Teaching Children About Money

How did you learn about the value of money? Did you learn from a lecture of your parents or teachers, from reading about it, or, from personal experience handling your own finances?

Your children are constantly absorbing various messages regarding money; the messages you radiate as well as the attitude of the culture in which we live. Rachel Incoll is an expert educator with regard to teaching your children about money, and she has explained seven simple steps you’ll want to incorporate into the lessons you teach your child about money.

What to Tell Your Kids About Money

If I had a dollar for every time I have been asked by a parent what to tell your kids about money, I’d be a millionaire. There are many different aspects of money management you can & should tell your children about. Here I will share with you what I believe are seven of the most important principles.

1. Money can be exchanged for goods or services.
This is one of the first few lessons you should teach your child once they are old enough to understand – usually around the age of 3 years. Next time you go down to the corner store to buy one or two items, let your child hand the money to the cashier. By doing so, they will gain a greater appreciation of the concept of being able to exchange money for things you want or need.

2. One should be careful with money.
Some people I know, seem to think that any coins with a value under 50 cents are just too small to be bothered using, and so when cleaning out their loose change from around the house will simply throw these smaller coins in the bin. What a waste! Encourage your child to be careful with all denominations of money, and show them how those small coins can add up, by starting a family small coins box. Maybe you could use the money to fund small family outings (a trip to the shop to get ice creams).

3. Money has to be earned.
There are many people in the world these days that don’t seem to have ever learned this lesson. They sit around home and expect handouts so they can live, or turn to a life of crime to fund their existence. Be careful not to give your child money every time he or she asks, without expecting anything in return i.e. completion of household chores.

4. Encourage one-third savings, one-third donations, one-third spending.
The exact proportions in which your child divides their money are up to each individual family to decide, based on their beliefs and the needs of the child. This can quite easily be achieved by providing them with 3 piggy banks or money-boxes – one for spending, one for saving & one for donating.

5. Avoid borrowing money wherever possible.
It is always much harder to repay money that has been borrowed, than to save your money. Some loans, such as home loans, tend to be unavoidable though. A good rule of thumb is if you don’t have the cash to buy it, you can’t afford it!

6. Money isn’t your best friend so don’t let it control your life.
Quite simply, try not to become so over committed with your finances, that you are forced to work 60 to 70 hours a week to continue the lifestyle. If you do, then you are letting the money control your life. You don’t usually need the fancy car (and car loan) or overseas holiday (and personal loan). All these things are nice, but only if you can easily afford them!

7. Show them how to budget & live within their means.
This is one of the most important skills that your child must know, that so many people don’t seem to know how to do. Recent surveys have shown, that many people are spending 10% to 20% above what they earn. They are earning enough money to fund their lifestyle, but they simply aren’t budgeting it, and so are wasting large amounts of money each week.

With these seven lessons under their belt, they will be off to a good start, but there are many more money skills that your child will benefit enormously from learning. Visit http://www.kidsmoneytips.com to here to find more simple tips & tools, & sign-up for the free newsletter to receive bonus worksheets & learn how you can help your child manage their money more effectively.

Rachel Incoll is the author of Kids Money Tips. She has helped show thousands of parents how they can teach their children everything they need to know about money in just a few simple steps. Visit her site http://www.kidsmoneytips.com to find out how your child can learn to save & manage their money more effectively.

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  1. Natalie Valles says:

    I like how you point out the value of the coins. We’ve kept a change jar for a long time and last summer, after the baby was born and I was off work as a teacher for a while, money was so tight we had to pull money from the coin jar to hold us over. We were so glad it was there–paying in coin shows the value of coin. So now we are even more diligent to save our coins. The children’s allowances are pulled from it–they get a nickle for each chore they’ve done (on their own without being asked)on the chart, usually Saturday cleaning day. We write for example, make bed, pick up toys, clean up closet–things simple for them to do. FOr my daughter, we draw a picture and tell her what they are–her seeing my son do his chores is enough to get her started then. So they might earn .50 or so and then we lay out “store” on the kitchen table(my husband’s idea). Here we put all those stupid toys from McDs happy meals and little trinkets, pencils, etc. These might be labeled .05, .10, .50, 1.00. THe kids might have to save a couple of weekends to get something they want or buy something with part and save the rest. Though my son has other opportunities to earn other $, he enjoys this too–for now. And we can see that it has affected how he chooses to save his money that grandma gives, …and now he’s getting entreprenuerial buy drawing pictures and selling them!

