kid putting coins in jars

Raising Money-Smart Kids

words by Lori B. Murray


Sometime early in life, usually around the preschool age of three, a kid discovers money. They figure out they need the shiny stuff in mom’s purse if they are to get their paws on that special toy they just saw advertised during cartoons. They know that money has rewards, but what they don’t know is how much value it has.

Teaching kids about money and saving is an ongoing process. As soon as the child is old enough to understand that money is a way to get the things he wants, it’s time to begin teaching some basic money concepts. For some children, that may be as young as preschool, and experts agree that it’s okay to start that young as long as the concepts being taught are not abstract. Still, the lesson doesn’t end with preschoolers, as anyone with teens is aware, lessons about money and saving are ongoing. Knowing that, following are some tips to help parents teach their kids about money and saving.

How To Teach Money Concepts to Kids

While preschoolers may be ready to learn basic money concepts such as calling coins by their names, keeping money in a safe place and paying for something at the store by trading money for it, other, more abstract concepts are way beyond their grasp. It’s not until elementary school, when kids begin to understand numbers, that they can really understand money issues. At this age, they have the concept of one-on-one correspondence, says Yvonne Gustafson, parenting consultant at the Elizabeth Blackwell Center in Columbus. In other words, if you have 12 cookies on a tray, they understand that either 12 friends each get a cookie or two people each get six cookies. Other concepts, such as debit and credit cards, are beyond most elementary children. Nevertheless, it’s a money concept that should be introduced to older children, especially before they head off to college and get bombarded with credit card offers. In general, parents should know where their child is developmentally before introducing certain money concepts.



Tips for Giving Your Child an Allowance

Allowance is a wildly debated topic, but the debate most often centers on whether the allowance should or shouldn’t be tied into family chores. Like most money issues, what a child is taught is closely linked to the family’s values. Thats why one school of thought believes that kids should do family chores simply because they are a member of the family, much like Mom or Dad doesn’t get paid for mowing the lawn or doing the dishes. Kids can earn extra money for chores they do above and beyond the norm, or if they decide to mow a neighbors lawn. On the other side of the argument, there are parents who believe that allowance should be connected to the work a child does around the house.

Experts warn against some common allowance pitfalls, such as using it as a reward or punishment. That means parents shouldn’t withhold a childs allowance if he doesn’t eat his dinner. Likewise, they shouldn’t use an allowance to entice good behavior, such as offering it in exchange for good grades. Consider alternative rewards, such as a trip to the park, a new book or an afternoon at the movies. If it’s necessary to take away privileges, try withholding TV time instead.

What Kids Learn From Having An Allowance

The purpose of an allowance is to teach children how to make decisions, how to prioritize between needs and wants and how to handle money. Still, it may not be practical for every family, and not all families can afford to give their child an allowance. It’s best to base the decision on the individual situation.

Alice Crites, extension educator at the University of Nevada and creator of the Money On The Bookshelf program for young children, also cautions parents to carefully structure the allowance. ”Keep track of how much you are giving the child, and make it clear what that should cover,” she says. ”Adjust it according to the child’s age. When deciding how much to give your child, consider the age of the child and what the allowance will cover. The allowance should be enough funds to cover the agreed-upon expenses with some left over for extras,” says Crites. ”Yet, limit the amount given to require children to make choices.”

All debate aside, experts know that an allowance system can work when parents set clear rules and guidelines.

All debate aside, experts know that an allowance system can work when parents set clear rules and guidelines. Crites encourages parents to carefully consider the following: What will the allowance cover? What items do you currently buy that your child will now buy using allowance money? What can or cannot be purchased regardless of whose money will be used? Will the basic rule be that your child receives no additional money if he or she runs out of allowance money?

How to Teach Your Child to Budget

”All families have the goal for their child to learn the responsible use of money, but we all do it differently,” says Gustafson. “That’s why spending categories will vary from family to family. If a parent values saving, then he should encourage his child to save. If the family believes that money should be given to church or charity, then include that in the childs budget. Establishing categories, such as savings, spending and giving best accomplish this. Decide beforehand how much should be placed in each category, and remind the child of upcoming expenses. For instance, a parent might say, ’Joey’s birthday is coming up. How much will you need to set aside for a gift?’”


Mom with daughter looking in piggy bank

Establishing a Savings Account for Your Child

Crites believes that children as young as four or five can start saving money in a savings account, but not all financial institutions are receptive to children’s accounts. It may be necessary to shop around for a bank that meets the needs of your child. For very young children, it may be easier to save in a piggy bank. Young children sometimes think that if they give their money to the bank to hold, they may never see it again.

