Guest Post: Children and Finances

Interview with Personal Finance Expert, Pamela Yellen, President of Bank On Yourself

1.  What are your thoughts on allowances?  Good idea?  Bad?

Allowances are a great idea, as long as they are tied into chores.  The earlier children learn basic financial principles, such as the exchange of goods and services for money, the better. Too many people in our country have come to depend on others for their financial security, leaving them feeling as though they have little or no control over their future. The writing is on the wall:  We all need to take responsibility for our financial destiny and stop relying on the government, an employer, or failing social programs. And nothing builds a child's self-esteem faster than self-reliance.

2.   If you think they're okay, what's a reasonable age to start and how much should be given?

Children as young as age 4 can benefit.  An allowance can help teach them how to recognize coins, though they're also more likely to lose them. The amount the child receives for chores should be based on their age as well as what you expect them to use the money for.  Will they be expected to purchase birthday gifts for friends, school lunches, or a trip to the mall, for example?  If so, the allowance needs to be able to cover that.

3.  What do you recommend children do with their earnings?

I recommend the "40/30/20/10 Saving Rule."  40% of their earnings can be used for spending, 30% should be set aside for short-term savings, 20% for long-term savings and 10% for donating. If children sort their money into these categories every week, they will develop responsible lifelong money-management skills at an early age.

4.  How do you encourage children who are bombarded with advertisements for the latest gadgets and who are also pressured to "keep up with the Joneses" at school to save?

Trying to "keep up with the Joneses" almost brought our country to its knees.  The key is in helping your children understand the difference between a "need" and a "want."  Hold regular "family night" discussions with the whole family during which you go over the family budget and review where the money is going.

Helpful Tip:  Have your children write out the checks to pay family expenses.

Teaching by example is absolutely critical.  If you tell your children one thing, but do another, they will catch on very quickly.  Explain how there are things you'd like to buy that you decided to forego and why. And always look for things you can do as a family that cost little or no money, to create experiences and lasting memories.

5.  What approach do you recommend parents take when talking with children about finances? 

Many couples don't have regular, honest discussions about money with each other, let alone talk to their children about it. The time to start is today.  Be honest about where you are financially and where you wan to be.  Walk the talk.  Read "The Richest Man in Babylon," by George Clason, out loud as a family.
And don't be afraid to openly discuss the mistakes you've made and what you've learned from them.

About Pamela:
As a consultant to financial advisors, Pamela Yellen investigated more than 450 savings and retirement planning strategies seeking an alternative to the risk and volatility of stocks and other investments. Her research led her to a time-tested, predictable method of growing and protecting savings now used by more than 400,000 Americans. Pamela's book, BANK ON YOURSELF: The Life-Changing Secret to Growing and Protecting Your Financial Future, is a New York Times Bestseller.

She has been featured on ABC, NBC, CBS, CNN, FOX, NPR and in The Huffington Post, Fortune Small Business and hundreds of other publications. Learn more at and, her new financial education site. For more tips from Pamela on children and finances, check out 7 Steps to Set Your Teens on a Lifelong Path to Financial Success.

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