The Color of Money: Allowing children financial freedom can pay off

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WASHINGTON — I’ve always struggled with how much financial freedom to give my children.

I’m a lifelong penny-pincher, and I wanted my children to embrace frugality, too. So I forbade certain spending. I didn’t want them to grow up being spendthrifts.

But as I’ve matured and gotten better at parenting, I’ve realized that sometimes I have to let my children make financial decisions that won’t be wise.

Even writing that makes me grimace.

When it comes to their money, should parents let their children learn from their own mistakes?

For the longest time, back-to-school shopping for my three children created a lot of stress for them and for me. I wanted to spend as little money as possible, and my children, mostly the two girls, wanted to fit in with their friends.

They begged for more trendy — i.e., expensive — clothes. My son didn’t care what I bought.

Then one year my husband and I decided to give the children a set amount of money for school shopping. We’d give them the cash, and they could buy whatever they needed for school within that budgeted amount.

So if my daughter wanted an expensive pair of jeans that would consume the majority of her allotment, that meant fewer clothes in her wardrobe.

It worked. When they were spending our money, they didn’t pay attention to what stuff costs. They were all too busy complaining about how cheap we were and whining about where we were taking them to shop — discount stores.

But when it was their money, all of a sudden it was, “I can’t afford that.”

For several years, T. Rowe Price has been examining the attitudes parents and their children have about money. The 2017 national survey of 1,014 parents with children ages eight to 14, as well as the kids themselves, had two findings that are key to teaching your children about money: (1) Children have better financial habits when parents let them decide how to save and spend their own money; and (2) children learn to be good money managers by modeling what their parents do.

I got the modeling thing down. My husband and I always have showed by our behavior the importance of giving, the dangers of debt and the value of living within a budget.

The T. Rowe Price survey found that 44 percent of parents said they let their children decide how to spend and save their own money. The result of this financial freedom is that the kids are less likely to:

l Spend their money as soon as they get it

l Lie about what they spent their money on

l Expect their parents to buy them what they want.

The survey also found that children who are allowed to manage their money are more likely to talk to their parents about their finances.

Now that all my children work and earn their own money with various part-time jobs, I can attest to what T. Rowe Price found. My son, a rising sophomore in college, is a very cautious spender because of our talks about money.

Before spending the money he earns working as a lifeguard, he’ll generally consult his father or me. I frequently talk my son out of wasting money eating out — although, considering the increase in the grocery bill during the summer, maybe I should have let him eat up his funds.

Our girls also often talk to us about their spending plans.

I will say this, however: We have certain family values that we ask them to follow. They have to tithe. They can’t buy clothes that are offensive or inappropriate.

They need to discuss with us big buys — computer, smartphone, etc. — that could affect the money they are required to save toward college expenses. We have saved for their college tuition, fees and room and board, but they have to pay for their books and personal expenses.

Besides, we want them to develop the habit of seeking good counsel before making a major financial move.

It always helps to talk out the reasons behind a major purchase. We require them do research and comparison-shop.

So I concede that there’s merit in giving your children financial freedom with some limits. Keep an eye on their spending, and at times you may have to redirect them to a better choice or jump in when the costs of a financial mistake are too high.

Freedom doesn’t mean they’ll go buck wild with their money. If you model good financial behavior, they’re more likely to follow your example.

And if they fall, don’t be so quick to bail them out. Let them suffer the consequences. Let them live and learn.

l Contact Michelle Singletary c/o the Washington Post, 1301 K St. N.W., Washington, D.C., 20071; michelle.singletary@washpost.com; @SingletaryM

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