Kids and Money

Kids know what money is at a very young age but don’t necessarily understand what it means or what it can do.  Throughout the year, your children may receive money for various reasons.  They may receive cash for birthdays, holidays, baptisms and graduations (seems like the average kid goes through at least six graduations by the time he is 18).  Perhaps you have a little entrepreneur on your hands who has created a lawn mowing business, is a dog walking extraordinaire or takes care of the neighborhood children on Friday nights.  What should kids do with that cash?  Here are a few tips when dealing with children and money:

Let them make the final decision.

Everyone likes to get new things and do enjoyable activities.  Help your child make a wish list of all the items he would like to purchase or events he would like to attend that cost money.  Talk him through the details of what each item or event actually costs and how he would like to prioritize the items.  Help him weigh the options and offer your advice, but let him make the final decision.  This process helps children learn from their mistakes or, conversely, gives them a sense of accomplishment from making a wise choice.  If they blow all of their hard-earned funds on toys that break down or are quickly neglected or coveted shoes that rapidly fall “out of style,” children will (hopefully) learn a valuable lesson.  Even if you think they are spending foolishly, bite your tongue and let them figure it out. 

Take Advantage of the Learning Opportunity.

Use the money as a teaching tool.  Help your child create a budget by identifying how much money (or income) she has and how much of it she wants to spend on her list of desired items.  Kids rarely look at price tags if they know someone else is paying the bill, but when it is their money, they realize only a finite amount exists and it should be spent wisely.  Learning to manage money at an early age will help youngsters understand the consequences their actions, promote goal-setting and aid them in understanding the concept of self-control.  You also could use this opportunity to educate your child about the stock market. Help her research a company she is familiar with (McDonalds, Apple, Disney, etc.) and have her determine which company she would like to invest in and why.  Buy a share or two of stock and actively watch it together to help her understand market moves and develop a realistic view about investment returns.

Teach Them Values.

If being charitable is important to you, use their income to help instill that value in your children.  If you believe in giving 10 percent of your income to charity, explain that to your kids, help them calculate the percentage and let them choose where the funds will be donated.  They will experience the joy of giving and feel very grown up doing it.  Many people do not understand the “pay yourself first” saying.  Help children determine a long-term financial goal (e.g., saving up for a bike, a laptop for college, a car or building an emergency fund) and have them allocate a certain percentage of their income to fund those goals BEFORE they can make any purchases with the money. 

Many young adults today feel like they are financially ignorant because they never learned the basics about money management.  Give your kids the tools they need to be financially aware, make wise decisions and be good financial stewards.

Jamie Bosse, CFP®, RFC, is a mother of two and a financial planner at KHC Wealth Management. Jamie loves to write, travel, barbecue, watch the Kansas State Wildcats win football games and spend time with her husband, sons and pet corgi.  She is an active member of the Financial Planning Association of Greater Kansas City.

Jamie Bosse, CFP®, RFC