ‘I told you so’ when decisions do not work out perfectly. Avoid making comparisons with other children.”

[photos] Photography by Eldon Linschoten

Dr. Poulson, professor of family economics and home management at Brigham Young University, is active in community and Church service. She has served on stake boards of Sunday School and Relief Society and as a stake missionary. Dr. Christiansen, professor of sociology at BYU and former head of the Sociology Department, is on leave as a visiting professor of rural sociology at the University of Wisconsin. His Church activities have included service as a missionary, bishop’s counselor, and bishop.