Teaching Kids About Money
Teaching kids about money is challenging. Most children have a hard time understanding the value of money until they start earning it.
If they’re too young to earn, a weekly allowance can go a long way in teaching them the value of money, of saving towards a bigger purchase and of comparing prices and making wise buying decisions.
Even if your kids are very young – too young to get an allowance – or if you prefer not to give them an allowance, you can teach them to delay gratification and avoid impulse purchases by encouraging them to start a wish list.
Whenever your kids see something they want and ask you to buy it for them, add it to a wish list. Once a week, or once a month, go over the list together and see if they still want the item. Often, your kids won’t even remember what was the toy that they wanted so badly just a week ago.
When teaching kids about money, it’s always a good idea to talk with your children about how much things cost. Most young kids are completely unaware of the cost of things, because their parents buy things for them and they never actually pay for anything. When I walk down a drugstore aisle with my daughter and she asks for a particular item, we pick the item up and look at the price. To get her to understand what the price means, I say something like “with this, you could buy 3 candies” or “wow, $5 is really expensive for Chapstick – how about this one, it only costs $3.”
It’s not necessarily easy for me to teach my kids about money and about saving money, because I am not that great at delaying gratification. But this is one of the best things about parenting: the need to teach my kids and model good behavior helps steer me in the right direction too.
When I teach my kids about money, I am teaching myself as well.
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Computer Addict responds:
Posted: March 6th, 2008 at 11:45 am →
Telling them they’ll get 40% more if they just wait, in a vacuum, doesn’t teach anything – it seems capricious . For something like this to work, it must be done in the context of an actual savings account. Not that I have much hope for that, either, with Americans seemingly unable to save. Read this for some sobering information.
Jill responds:
Posted: March 6th, 2008 at 1:33 pm →
I agree with Computer Addict: if you had offered me $5 now or $7 in a week, I would take the $5. That link is interesting: it’s unclear how we can teach our kids to save if we can’t manage it ourselves, although – as you pointed out – sometimes the need to teach our kids helps us make the right choices as well.
MomGrind responds:
Posted: March 9th, 2008 at 9:10 pm →
@computer addict @Jill: Teaching the concept of delaying gratification and saving is a huge challenge.
@ Denise:I like the idea of depositing 10% of the allowance into a bank account. I also heard of parents asking their kids to put 10% aside for charity. Haven’t tried that yet.
Denise Chumley responds:
Posted: March 9th, 2008 at 8:58 pm →
I think that you need to make clear what the pocket money is for. There is no point buying basics/essentials such as bus fares, and lunches, and then giving them spending (pocket) money and then also paying for impulse purchases.
The system I operated under was:
+ the essentials were paid for by the household budget and one took a packed lunch or walked home for lunch
+ one could have a list of things that would come (if possible) as presents at Christmas and birthday
+ anything else came out of pocket money
So if a child wanted a different chap stick or special shampoo, or takeawy food, anything, they paid for it themself. Sooner or later an item comes up that they desperately want that is more expensive than their weekly budget, and then you introduce the concept of saving, not borrowing against future allowance, but saving, delaying gratification for the item.
+ 10% should be saved in a bank account for leaving home – running away from home account. To get pocket money each week you had to present your bank book with the 10% from last week’s pocket money deposited in it. If not, then you were helped to deposit this week’s and last week’s savings, before getting the balance of the pocket money. This was really important, they had to do this themself, and you were not really growing up, if you could not do this without help.
These savings are different in that they are long term savings, and every time a youngster threatens to leave home, you can ask the question, fine, but have you got a job, and is there enough money in your account to pay the bond on an apartment and the first 6 weeks’ rent? As they grow older you keep adding things such as a quarter’s utility bills, and so on, until they do leave home either going to college, or hopefully with enough savings for the deposit for an apartment or house.
Denise Chumley responds:
Posted: March 26th, 2008 at 4:08 pm →
I also followed up the link, and seeing that it was written in 2006, I wondered what James Altucher had to say in retrospect. Still have to hear from him.
I have little respect for economists and money experts, because much of what they say is based on the lie that money has value. Money in itself is a tool that aids the exchange of barter. What value is ecompassed in any item that is bartered? It is the natural resources required, many of which are finite, plus the labour to transform it into something else – see the story of The Little Red Hen and the Grains of Wheat.
The other thing to remember is entropy, things degrade and this applies to the value of things too. How long can you save today’s work? If it’s housework probably the longest lasting thing is preserving excess produce from the garden, or sewing. Why do economists expect the value of money to last forever? It’s not logical. It’s like the old story of an heirloom axe that has had 6 new handles and 2 new heads.
In Altucher’s article he says don’t worry about debt, capital gains will offset it. Where do those capital gains come from? If it has come from work improving a property that has value, but if it is because of shortage, such as finite resources such as land and oil, then you have to worry.
In teaching children the concept of delayed gratification we are teaching them to behave as adults. The easiest mechanism to use is saving for something since there is constant feedback on how well you are going, but there are others. Learning a skill that is not inherently fun in itself is one way. So learning to play the piano and putting in the hours of practice to become proficient at it, or sitting down each day to learn a foreigh language are good examples. The pay-off in these cases can be years away and the improvements in skill level require the child to be reflective and self-monitoring and able to develop their own sense of gratification not based on praise or reward.
MomGrind responds:
Posted: March 26th, 2008 at 5:38 pm →
“In teaching children the concept of delayed gratification we are teaching them to behave as adults. ” So true. Thank you for your comments. Your approach is very refreshing!