Remember allowances and piggy banks? Those were the days when a crisp one dollar bill was for candy, not something to be divided between tax collectors and landlords and banks and utility companies. Sure, times have changed, but have your spending habits?
If you were like most me, and most children, you probably stashed a few coins away in your piggy bank now and then, but knew how easy it was to sneak some coins out the top for a soda on that extra-hot day or a couple of candy bars at lunch. Unfortunately, spending habits, just like many of our other mannerisms, develop at an early age.
Here examples of money mistakes many of us make (or unwittingly teach our children to make) before becoming a teenager.
Money Mistake: Not saving a fixed percentage of every week’s allowance or earnings.
Saving is a habit that we either learn early in life, or we don’t. Good for you if you stashed all or part of your allowance away each week to save for an expensive toy, a school trip, or even college. If you squandered your allowance, chances are you still have trouble saving today. Fortunately, it’s never to late to learn a good habit, and automatic savings plans make it almost effortless to save. Grab a high yield savings account today, set a goal (down payment on a home or car, vacation, or an all-important emergency fund), then have an amount you can afford automatically deposited every pay period. Then, forget the account even exists until you reach your goal.
Money Mistake: Viewing allowances as “free money”.
If you received an allowance, regardless of whether it was in exchange for completing defined chores or not, how you perceived your first income can have lifelong implications. Didn’t see your cash as compensation for work? Chances are you were more likely to spend it before receiving next week’s cut, were not motivated to get your first job, and maybe you still resent working today.
Regardless, it’s important to remember free money is an oxy-moron. Just as you received an allowance as a kid, unexpected windfall as an adult are not licenses to shop ‘til the balance drops. In fact, consider it a golden rule of personal finance: Ignore unexpected income. Use it only to pay down bad debt, otherwise save it.
Money Mistake: Lazy summers.
There’s nothing like the memory of lazy summer vacations riding bikes and taking a dip in the nearest swimming hole. But if you didn’t work just a little bit during your summer vacations, how much harder was it to take that first job? Sure, you need to be old enough to hold down a real job, even when school’s out, but what about mowing lawns, cleaning attics, or walking dogs?
Not only is it important to earn (and save) a little money early on, but kids that begin work younger develop a strong work ethic for life, and going door-to-door to find work for yourself is the ultimate lesson in entrepreneurship. These are skills that will pay for the time lost lounging one-hundred fold over the course of your life.
Money Mistake: Repaying mom and dad for that new video game.
This one’s the parent’s mistakes, not the child’s, but it definitely impacts the child’s financial future. How many times do kids whining for a new toy, video game, or other gadget wear down their parents to the point of saying “just this one time”? But financing your kid’s every whim is far worse than spoiling him or her. It eats away at a child’s ability to save (the discipline to save, especially as a child, is already hard enough), and instant gratification reinforces the notion of being able to have what you want, when you want, without work.
If you have to give your son or daughter a loan, charge interest and make a lesson out of what interest is, why you’re charging it, and why you want to avoid paying it. If you don’t have the heart to keep the finance charges, use them to start a savings account in your child’s name.
Money Mistake: Comparing money, toys, mom and dad’s jobs, etc with friends.
Keeping up with the Jones is a tragic social epidemic in our materialistic society. Even sadder, it starts before we even understand how money works.
Even as babies, we want what other children have. As we grow older and begin to understand that there are vast disparities among our peers’ homes, clothes, and belongings, we naturally continue to covet what others have. It’s always easier to compare ourselves to people who have more even though Buddhists have long known (and doctors now agree) it makes us unhappy to do so.
Chances are the children that were happy with what they had, shared it with others, and never longed after friends’ material possessions, are doing pretty well for themselves today, and are happier to boot.