I haven't met these parents that Suze Orman told me about, but she insists they exist: Parents who give their children allowance for doing nothing or for just bare minimum chores such as making their beds or keeping their rooms tidy.
Allowances shouldn't be given just because the child thinks they're entitled to getting money, Orman said in a telephone interview with WalletPop. It should be given as a way to teach values and also to encourage independence.
And please don't call it an allowance -- which sounds like an entitlement -- said Orman, who prefers "work pay."
"If they want money, they need to be able to work for that money," she said.how to prepare children for an allowance, and one rule of thumb that I came across in my research was setting the allowance at the age of the child, with more paid responsibilities coming as they grew older. A 6-year-old earns $6 a week for doing all of their chores, and a 10-year-old gets $10 for doing more chores. Orman didn't agree with me on paying by age, such as $6 for a 6-year-old, but she did agree that kids can earn more as they grow older and take on more responsibilities.
The pay should be a sliding scale with, for example, simple chores that pay $3 and others such as mowing the lawn that pay more, such as $5, Orman said. Children can pick which chores they do, but they can't skip a $3 chore for a $5 one, much like an employee can't start earning a top salary before doing the lower-paying work.
What children shouldn't get paid for are tasks that affect their immediate environment and are part of the responsibility for living in a home, Orman said, including cleaning a bedroom and making the bed. Mom and dad don't get paid for making dinner or washing the dishes, and there are responsibilities that everyone must cover to keep a household running smoothly.
"Work pay" could include areas outside of the child's immediate living area and areas that everyone enjoys, such as washing the car, vacuuming, polishing silverware and mowing the lawn, she said. Parents should ask their kids how much they think their energy is worth, and set up a pay range of jobs at home so that the kids can decide what their time is worth.
Orman, who doesn't have children but has a niece and nephew, recommends starting "work pay" at age 4. Orman's website MoneyMindedMoms.com helps families with financial questions and has tips for raising money-minded kids.
Here are her four top financial lessons to teach children:
1. Words Matter.
When leaving for work in the morning and a child is tugging at you, don't say "I hate that I have to go to work, but Mommy has to make money," Orman advises. That sends a message that you hate your job and hate making money.
2. There is no Tooth Fairy.
Don't pay for lost teeth because it sends the wrong message to children, she said. "On some level you are saying 'Loss equals money,'" she said. "Loss does not equal money. Loss equals less money."
3. Make Money by Saving Money.
Get your children involved in the monthly bills. Show them how much the gas and electricity bill is, and promise to split any savings with them at the end of three months. Use bills from three winter months, for example, so that usage is the same to heat the house, and tell them that the amount that the power bill drops over that time will be split in half with the children. That will get them turning off lights in empty rooms and wearing sweaters instead of cranking up the thermostat.
4. Make Money by Spending Less.
Orman recommends that parents take all of the toys out that a child bought, and adding up how much money they cost. Then show them how much money they'd have today.
When her nephew was 6, Orman asked him to pull out every Power Ranger toy he had received as a gift. They totaled $300, and she put 300 $1 bills in front of him and asked him which he'd rather have. He chose the money, but Orman told him he couldn't have it because he already had the gifts.
It sounds like a harsh lesson on a 6-year-old (which his parents agreed to beforehand), but one that shows there can be more pleasure in saving than in spending and gifts.
Orman's solution is to give a 20% match to any money a child saves instead of buying something.
For financial pitfalls to avoid with children, Orman recommends trying to instill at a young age that they, not their belongings, define who they are.
Orman started working at her father's deli when she was 13, taking the bus there after school and staying until it closed. She recommends that children start working at age 12 so they can earn their own money for what they want to buy and to save for college.
All of a college education -- 100% -- should be paid for by students and parents should not pull from their home equity, retirement savings or elsewhere to pay for it. Student loans are OK for the student to take out and learn how to pay for something they want, she said.
"Let them learn what it feels like to acquire a loan," Orman said.
But ideally, parents should teach their kids to save and work hard so that they can get through college without borrowing money, she says. It's an idea that's gaining traction in some personal finance arenas.
Otherwise, parents can start a 529 college savings plan if they have extra money, and pay off their child's student loans after college if they so desire.
That seemed to be one of the most important messages Orman has -- that everyone is responsible for their own financial life and should pay as they go and not rely on credit cards, home equity loans or other such ways to get through life.
Responsibility for one's self is the greatest life lesson a parent can teach a child -- through action and not words. As a parent, I have to agree with that.
Aaron Crowe is a freelance journalist in the San Francisco Bay Area.
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