“Go with your gut.” That’s what a wise journalist once told me when I was a young writer at Money magazine having trouble meeting a deadline. Parenting isn’t all that different. A host of issues — navigating the emotional minefield of middle school, limiting screen time for adolescents and grappling with questions about drinking and drugs in the teen years — can come up at a moment’s notice, and then force us to follow our kishkes (Yiddish for “intestines” or “guts”).
As a financial journalist of nearly 30 years — and a mom for more than two decades — I have some pretty strong gut instincts about my family and personal finance. But old habits die hard, so when I decided to write a book about raising children to understand the financial basics, I took a couple of years to pore over every behavioral economics, social psychology and financial paper I could find that was relevant to the topic of kids and money.
One discovery I made: When it comes to money, we parents may want to start with our instincts and then actually do the opposite. That’s because some of our intuitions about money — and ideas about how to teach our children about it — are just plain wrong. Whether they’re based on urban myths, family legends or our personal biases, what we think is the right thing to do could lead us and our kids down the wrong financial path. Here are six parenting choices and why they may be flawed.
The mistake: “I give my kids money for chores.”
Why it’s flawed: Doing household chores is a must. Chores instill values like hard work, a sense of responsibility and the feeling of being a team player in a family. Research from the University of Minnesota found that children as young as 3 or 4 years old who consistently did basic chores throughout their childhoods were more likely to reach financial milestones like graduating from school or starting careers.
Getting paid for chores, however, undermines a much better motivation for doing them: helping out. Besides, are you willing to turn every household chore into a bargaining opportunity for your kid? You say unload the dishwasher; he says sure — for an extra fiver. Or worse: What if he decides it’s worth it to forgo his $10 allowance, if he doesn’t have to take out the recycling? So now you know: Don’t give cash in exchange for chores. Keep the two separate. It’s okay, though, if you want to pay for one-off jobs like organizing your photos.
The mistake: “Smart parents give their children allowance.”
Why it’s flawed: Allowance? It’s nice but hardly necessary. It might help kids develop responsible money habits, it might not. I looked at more than two dozen studies and the findings are all over the map. “Children and money,” a study from the University of Toronto, concluded that kids who get allowance are better than others at understanding credit cards and prices. A different study from the U.K. found that those who were paid allowance were actually worse at saving than those who earned their cash working odd jobs.
If you are doing allowance, it’s important to follow a few basic guidelines: Be clear about what the money is to be spent on, but give your kid some control so she learns how to manage what she has and discovers what it’s like to make the occasional retail blunder. Don’t give allowance in exchange for chores, for the reasons I give above. Be consistent about doling it out. And finally: Use cash, not credit, because nothing teaches a person the value of a dollar like actual bills.
The mistake: “I’ll steer clear of paying-for-college talk until 11th grade. Any sooner will stress everyone out.”
Why it’s flawed: You need to start talking early. And by early, I mean ninth grade. Getting a rough sense of how much financial aid your child is likely to receive and how much she can borrow (start by using a net price calculator) will get you thinking about what you’re willing and able to spend out of your own pocket. Is it time to tighten the family budget? How can you and your kid put more money away? These are questions that many parents are afraid to ask, but confronting the facts and figures — early — will actually reduce your anxiety and give you and your child a shared goal to work toward. I know a number of people who told me they worked hard in high school and got into their dream schools only to be told by their parents that there wasn’t any money saved to pay for them. Prep is important.
The mistake: “Paying my kid for a good report card is the best motivator.”
Why it’s flawed: According to a 2015 survey, almost half of you are doing this — and I’m sorry to say you’re all getting it backward. Rewarding your child for good grades or test scores with cash is simply not effective. Don’t believe me? How about some science? Harvard economist Roland Fryer and Bradley Allan tried paying tens of thousands of public school students to improve their academic outcomes and found that the cash didn’t move the needle on math and reading test scores. But they did find that rewarding kids for completing steps necessary to getting those scores and grades — handing in homework on time or completing a reading assignment — can be a good motivator.
Then there’s the effect bribes have on a young person’s self-worth. Just like paying kids for household chores, when you pay a child for something as important as education, you might be telling him that he isn’t capable of motivating himself. And when it comes to getting good grades — or anything that requires hard work — self-motivation is key.
The mistake: “I’m going to co-sign a credit card with my kid before she goes to college to help her build up credit.”
Why it’s flawed: Thanks to the CARD Act of 2009, a kid can’t get her own card until she’s 21, unless an older adult co-signs or she can prove she has the income to pay her bills. It’s normal for you to want to give your kid a jumpstart on building credit, so you may be tempted to co-sign that first card in your child’s name. If your kid is too young and doesn’t earn enough to qualify for her own card, resist the urge. If she doesn’t pay her bills, her credit record will take a hit — and so will yours. If she has student loans, she’ll be building up credit anyway. (Just don’t miss a payment!) And when the time to get a card comes, shop for one with a low interest rate and no fee.
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If you want to help even more, show her how to keep out of trouble. When your child turns 16, start talking to her about credit — that’s the age when the Federal Trade Commission recommends we start checking credit reports annually for errors. At AnnualCreditReport.com, she can review reports from each of the three major credit bureaus for free. It’s unlikely your teen even has any information on her report, but if she does, it may be fraudulent. To remedy it, see the FTC’s information on child identity theft. Credit Karma can help you check more frequently. You won’t see the official report, but you’ll get a rough idea where your kid stands.
The mistake: “If I let my kid move home after college, she’ll turn into an even bigger slacker.”
Why it’s flawed: Sounds like a nightmare, right? You finally get your grown child out of the house and into college, then four years later she’s back — and won’t let go of the Roku remote. Well, rest easy: From a financial perspective, allowing your kid to move back can be a smart move. I’ll explain. If she uses the time well, a stint in her teenage bedroom can give your recent college grad the breathing room and low living expenses she needs to find a job and save up enough for her own place. It’s also a great time to get a jump on student loans. I moved home after college in the ’80s, and in just 18 months I’d paid off $10,000 in student debt. (That’s $22,000 in today’s dollars.)
The catch is, there have to be some new house rules. Mainly, she has to save money — for an apartment and for at least three months of living expenses in case of an emergency. Without the emergency fund, she might boomerang right back to your nice, quiet house. And I tend to be strict about this one: Make a written contract that explains exactly what you’ll expect her to add to the mix, from chores to grocery money to — if this makes sense in your situation — a modest monthly rent.
Beth Kobliner is a personal finance journalist and the author of Make Your Kid a Money Genius (Even If You’re Not).