Let Your Kids Make Money Mistakes

Even though our main goal is to become debt-free and improve our financial situation, there is another goal that is almost as important. That goal is to provide our son with what he needs to be successful with managing his finances as an adult. We do not want our son to follow in our footsteps.

Chris sent me an interesting article that suggests that you let your kids make money mistakes. It’s definitely something to keep in mind as our son gets older:

A $5 or $50 misstep as a kid or teenager may prevent a $500 or $5,000 mistake as a college student or a young adult.

The key: you can’t bail the kid out. As difficult as it is for you, the child must live with the bad decision â€“ even if it crimps other activities.

[Via Minianville.com]

Boy, it will be difficult to let our son make mistakes. I will want to intervene before they happen. But the article has a great point about letting kids learn from their mistakes when they are young – and the stakes aren’t so high.

Thanks Chris for the link!

Posted by Tricia on July 3, 2008 at 10:45 AM in Kids & Money | 8 Comments »
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Sherri responded:
Posted: July 3rd, 2008 at 1:08 pm
I think can be so true! My brother was always borrowing money from my mom as a kid. He had the pretty typical “see it, want it, buy it” mentality, and he got himself into some nasty “debt” as a kid! My mom would advance him money, but at a certain point she stopped and said, your balance is X, you have to pay it off before you get any further loans! I learned from his habits as well, as the younger sibling, because when I wanted a very expensive stuffed animal (a lifelike Gund tabby cat at $40) I decided to save my money for it. I believe my mother offered to loan the money to me, but I didn’t take her offer. It took me two years, but I saved $40 and at 9 years old I had really learned the value of a dollar. I suppose I should thank my brother for his financial missteps as a 10-15 year old!?
Mar responded:
Posted: July 3rd, 2008 at 9:06 pm
Let him make a mistake (or two or three or …). My daughter is 12 and has been getting an allowance for the last 7 years. The first couple months, she definitely spent it immediately and then was disappointed when she couldn’t get something she wanted until her next allowance day or when the toy she bought fell apart fairly quickly. After that, she was much more willing to wait and save for bigger items or to buy at a resale shop. We still talk about purchases sometimes and she decided today that the $40 (!!!!) “Spirit wear” sweatshirt that the field hockey league she is joining this fall is selling is just way too expensive for the limited wearings she’ll get from it. She’s learning!
CanadianKate responded:
Posted: July 4th, 2008 at 11:47 am
This is an ongoing balancing act. I started allowances when the kids were young, straight money, no strings. My dh and I also drew allowances and all earnings from us were pooled to run the family (the kids got to keep their earnings.)

The kids are now 23 (daughter) and almost 20 (son) and almost polar opposites.

My daughter is getting married in 15 days. She just graduated from university. Between her and her fiance, who just graduated with his masters, they have $35K in savings.

We paid for her courses and $500/month living costs during the school terms. I also pay for her trips home and her cell phone plan ($10/month.) She pays all other living expenses, and her school expenses beyond tuition.

For the wedding we gave her a cheque to cover 120 guests at a hotel reception. She could do what she wanted with that (i.e. elope and pocket $12K.) She is having 2 receptions (one where they get married, another a week later in his hometown), total of 200 people but at local halls and with careful budgeting and managed expectations my original cheque covers everything, including the rings.

My son, also never asks for money but is the complete opposite. He spends until he runs out of money. If he has no money, he chooses not to eat.

We have a symbiotic relationship with him since his living at home allows us to travel for work and still keep our house (otherwise we’d have to move to an apartment from our rural house because we live too far away to hire a house-watching service and we are gone too much to ask a neighbour to check the house daily.)

So he gets free room and board. He also gets use of the car (but pays gas and routine maintenance.)

He has dropped out of college once, so that’s the end of the free education from us. He now pays for every course he takes and I’ll pay him back when he graduates with a piece of paper.

He is currently working full time at almost minimum wage and attends school two evenings a week. His gas now costs him 25% of his take home pay, his school costs are 33% of his take home pay.

He is carrying a debt with me (he shares a credit card with me so I’ve been letting him use it interest free.) Despite having 40% of his income to spend as he wishes, he spends more than that (on cell phones, electronics, movies, clothes) and the debt to me keeps growing. So as of this month he’ll be charged 1% a month in interest on the non-school portion of the debt.

That got his attention and he managed to pay all but $400 of it off in one fell swoop as a result (he’d been hoarding money waiting for me to blow my top.) We’ll see how he makes it through the next 10 days until his next paycheque (he has only $200 and expects to use over $150 in gas so he’s doing his not eating thing now – eating dinner at home when he can but skipping lunches because he has no money.)

Two kids, same parents, same upbringing but different as night and day.

All I can do is live by example and work at nudging my ds to financial freedom. On the bright side, he has a very sensible girlfriend now so he’s hearing the frugality advise in stereo now!
Sherri responded:
Posted: July 4th, 2008 at 12:18 pm
@Canadian Kate-it’s amazing how 2 people can grow up in the same house with the same rules and turn out totally different. My brother and I grew up in the same house and we are so different about so many things! Best of luck to your two kids.
Chris responded:
Posted: July 4th, 2008 at 10:10 pm
I can see how this would be very important. I have a 1 and 4 year old. I certainly don’t want them falling down the same path I did with debt. I also wish I would have learned my lesson sooner. I did not have any mistakes to learn from until I got my first credit card at age 18. I grew up with very little money and this credit card seemed like the solution for me at the time.
Cana responded:
Posted: July 7th, 2008 at 1:44 am
Yes, kids will learn right from wrong.

http://www.parents-kidz.com
Dona responded:
Posted: July 7th, 2008 at 4:20 pm
Here, here, let’m make mistakes. I know this is a hard one. We give our two oldest boys just $20.00 every two weeks–they do have certain chores linked to it. NOT normal household things. But they do have to mow the yard. If my husband does it, they know they won’t get paid.

Anyhow, my husband has a hard time letting them “blow” their money. But he is slowly coming around to my thinking. It is slowly starting to sink in…. Just don’t bale them out! That is the key. We stressed that this higher allowance, meant no nickle’n dime’n mom and dad. No loans, from us or their siblings! My hope is this will teach them to truly save and learn now and not later.
Matt responded:
Posted: September 12th, 2008 at 8:38 am
I tend to agree that you have to let kids learn from their mistakes so long as you teach them about good habits along the way. I grew up not really knowing the basics of even balancing a check book. As such I worked a lot through high school and college but had nothing to show. I would blow my paychecks and not think about saving or even trying to keep a balance in the bank.

I think that if I had been shown how to manage money and understood the concepts of credit, debt and loans I would probably be in a different situation today.