  2. Marcia Baldwin says:

    Crown Financial Ministries has some wonderful material for teaching kids about money from a Christian, biblical perspective. Good stuff for us grown-ups, too. You can visit their web site at http://www.crown.org.

  3. J JENNINGS says:

    This is an important subject! Teaching kids about the value of & the role of money in life is essential. I have found Dave Ramsey’s Financial Peace Unversity, (FPU), to be the best program for adults and children. It is very comprehensive & much of his stuff is “copyable” as long as you are not using it for profit. He is very comprehensive – from saving, to purchasing, to allowances, to budgeting and practicle money making ideas to help one get out & stay out of debt! He uses examples from his own life & presents them in ways we can ALL relate. Check it out! http://www.fpu.com or http://www.daveramsey.com!

  4. we love what you are doing and would love to talk with you…..check our site out and kow Houston Independant School District is on your page! Sara Speer Selber, President Prepared4Life

    I can be reached at sselber@prepared4life.org
    we have adult as well as middle school youth driven lessons all created through after scchool environments which the kids are passionate about participating in, you know that enrichment world we so take for granted……

  5. The lessons you teach your kids are fantastic – we do something very similar in concept but probably different in execution. We’ve found that the main issues in getting these and other lessons absorbed are:

    1) Preaching vs Doing: It’s important to make this learning part of everyday life. I’m not sure about your kids, but mine seem to be impervious to “preaching” (especially from Dad), but they learn amazingly well by “doing”.

    2) Ongoing learning:Unlike parental education about the birds and the bees (usually a one-time discussion; future attempts receive an “Echhh”), this is a subject that needs to be discussed on an ongoing basis over many years (e.g. making spending choices, saving for a goal, charity, etc). That means that parents need to create a sustainable process that will cause earning/spending/saving/sharing issues to arise and be discussed in a positive way.

    We’ve found that many, many families begin a process, often with great enthusiasm, but stop after not very long because it’s usually not easily sustainable (too much effort).

    That’s why we launched our website – it helps parents create their own “virtual” family bank, child chore charts (we prefer to call them “Responsibility Checklists”), a simple budget for each child (to help parents figure out what their allowance should be), and more.

    I’ll be interested in hearing about your experience over time with your kids. keep up the great blog, Ellen.

  6. This subject goes hand in hand with being an entrepreneur. But how many of us actually know how to teach our kids to think like entrepreneurs do? There’s a gal named Rhea Perry who has a conference on this subject. Check it out at Education Days

  7. To Harvey Beck, I hope you see this–
    You mention a website to help with Responsibility lists and budgeting for kids to customize for your family, but I don’t see any mention of the website.

    I’d love to check it out, as I’ve been thinking about just this subject and wondering how to calculate an allowance and what’s reasonable for chores for my 5 1/5 year old son.

    Please post your site. Thanks.

  8. Hi Ann

    It’s at Active Allowance. Please let us know how it goes.

  9. Janice Dobis says:

    I wanted to help my daughter, who just turned 4, understand the concept of delayed gratification. After some thought, an idea hit me. I began to offer her a choice between a small sucker she could right there, on the spot, or 1 dollar bill she could save. I explained to her that once she had saved up 10 of these we would take her to the toy store and she could purchase anything she wanted (with some Mom exceptions). I explained that I would be taking the challenge with her. This way, if she chose the sucker often, she could see someone enjoying the reward, and perhaps that might give her the incentive to chose the dollar.

    We have been doing this now for about 2 weeks, and I am happy (and quite proud) that she has only chosen the sucker about 4 times. Each of those times, she has turned to me to say, “Don’t worry, Mommy, tomorrow I will chose the dollar.”

