Looking for ways to teach your kids how to be financially responsible? I’ll walk you through how to create or tweak your current money boundaries.
In Dr. Henry Cloud and Dr. John Townsend’s landmark book on kids + boundaries, they say the following,
“Your task as a parent is to help your child develop inside him what you have been providing on the outside: responsibility, self-control, and freedom.”
There are a lot of articles out there on how to establish clear boundaries with your child so that they understand where their responsibilities begin and where your responsibilities end.
But I haven’t seen many articles – if any – on how to establish clear money boundaries with your child. This is the #1 tool you have to teach your kids how to be financially responsible, so you bet we’re going to cover it!
First up, what the heck is a boundary, and a money boundary at that?
What is a Money Boundary?
Again, we’ll turn to the father of boundaries, Dr. Cloud, to explain what one is. Dr. Cloud states that,
“A boundary is a property line. It defines where one person ends and someone else begins. If we know where a person’s boundaries are, we know what we can expect this person to take control of: himself or herself. We can require responsibility in regard to feelings, behaviors, and attitudes.”
Now we’ll turn this same definition onto the money scene to define what a money boundary is. A money boundary defines where your money ends, and someone else’s (in this case, your child’s) begins. But not just the money; it clearly defines the money responsibilities you are taking on, and the money responsibilities you expect your child to take on.
And of course, money boundaries are a moving target – as your child develops, ages, and gets experience with dealing with their money, they’ll take on more and more of their own money responsibilities until one day they assume them all.
In other words, you’ll be defining these money boundaries in your household until your child becomes a financially independent adult (and even then, you’ll have a new set to take on).
Why Do You and Your Child Need Money Boundaries?
When your child is really young, then you know who is going to pay for what: Mommy and Daddy.
Then they start to grow up, and they take on more household responsibilities. They also develop different ideas from you about what a “need” and a “want” is.
Like when they’re 8, and are always asking for gum at checkout – do you:
- say no
- or have them pay for this extra by themselves?
Or what about when they’re a tween and very brand aware. Suddenly the shoes you want to buy them for back to school are just not good enough. So, you’re still fulfilling the need for them, but they have the “want” of buying a pair that costs $50 more. Who should pick up the extra tab?
Or what about when they’re 14 and want to buy all their friends + schoolmates Christmas presents – is that your responsibility or theirs?
Money boundaries do the following:
- Set up clear money responsibilities and expectations of both you and your child.
- Allow your child to make planned spending decisions because they understand what you are and are not going to pay for.
- Allow you to slooooooowllllyyyyy pass off the financial baton to your child in a way that is both controlled and manageable, so that one day, your child will be a financially independent adult.
- Require your child to own their money problems. And having ownership of a problem means they’ll be much more likely to take care of it (versus if they think someone else will handle it).
Setting Up Your Own Money Boundaries
It’s time to set up some of your own money boundaries, or to tweak the ones you have in place.
Something to think about before we begin: money boundaries are not JUST for the parent. They’re also for the child. A child needs to have money boundaries as well in order to encourage them to set their own boundaries with others, to fully embrace responsibility for themselves, to learn from their mistakes, and to fully learn how to best manage their money.
The way I like to teach money boundaries is by designing them into + around your Kid Money System.
Pssst: not sure what a Kid Money System is? I’ve got you covered.
If you don’t have one of those in place, then for now you just want to wrap your head around the steps below and start thinking about your comfort level for each.
Step #1: Figure Out Your Current Set of Money Boundaries
You likely have some money boundaries already set up, and just might not have formally told your child, or formally acknowledged them.
For example: perhaps you have your child pay for their own monthly data plan on their cell phone, or pay for their own gum that they want, or you expect to not find money crumpled up on their bedroom floor (yes…this is actually something parents deal with!), or you pay your child for certain chores and have some sort of chore oversight system in place before they get paid.
Take the time to reflect on your current money responsibilities + expectations you’ve given your child already.
Step #2: Choose Which Money Boundaries to Tweak + Add
Now, take a look at the following money boundaries list I’ve come up with and see where yours need some work.
- Money Loans/Advances: Do you allow your child to take loans out from you/siblings, or do you allow allowance advances when they overspend? The opposite of this is a no-bailout policy.
- Spending Rules: Do you have veto power over the purchases they want to make? How about a spending threshold, where your child needs to discuss with you before spending over a certain amount of their own money on something?
- Negotiations for Pay: Do you invite allowance or chore pay negotiations from your child? Or do you establish the pay rate?
- Spending Responsibilities: Have you clearly outlined what your child is expected to pay for from their own money, and what you will pay for? This could be based on wants vs. needs, specific items or categories, specific events, etc.
- Replacement Cost Rules: Who is expected to pay for the replacement costs to things like broken iPhones, lost soccer cleats, or sister’s decapitated Elsa doll?
- Using Your Money Accounts: Can your child use your debit or credit card to make an online purchase, and then pay you back?
- Raiding/Stealing Money: You’d be surprised (or maybe not) that many parents deal with small theft in their household. You need to have clear boundaries (that go both ways) about using someone else’s money. Raiding a piggy bank when you’re short on cash? Think twice about doing that and how your child may perceive it in terms of them being able to “raid” your wallet one day when they want something they deem important to them.
Step #3: Build these Money Boundaries + Responsibilities into Your Kid Money System
Take the money boundaries work you did above, and design it into your Kid Money System.
While this is an entirely different article in itself – you can sign up here to be notified when my free 48-hour Kid Money System Challenge opens again:
I’ll give you some ideas to get you started:
- Establish your child’s own banking system for their use (money jars, savings account, allowance apps, debit card/checking, etc.).
- Establish clear payday cycles so that your child can plan out their spending and avoid payday loans and advances.
- Establish clear oversight and rules for what you expect in return for the allowance or chore commissions or consultant fees you’ll be paying your child.
I’d like to close this down with one more quote from Dr. Cloud,
“Children raised with good boundaries learn that they are not only responsible for their lives, but also free to live their lives any way they choose, as long as they take responsibility for their choices. For the responsible adult, the sky is the limit.”
Now isn’t that what we all want for our children?
Make sure you bookmark this article so that you can come back and go over your money boundaries now, as well as in the future as your child’s money understanding + needs change.