Finance 101 – Teaching Kid’s About Money

We teach our kids many valuable lessons in their formative years – how to share, right from wrong, respect for others, etc. – but, the one lesson most parents don’t teach early enough is the value of money.

As children grow older, they eventually learn about money with or without our help. But, teaching our children about money, financial literacy, early in life sets them up for a lifelong legacy. Financial expert, author, founder of Youthpreneur, an organization the encourages an entrepreneurial spirit in children, and former member of the President’s Advisory Council on Financial Literacy says, “The more control we have over our money, the less control it will have over you.”

Lechter also explains how important it is to teach children financial literacy because they see us (parents) spend money, but they don’t understand the concept of creating it, keeping it or investing it. “Kids don’t understand the relevance of earning, saving and spending,” she notes.

However, if parents make a conscious effort to teach their kids about money, they are much more likely to value it. By giving children a financial education early, beginning as early as four years old, we can help them learn to be responsible with their cash. We will also do our children and ourselves a huge favor. We will not create and reinforce the fallacy that we are human ATMs (the ole money grows on trees misnomer), setting us both up for friction, frustration and oftentimes failure later in life.

With this said, here are a few ways to get started.

1. Make children work for their money – Most children can do some small chores as early as two years old, like putting their plates in the sink, helping you pick up their toys, etc. By the time they are about four years old, you can begin giving them a small allowance for doing these behaviors. You shouldn’t give them money for doing routine behaviors like brushing their teeth or going to bed on time. They should earn allowance for doing things that are above and beyond normal daily behaviors. Determining the amount to give them is totally up to you. Typically, the recommendation for children starting out is about $4 per week.

2. Teach children to save – Children can learn the concept of saving at a very young age. Let’s say Johnny wants a Lego set that costs $12 and they earn $4 per week doing their chores. Explain to him that it will take three weeks of saving to earn enough money to buy the Lego set. This also begins teaching basic math skills (i.e. 3 weeks X $4 = $12). When they get a little older, you can throw in the lesson about Uncle Sam, the infamous TAX MAN. But for now, keep it simple.
Note: Most young children don’t quite grasp the whole savings concept. You will need to remind them and encourage them often. One great way to begin getting this concept across is with a savings jar (make it clear so they can see the money). Each week when they get their allowance have them put the money in the jar. Tell them how much money they now have in the jar and how many more weeks they have to save to get that Lego set. When they get older, you can encourage them to start putting this money in the bank.

3. Teach children to respect property – We can teach our children a lot by encouraging them to value their own property as well as the property of others. If children grow up respecting the things around them, they will learn respect for money as well.

With a younger child, the best way to teach them this lesson is by taking away a toy or other item if they mistreat it. As children get older, it should be the, “If you break it, you buy it,” philosophy. The best way to teach a child to respect property, his or hers or someone else’s, is to make them pay for (at least part of) replacing it if they intentionally break it.

4. Set a good example – Children emulate their parents. So, if they see you saving, they will save too. Set a good example by showing them that you save for things you want too. For example, have your own money jar to save up for the family summer vacation or something as simple as the family Saturday movie theater outing.
As parents, you should also be open about finances in your household. Talk about money and your financial goals in front of your kids. You must use your common sense about this though. You don’t want to worry your children by discussing serious financial troubles in front of them. But, do talk to them about financial matters – directly and in a manner that they can easily understand.

5. Make learning about money fun – Kids will be more interested in learning about money if you make it fun. A great way to do this is to set a family savings goal for something, e.g. a family vacation or a weekend outing, and begin saving for it. Make a chart and display it somewhere the entire family can see it, like on the refrigerator or somewhere in the kitchen. As you set money aside, for example, for your family vacation fund, have the children participate by coloring in the chart or writing in the new number total of the money set aside, showing the increased savings and how much closer the family is to its goal.

As your children get older, you will need to come up with new ways to teach them about money and finances. But, by beginning early, you will make this more advanced later lesson easier, as well as helping them to avoid the pitfalls of bad financial habits.

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