It’s bound to come up at some point, but for most kids the “salary question” isn’t about pay amounts. “It’s usually a hint that a broader money question is puzzling your child,” says Stuart Ritter, a family financial education expert with T. Rowe Price. So instead of blurting out the amount, Ritter suggests digging deeper: “That’s a great question. why are you curious about it?” What may really be on your child’s mind:
Is your pay like allowance? For little kids, family money is a mystery. To demystify it, show your child a pay stub, briefly pointing out the dollar amount if you like. Explain how often you get paid and that the money goes into your bank (kind of like his piggy bank) for safekeeping until you spend it. If your child gapes at the amount (“We’re rich!”), discuss costs of things like mortgage, insurance, groceries and other bills. Let him see your salary pays for important family expenses.
Do we have enough money to feel secure? A simple answer may suffice here: “We have money to pay for things that matter—our house, food, your school and more. You don’t need to worry.” And be mindful of money talk at other times so you don’t fuel concern. Rather than saying “We can’t afford that,” try “That’s not in our spending plan right now.” If your family’s finances are a little rocky, emphasize that your setback (a cut in hours, a job loss) is temporary.
Some friends live in bigger houses than we do. Do their parents make more than you? Explain that some families will always have more money than yours, and some will have less. There’s no way to know who makes what, but “talk about priorities, trade-offs and values,” says Ritter. “Talk about how your family may value different things than other families—you drive older cars to save money for college.” You often can’t tell how much people make by the way they spend it.
I'm wondering about jobs. Do you get paid as much as a doctor? More than a store clerk? Older kids may be thinking about their own job future. So give him a few broad comparisons—doctors and CEOs make quite a bit, teachers and graphic designers earn somewhat less, and so on. You can also explain that jobs requiring a college education generally (though not always) pay better, so he should hit the books. But be clear that money is not the only measure of career success. Some people choose jobs that pay less but better match their values and priorities. That’s a valid choice, too.
Along with lessons about your own hard-earned dollars, help your kids learn to earn and save their own.
Change “I want!” to “How do I earn?” Instead of saying no or yes to his material demand, discuss what your child can do to earn what he wants so he develops a strong work ethic.
Think portion control. Encourage him to assess his inflow—allowance, rewards for tasks, birthday gifts. Then discuss portions he’ll put toward saving, giving and spending to help him build healthy money habits.
Be clear about cash. Make sure your child knows what he’s expected to do before he gets his allowance. Be consistent in rewarding a job well done, as well as holding back rewards if he doesn’t fulfill responsibilities.
Get creative about rewards. Money might be too abstract a motivator for your young child. Think instead about privileges like extra TV, Internet and game time. Noncash incentives help cement the desire to earn.
Source: Doug Lebda, co-founder of Tykoon.com, an online reward bank for kids, and founder and chairman of Lending Tree and the Lending Tree Foundation