    When we went to the store, she was sooooo proud and excited. She spent alot of time considering what to spend the $10.00 (and 60 cents of her own) on. She went to the register, handed the cashier the item and explained how she didn’t choose the sucker, counted out the money (with some help), took her receipt and bag, thanked the cashier, and we went home. It was

    Janice Dobis

  10. Our kids don’t get pocket money any more.
    We used to give them 50p per week each, but we stopped.
    a) Because we kept forgetting to give it to them, and when they remembered our son (then 7) would make up how many weeks worth we owed him, and I’m sure we ended up out of pocket.
    b) Because our daughter (5) always left hers lying around, and it would all end up in her brother’s clutches.
    c) Because our son would set up a shop whenever we remembered to give them their back pay, so he could sell off unwanted toys to his sister, thereby relieving her of any pennies she hadn’t left lying around the house.
    Such is the lot of the youngest child.

    In the end our son asked us to stop giving him any, saying
    “You spend too much on me already.”
    My suspicion is that he wanted to put an end to the bargaining power that pocket money gave us, as in
    “If you don’t stop doing that you won’t get any pocket money this week.”

  11. Beta Mum, You need to start the program again. Your son is way too smart for his own good. You are right, that is exactly why he wanted you to stop. Instead of giving them “pocket” money, it should be an allowance earned for chores completed and nice things accomplished for his family including his sister. You need to assign chores and expect that they be completed using a checklist. I also include fines for not completed chores, and unkindnesses. The fines are worth more than the chores. Use the 1/3, 1/3, /1/3 approach that Ellen has proposed. Why do I say this? I had a son exactly like your son. When we finally did this, life got a whole lot better and he learned to appreciate money earned. He even found a way to get his college paid for while he was working. I hate to think where he would be if we hadn’t made him earn every dollar for everything he wanted. We also told our children that a good pair of shoes cost $30.00. If you want the $70.00 pair or more, then you have to make up the difference with your money. That put a stop to the whining for more expensive shoes, etc. We sat down with our children and worked all of this out. We wrote it down and posted it so they knew. Since your son is so smart, you might try the approach that if all of his chores aren’t done at the end of the week, then he gets paid for none. Use the checklists that Ellen has on her web-site. I know it is tough to stay with , but you need to. It is that important, believe me. I have seen so many young adults that have no idea how to manage money well. They are losing their houses, getting divorced, have credit card debt in the tens of thousands range, are living at home with their parents in their 30’s, etc.

  12. Where is Ellen’s chore checklist?

  13. Hi

    I have/had a similar problem with forgetting to give allowances and kids asking for back pay etc.

    So we gave up the pocket money as well.

    My daughter now says she wants us to help her learn budgeting money by siting down and estimating how much she would spend on bus tickets to school, lunch money, allowance or pocket money and so on. Then to give her a lump sum at the begining of the month, and let her manage it herself. She says if she runs out we should not give her any morel., or say she would have to borrow from next months money.

    Sounds like a good idea, however, I wonder, she is 12 going on thirteen. My son is fifteen and does seem to expect that money comes far to easily.. perhaps this would be a good idea?

  14. Lisa McCarthy says:

    Who says a six year can’t understand budgeting?
    Ok- so she may not be balancing a check book yet or buying stock– but I have to say my six year old is getting the concept of what to spend her money on and what not to. We started a point system instead of an allowance. For each point she earns she gets 10 cents. At the end of the week we add up her “points” and she gets “paid.” On average she earns any where from 3-5 dollars. She gets points for things like clearing the table without being asked, doing something kind, saying please and thank-you without a prompt, feeding the dog, making her bed etc.

    On “pay day”- she goes to her piggy bank which is divided into three parts. Long Term Savings (to put in her bank account) , Short Term Savings (money she can use to buy anything she wants), and charity (money she collects to give to a poor family). She must always put something in long term savings everything else is optional.

    Sounds complicated– but she gets it. Right now there is a Webkinz she” really” ” really ” wants— and you know what she is saving really hard to get it! The other day she had the choice to take her allowance and buy some toy at the dollar store that she was begging for or put it toward her Webkinz– her response, this toy will break in a few days– if I save it I will get my Webkinz sooner and that I will have for a long time.

    Pretty smart investment strategy for a six year old!

  15. Burkett’s book ’50 money making ideas for kids’ is an excellent book. Instead of an allowance, when they want money we will show them how they can make it on their own – two valuable lessons there: that work is involved in making money and you don’t neccessarily have to make it through a 40 hour/week punch a clock type of job.