You’ve given your child an allowance, and set out rules on how she’s to use it. But—oops—she slipped up. She dipped into long-term savings for an impulse purchase or borrowed money from a pal without repaying it. How do you teach a lesson from these money management mistakes while your children are still young and their mess-ups won’t affect their credit score?
As parents, we know—intellectually—that our kids are going to make mistakes when they start handling money. After all, they fall a few times when they learn to ride a bike, right? And they’ll definitely pass to the wrong team at some point during their first basketball games. We understand those mistakes. But when it comes to money, we’re often flummoxed about how to respond.
I’ve been there myself with both of my daughters, so I asked Susan Beacham, a financial expert for kids and CEO of MoneySavvy Generation, to offer some tips on how to handle kids’ money mistakes.
Adjust your parental attitude
You may think of giving an allowance as turning over your money to your kids. Wait—your money? That’s where you need to make a shift, says Beacham. When you give your kids money to budget, it needs to become theirs. Of course, you still need to teach your kids responsibility and coach them about how to use the money, but think of that green as belonging to your kiddos now.
When your child makes money mistakes—and if he hasn’t yet, he will—Beacham offers some calm, common-sense ways to handle them:
Your child sneaks money from her piggybank savings to spend on candy. You’ve talked about the difference between her spending money and her saving money categories, but she still does this.
Your response: First, remember that your child took her money from her piggybank. She didn’t sneak money from your wallet, Beacham points out. But you do need to have a talk about honesty: When your child spends money, it shouldn’t be a secret. The biggest take-away here: Your child is telling you clearly that she doesn’t fully understand the value of saving. What’s the benefit to her of delaying immediate gratification (buying the candy) for something vague and unknown that she may buy later?
The fix: Help your child decide on a concrete savings goal of her own. Does she want to save up for a new electronic game? A skateboard? Encourage her to tape a picture of that savings goal on her bank so she’s less likely to filch her savings for some Laffy Taffy. However, if your child still ends up pulling from savings for everyday purchases, Beacham says to let her do it—without judgment or finger-waving. Eventually she’ll realize that making little withdrawals here and there means she won’t have enough savings to buy that new electronic game a month from now.
By the way, scale back on how much stuff you buy your kids once you start giving them an allowance. That way, their own purchases will be much more precious to them.
Your child borrows money from a friend and doesn’t immediately repay it. You might not find out until the kids fight about it or your child frets and decides to ‘fess up.
Your response: Borrowing and lending is a concept you may not have covered with your child yet, and that’s OK—it commonly pops up in the tween and teen years. Beacham says kids often hand money back and forth when they’re at the mall, or when one child has more than another and they’re trying to figure out how to interact with each socially—and financially.
Stay calm and take this awkward situation in stride. It’s simply a reminder to talk with your child about that good old concept “neither a borrower nor a lender be.” Money loaned between friends can get awkward, and your child is learning that lesson pretty clearly. Ask questions like, “If you were the one who loaned the money, how quickly would you want it back? How would you feel if your friend didn’t pay? How can you make this up to your friend?”
The fix: Insist that your child pay back her friend right away from her spending money or her savings. If your child is short of cash, pay the friend yourself. Now have a chat with your child about the chores she’ll be doing to pay off her debt to you. Don’t forget to counsel your kid that she shouldn’t lend money to her pals, either, if she wants to keep the friendships. Chances are, she’s just figured that out!
By the way, there’s a silver lining to your kids’ money mistakes: They’re making them now, while you’re able to help them—rather than later, when the stakes are higher and you might not be available. So let your kids mess up a little, and try to be a gentle teacher when they do. The end result: Your kids will be much savvier money managers when they hit adulthood.
Teri Cettina is a mom of two daughters and freelance writer who specializes in personal finance and parenting topics. She blogs at Your Family Money. Follow her on Twitter: @TeriCettina.