The life-long benefits of teaching children good money habits make it well worth the effort. Children who are not taught these lessons pay the consequences for a life-time. Some parents don't teach children about money because they think they shouldn't talk about money with children, don't have the time, or think they don't have enough money. Parents should take the time to teach children about money regardless of income and should start when children are young. This article presents some helpful guidelines and suggestions parents may follow. It provides general background and outlines by age group and stage of development children's understanding and use of money as well as conflicts about money. It also identifies activities you can use to teach your child about money.
Using a Consistent Approach
Most people have strong feelings and opinions about money, based on childhood experiences and the values and beliefs of their families. Most often, these experiences, values, and beliefs are different for each parent. It is vital for the healthy development of children that parents talk about these feelings and opinions and establish a consistent approach to teaching children about money. These questions can help parents focus their discussion:
- How will we create an open environment in which our family can discuss money issues?
- How should our children receive money? Will we give them allowances or use another method?
- What are our family values and attitudes about money that our children may be observing?
- What do we communicate about money? How will we structure learning experiences about money?
- How will we deal with our children's differences in handling money? By stage of development, special needs, or personality differences?
- How will we respond to the effects of advertising and peer pressure on our children's buying requests?
Teaching Children About Money
Parents should keep these guidelines in mind as they begin the financial socialization of their children:
- Guide and advise rather then direct and dictate.
- Encourage and praise rather than criticize or rebuke.
- Allow children to learn by mistakes and by successes.
- Be consistent while taking children's differences into account.
- Include all family members in money management discussions, decision making, and activities as appropriate for their age.
- Explain to children what they can and cannot do and the consequences of violating the limits.
- As children get older increasingly include them in discussions of limits and consequences.
- Expect all family members to perform unpaid, routine household chores based on their abilities.
- Express your desire to have things you can't afford. Children need to know that parents say "no" to themselves, too.
Teaching your children about money is more than preparing them for employment or teaching them to save some of the money they earn. It includes helping them understand the positive and negative meanings of money. For example, children need to learn that while it is nice to show someone love by buying a gift, it is just as important to show love through actions and words. Children and parents should talk about their feelings, values, attitudes, and beliefs about money. This helps children understand that conflict about money occurs and needs to be discussed in the family and that compromise is often necessary.
When teaching children about money, parents need to make an effort to think in children's terms, not adult terms. For instance, a young child may ask parents how much money they make, but what they really want to know is not how much parents earn, but why they can't have a certain toy or why parents can't go to school functions. It is important for parents to use examples or activities that match the child's stage of development, not necessarily the child's actual age in years.
It is also important for parents to communicate with children about money matters in very concrete terms. Children want to know how to operate in the adult world. Any time money is earned, moved, spent, donated, shared, borrowed or saved provides an opportunity for parents to teach children how the money world works and what thoughts and feelings go into making money decisions.
Children learn mainly through indirect teaching by observation and example; participation in discussions and group decision making; direct teaching through planned experiences; and by making their own decisions. Through observation, children learn a great deal more than parents realize. Parents can add to this observational learning through intentionally planned learning activities. As you teach children about money they can learn about responsibility; family values and attitudes; decision-making; comparison-shopping; setting goals and priorities; and managing money outside the home.
How Children Receive Money
Children may receive money by allowances, by parents doling it out upon request, as gifts on special occasions, or by earning it. There is no right or wrong way to provide children with money, and because each family is in a unique financial situation, deciding whether or not to use an allowance is a family decision.
Many parents feel pressured by their children into giving an allowance because the children's friends are receiving an allowance. There may not be enough money in the family to provide an allowance or parents may not want to provide an allowance. There are many ways besides allowances for parents to provide learning experiences about money.
If you do give an allowance it can easily be adjusted if your financial situation changes. When parents include children in discussions of family financial problems, they are quite often surprised at how supportive and helpful children can be during these times.
Teaching Money Concepts
Focus children's education about money on the concepts of earning, spending, saving, borrowing, and sharing. Parents can begin to work with the first three concepts when children can talk in sentences. Children need to be a little older to comprehend the concepts of borrowing and sharing. These two concepts require an understanding of math and ability to see things from another's viewpoint. These skills don't fully develop until several years into elementary school.
