“Money doesn’t grow on trees.”
“Another day, another dollar.”
“You get what you pay for.”
“Money makes the world go ’round.”
These common sayings represent good lessons about money but can be confusing for kids. It’s important to teach our kids the value of money, how to save, spend wisely and practice financial responsibility. Simply saying, “We have to pinch our pennies,” or “That costs an arm and a leg,” is not going to help kids truly understand these complicated concepts. Here are some simple but important lessons to teach kids of any age about money.
Money has to be earned
Earning money is hard work, but this concept can be difficult to understand for children. You can start teaching your children about how money is earned by paying them for assigned chores. Some families may find giving an allowance helps children understand the concept of earning a “paycheck” or allowance and other families may assign a dollar amount for specific chores. Either way, you are showing your child that money is earned. “My kids have been getting an allowance since they were 4 years old,” says Sarah Brandt, Lee’s Summit mom of three. “I rarely buy extras, like toys and treats. All of that comes from their allowance. They budget and save better than I do.”
Budgeting
“Starting in first grade, we give half their age per week for allowance and allocate 10% for giving, 10% for saving and 80% to use as they wish,” says Joy Alsup, Olathe mom of four. “This frees me to say no to little things like candy or going places with friends because they can use their own money. They have a choice and can ‘suffer’ going without if they have spent it all.” Alsup shares that after her children start their first job, they save 50% of each paycheck to give them a good start for spending money in college.
Candice Zimmers, Olathe mom of three, does something similar. “Any money that our children earn or receive is divided into four categories: tithe 10%, family tax 10%, any amount they choose for savings and the rest is money to spend or donate. We feel this gives them a sense of how to allocate their funds and has them realize that not all that they earn will be theirs when they receive a paycheck.”
Every family has different categories for savings, spending and other uses. The main goal is to help your children understand how to budget and save while giving them choices on how they spend their money. If they make a poor choice to spend all they have earned, they are forced to face the consequences. This lesson is best learned when the stakes are lower, at a young age, than as an adult when the consequences can be life-altering.
Developing a realistic view of how much things cost
It’s hard for kids to understand the value of money when they don’t have a realistic understanding of how much things cost. While you’re running errands with your children, show them how much it costs to fill the car with gas, how much the grocery bill is and how to compare prices while shopping. Give your child $20 in cash and ask him to purchase the family lunch at the grocery store. This is a simple lesson that helps kids understand the cost of living. “I put the kids in charge of the family eating out money,” says Brandt. “You want to eat at McDonald’s tonight? Cool, but that means no pizza this weekend.” These comparisons and trade-offs give your child valuable lessons in the value of the dollar.
Understanding banking
Investing, saving and navigating how banking works are great lessons to teach kids. If your children are preschool age, have them place money in a glass jar. This gives them a visual of the money they are earning, and they can watch it grow. Older kids may benefit from opening a bank account. “I opened a checking and savings account for my 11-year-old,” says Michelle Lyons, mom of three from Lavista, NE. “I asked for a check register so she can learn how to balance her account. I also got her a stack of deposit slips to learn how to do that as well. I explained to her the importance of not telling people her PIN, how to shut off her card if it is misplaced and the importance of saving.” Warn your kids about the dangers of credit card debt. The credit limit is often far higher than a young adult can handle, and the ease of swiping a card to pay for items they want or need is tempting. Interest rates are high, and the debt can quickly stack up. Talk with your teens and young adults about credit cards before they make mistakes that can cause problems long term.
The best ways you can teach your children about money are to give them real life experiences, allow them to start making decisions on their own at a young age and to lead by example. If you are a spender and buy items on impulse, they may develop these bad habits as well. If you are a saver and keep a careful budget, your kids will likely develop these healthy habits. If you and your partner often fight about money, this could cause your child to view money discussions in a negative context. Try to remain positive and help them understand that money is not always an enjoyable topic to talk about, but it is important and can help develop security and independence in the future.
Easy Ways to Teach Kids About Money
- Assign chores and pay kids an allowance. Help them create a budget for spending.
- Set a savings goal, small at first, and let them go out and purchase the item when they’ve reach the goal.
- Teach kids to give to others.
- When your child receives a gift of money, explain that someone worked hard for the money and chose to give it freely.
- Take them shopping and allow them to help compare prices and options.
- Give kids cash and have them pay for items in the store themselves.
- Be careful about always using a credit card. Use cash to show children that money is exchanged for goods and services.
- Encourage your teen to get a part-time job.
- Set a good example by budgeting and spending carefully.
- Be open and honest about money and spending, and be willing to answer questions that come up.
Sarah Lyons is a freelance writer who lives with her family in Olathe.