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what do your behaviors reveal about your relationship with money? For a quick look, spend a few minutes examining where your money went last month. Want to take a quick look at what you actually value? How much money did you save? How much money did you spend? How much money did you give to charity? Look at how much you have saved. Warning: This can be an “ouch” moment for many of us.

      For example, imagine walking through a mall with a young child when he or she notices one of those coin-operated mechanical horses that when you drop a coin in, it magically starts moving, providing an instant adventure. Your little one is enraptured by the sight and sound of the horse rocking and his or her awareness that another child is mounted on it bouncing up and down, squealing with delight. As you approach, your child sees that the other child is dismounting with an incredible look of satisfaction.

      Your child begins pulling on your hand, looking up into your eyes with a pleading gaze that says, “Please, please, please!” You're in a rush, but you weigh the costs of saying, “No,” and decide to consent in order to maintain the peace you need. You dig into your purse or wallet, fish out some quarters, and insert them. From now on, when your child sees something that he or she wants to do, he or she has learned that you carry magic coins with you that bring fun and happiness. If you didn't have any coins with you, you might have to deny your child that experience, and he or she would quickly learn the consequences of not having money.

      Allowances can provide wonderful teaching opportunities. There is some debate over whether allowances should be a basic right that a child has simply by being a member of the family or if allowances should be tied to a list of chores, responsibilities, or behaviors that are rewarded monetarily. Regardless of your opinion, allowances can be used to reinforce values and to teach basic money management skills.

      A common mistake is to give children an allowance without any strings attached. Don't be surprised if they mismanage it. Of course they will! Their prefrontal cortex, the part of their brain responsible for planning, controlling impulses, and delaying gratification is not fully developed until early adulthood. The best approach is to build structure around the allowance in accordance with the values you wish to instill. For example, you could teach the concepts of buckets, where the allowance is divided into four portions: 1) saving, 2) spending, 3) giving, and 4) investing, as follows.

      Saving

      Saving is important. In fact, a discipline around saving money is the framework that creates wealth. If you spend all you make, you will never get ahead. Saving for intermediate goals is a much-needed value and skill. So a portion of the allowance should go into a savings account. Children are encouraged to save for a desired object or experience, one which they couldn't afford with their allowance alone. They are taught the experience of delaying gratification and the thrill that accompanies being able to achieve a savings goal. As much as possible, allow children to determine when and for what the savings account is allowed to be tapped. Research has found that people save more when accounts are given inspiring names, so utilize this tool accordingly.8 As such, the savings account could be titled “Lorrie's American Girl Shopping Spree” or “Hunter's Rock-Climbing School.”

      Spending

      Giving

      Money can and should be used to make the world a better place. An allowance gives parents an opportunity to pass down their philanthropic beliefs. For example, you could choose three to five charities and have your child select from them, perhaps after a discussion or visits to the charities. Then after several months or even a year of saving, you can give your child the experience of giving to the chosen charity. It can be fun and reinforcing to take your child in person to the charity and have him or her hand over the funds. You could set up a meeting ahead of time with a staff member of the charity to make sure your child has a wonderful experience. The staff member can thank your child and share all the ways that the money will be used to help others. Your child could also help engage in the good the donated money will do, such as helping to distribute food or sort clothing that the donated money may have helped provide. In this way, your child can see and experience firsthand the joys of giving.

      Investing

      In addition to personal allowances, some families have a “family allowance.” This is a pool of money about which all family members help make decisions. Since most people end up in personal or business situations in which they need to share resources, this gives them the experience of negotiating and cooperating around money. The pool of money can be tracked and eventually used for the purchase of a family-centered household item, furnishing, entertainment, vacation, or even the decision on what type of vehicle the family will eventually purchase. The family allowance gives children another opportunity to see the benefits of delaying gratification and saving money. It can also be used to help them learn important personal financier skills such as comparison shopping and price negotiations.

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