Still, not all kids are motivated to save. ”Saving is an adult value,” says Gustafson. Consequently, kids may need an incentive. One way to do that is to hold off on buying something your child really wants, instead forcing her to save for the larger purchase. This also teaches delayed gratification, a concept that our society tends to devalue. Some parents encourage saving by contributing matching funds to their childs savings. For every dollar the child saves, Mom and Dad agree to add a dollar of their own.

How to Teach Children to Be Savvy Shoppers

That means they need to know about advertising and the importance of being an educated consumer. Encourage them to think carefully about a purchase before they buy. One of the best ways to accomplish this is to leave the wallet or purse at home. That eliminates spontaneous spending and encourages thoughtful shopping. Talk about fads, and warn against spending money on trendy items. Gustafson says, ”When your child says, ’But, Mom, everybody has a pair of shoes like that,’ it becomes a wonderful learning opportunity. The parent can say, ’Lets go see what that costs. Then, How would you earn that money?'”

But there may also be times when it’s okay to let your child make a poor purchasing decision. It’s often the best way for her to learn. A parent’s role is to guide, but not dictate.

Sharing Family Finance Information With Your Child

This teaches the child that money is limited, and that is why they can’t have everything they want. ”Let them watch you pay the bills and explain total income versus bills and how much goes into each category,” says Crites. Gustafson agrees: ”We are trying to help them understand that family resources are finite,” she says. ”There is a pool of money that the family has for different things. So much can go for playthings, so much for house and food and electricity. Spell it out for them with Monopoly money if you have to.” The more information the parent shares, the less the child will worry and the better she will understand.

How to Teach Older Kids About Investing

As early as junior high school, and definitely by high school, kids are ready to learn about the benefits of investing their money. The National Association of Investment Clubs is a non-profit organization of investment clubs and individual investors. It is dedicated to educating its members about sound investing principles that will help people become successful long-term investors. NAIC Vice President of Development Robert A. O’Hara says that kids have an incredible advantage when they begin investing at an early age. ”We advocate investing a little bit of money each month, buying growth companies and holding them for the long term,” he says. ”When you look at the time benefit of our program, the earlier you get started, the better off you are.”

But parents have to help with the commitment. “I told my teenage son, Tyler, that we were only talking about two pizzas a month, and that is the $20 going into his investment account,” says O’Hara. You need to readjust your life to put that money aside. To get kids interested, he suggests setting up a custodial account for the child at an early age and encouraging the child to invest regularly. ”Consider matching what they invest dollar for dollar,” he says. ”Then they can be off on an investment by 50 percent and still not lose any money.” Another good way to build interest is to establish a family investment club where funds are pooled and invested together.

The NAIC works hard to educate kids about the benefits of investing. Its Young Investors newsletter is targeted to high school kids. “I have seen a ton of great kids, and many are much better investors than I am,” says O’Hara. ”Learning how to find companies to invest in is not all that hard. It’s strictly a matter of the monthly discipline to do something. With discount brokerage firms and fractional share purchases, you can put in as little as $10 if you want to. But then you are on your way.”

The bottom line is that families need to talk about money and money issues, increasing communication along the way in order for kids to learn about money and how to manage it well. Life is full of everyday experiences when parent and child can share their thoughts about money and saving. Simply remember where your child is developmentally before you tackle a subject that is beyond his realm.

Help your kids on the road to being independent adults with great hands-on lessons. You can teach them at home about gardening and growing their own salads, a healthy and economical project. Teach organizations skills, simple cooking like this easy roasted turkey recipe, or even extra fun Harry Potter-inspired recipes the kids are sure to love.


LORI B. MURRAY is a mother of 3 financially savvy kids, has been writing about parenting issues for the past 10 years and her writing has appeared in many regional parenting publications as well as Child, Parents, Woman’s Day, and Family Fun., a collection of local resources including a popular calendar of events, family services guides and features on education, health and family day trips for parents and teachers in Charlottesville, as well as Virginia Wine & Country Life, a semi-annual life & style magazine, and Wine & Country Weddings, an annual art book celebrating elegant Virginia weddings.

One thought on “Raising Money-Smart Kids

  1. Pingback: Tips on Being A Great Homework Parent - Charlottesville Family

Comments are closed.