These financial concepts are used here in a very generic sense. Earning refers to how children receive money. Spending refers to the way children decide to use their money. Saving refers to money that the children set aside for some future use. Borrowing means that money can be obtained for use in the present but must be paid back in the future with an additional cost. Sharing means both the idea of sharing what we have with those who are less fortunate and obligations such as paying taxes which are required of everybody. Providing intentional learning experiences related to these financial concepts can provide children practical skills and knowledge and provide a perspective about money based upon family values and beliefs.
- A sense of freedom and recognition
- Financial independence
- Work standards and habits
- How to evaluate job alternatives
- Relationship of money, time, skills, and energy
Teaching Aides for Earning
- All family members, including children, should be assigned unpaid tasks to encourage responsibility for household operation. Such work should be unrelated to tasks for which children are paid.
- When children get a job outside the home discuss the responsibility and financial risks, your expectations about how earnings are used, and the level of support you will provide (e.g., driving them on the paper route when it rains).
- Help children set up an earnings record book to keep track of earnings and expenses incurred. Explain the break-even point.
- Negotiate and renegotiate the level of support the family is willing to provide children once they begin earning money outside the home. As children move towards financial self-sufficiency, parents begin to gradually withdraw support.
- The time devoted to earning money should be taken from children's leisure time, not from time used to study or perform household tasks.
- Difference and balance between wants and needs
- Opportunities for comparing alternatives
- Making decisions and taking responsibility for them
- Keeping records
Teaching Aides for Spending
- Let children make mistakes and learn from the consequences. Make sure children know you've made some mistakes, too.
- Explain what quality, availability, and other comparison factors mean. Don't assume they know what these terms mean.
- Let your child know you know you can't afford to buy everything you want, either. This could be brought out while window-shopping together.
- Explain the bigger financial picture. For example, a movie involves not just the price of admission, but gas for the car, popcorn, pop, time and energy. This will help them be more aware when making financial decisions.
- Communicate about money. Include children in family financial decisions and discussions appropriate for their age. This helps them feel valued and tells them that money is not a taboo subject.
- Cost of borrowing
- Borrowed money needs to be paid back
- When it is appropriate to borrow
- Consequences of buying now and paying later
- Structure of borrowing
- The idea of credit limits
Teaching Aides for Borrowing
- Never loan children more than they can repay and then end up forgiving the loan. Keep the amount realistic for their financial means.
- Draw up a contract for any loan with your child, no matter what age. Charge interest or set up a grace period within which no interest will be charged. Use a loan payment book and explain how it works.
- Discuss how to save money to buy something instead of borrowing money to buy it. For example, using money saved with coupons; bringing your lunch to work instead of buying it; or collecting change every day.
- Good feelings for giver and receiver
- Helps other people
- Doesn't always require public recognition
- Obligations to give money to certain organizations, e.g., taxes to the government Giving of yourself rather than giving money or gifts
Teaching Aides for Sharing
- Explain that sharing with others includes not only money but resources such as time, materials, or skills.
- Use special occasions to remind children about sharing with others who are less fortunate.
- Initiate a community service project for which older children can take leadership.
- Point out opportunities for children to donate time, energy, and skills to religious and community projects. Let older children choose the project.
- Saving as a way to get what you want or need
- Identifies the "pay yourself first" idea
- Planning and delayed gratification Interrelationship of spending and earning
- Different purposes of planned and regular saving
Teaching Aides on Saving
- Explain the difference between planned saving (short-term) for a specific want or need and regular saving (long-term) for unknown items or emergencies. Help children set up short-term saving goals and let them know how long it will take to save a particular amount.
- Provide non-monetary rewards to encourage younger children to save. It is hard for a ten-year-old to appreciate the little interest his $100.00 earned this month in the college fund when s/he couldn't get a special toy. Older children can learn to appreciate the reward of delayed gratification. Praise and encouragement help children learn to save for the long-term.
- Motivate saving by annually matching the amount the child saves.
Source: Sharon M. Danes and Tammy Dunrud, Communication and Educational Technology Services, University of Minnesota Extension Service