9 Tips for Teaching Children About Money

by Tania Dakka · 9 comments

Your kids take English, math and science in school, but do they take personal finance? And do you compensate by talking to them about money at all?

Leaving them out of the money conversation leaves that door open to disaster later in life. But by talking to them now, you teach them that money isn’t a scary word, nor is it one to be taken lightly. Even in the early years, kids can understand concepts, if not details. And all of these early conversations keep the lines of communication open for questions and understanding when they are faced with money decisions.

Use these 9 tips to make your kids comfortable with money early on.


1. Keep your tone light. Your attitude toward money affects how they see it. Using a resentful tone teaches them to resent it as well. Aim for a tone that educates without bias so they can excel when it comes to money.

2. When your bills come, share them. Explain what they are and why you get them. Explain the difference between variable and fixed monthly costs. Why does the water bill go up when they leave the water on when brushing their teeth? Or why the power bill goes up when lights are left on? Remind them how helpful they are by turning things like this off when they are not being used. Also explain the ones that don’t change. You pay X for your home because that this was an agreed price that won’t normally change.

3. When you get paid, explain what you have done to earn that money and how often you get it. Your children will eventually link the two together, but make it a point to explain that money will pay your monthly bills and every other expense that the family incurs.

4. Explain why and how savings work. Help them understand that it’s important to start saving for the future for emergencies, for their own children, for their own well-being later in life so they aren’t reliant on credit when it comes to the bumps that life throws at them, not to mention for their own retirement.

5. Help them learn by doing. Schedule some “work” time around the house where they do more than what they are expected to do (as part of the family unit) and pay them. Teach them to save first and that the rest will be for “fun.” This ingrains a sense of priority for them later.

6. Help them open a checking/savings account. Let them feel the power of decision. Show them the beauty of a growing savings account and the wisdom of not spending all of their “fun” money as soon as they get it.

7. Talk to them about what to avoid like unnecessary credit cards and overly expensive vehicles. Explain why some cards are better than others, and why it’s best to pay for a vehicle that suits their needs, not their wants. (The aim is understand the concept and not necessarily the details. They will also learn the door is open for a follow-up conversation when they are older and can do the math better.)

8. Talk to them about your decisions when you make purchases. Why did you decide on this product over the other? Why did you choose the High Energy washer and dryer, even though it was more expensive than the regular units were? Show them that thinking long term helps to make wise spending choices.

9. Teach them about self-control and the difference between “need” and “want.” Yes, they want the new Barbie, but they just shredded their jeans falling on the playground. Teach them the pros and cons of each purchase, while relating it to your income and budget. Learning this early makes it easier for them to make trade offs later in life. They will also appreciate the things they do get, and will take better care of everything they own.

The more you involve your kids in your financial decisions, the easier it is for your kids to learn how money relates to everyday activities, how the monetary system works, and how to make it work for them.

What will you do to get your children involved in the family finances so they come to respect and understand them?

Btw, there's a pretty nifty tool that motivates your kids to do chores. It's called MyJobChart.com. With a free account, they can earn points for finishing jobs you assign them, good towards free merchandise. Give it a try. It's completely free!

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{ 9 comments… read them below or add one }

Einstein February 20, 2012 at 6:18 am

My parents opened a savings account for me when I was just a youngin’. I learned a lot from that experience, and it also interested me in saving and investing.

Opening a bank account is a great way to teach the kids the power of a dollar. Besides, children are always open to new ideas and learning more. Once a kid has a savings account, every other financial product will cross their mind. If you can encourage kids to think independently about personal finance then you’ve given them a gift that nothing else could replicate – future financial freedom.

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Marbella February 20, 2012 at 6:52 am

Many useful and practical advice for teaching kids manage their finances, specially the piece about difference between “need” and “want” and not be jealous of what other children have.

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KM February 20, 2012 at 7:10 am

The way I learned was just being present when my mom and grandmother discussed finances, when we had problems and when we were ok, understanding that a paycheck meant we could buy the best foods and maybe a treat, but a budget was still in effect and we couldn’t overdo it. I understood from early on that even if I wanted a toy, I probably couldn’t have it unless it was New Year or my birthday. I learned to share everything (chocolates were split into 4 equal pieces) because there wasn’t enough for everyone individually. I think I probably had the best upbringing because I grew up not spoiled, but educated, understanding what were needs and what were wants. I would like to raise my kids the same way, but I would also like to give them more opportunities than I had, so I was thinking of saving more money than necessary to “hide” it in order to give the impression that we need to be more careful with money.

I have seen too many kids in well off families that know their parents have enough money to get them what they want, so they throw tantrums when they don’t get it. I never felt that way as a kid and it would be great if I could replicate that with my kids somehow.

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Jean February 20, 2012 at 1:21 pm

Those are some good tips. It is important to start educating kids on the financial matters from a young age to instill in them the value of money and its proper usage and how hard it is to earn, hence stressing importance of savings too.

-Jean

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Bethy @ Credit Karma February 20, 2012 at 3:16 pm

My parents definitely taught me about not buying overly expensive cars. They always saved up the cash for our family vehicles. They were never indebted with an auto loan. It was a great lesson to learn as a child, and one that my parents still follow today! Thanks for the tips.

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Pam at MoneyTrail February 20, 2012 at 6:41 pm

I really appreciate your emphasis on talking with kids about money. If the topic of money is taboo, then we are just assuming our kids know and understand responsible money management skills. I also think it is important to let them practice managing their own money while they are young and the consequences are minor.

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PFM February 20, 2012 at 7:28 pm

We’ve always talked pretty openly with our children about money. Kids definitively learn from their parents how to handle finances (either good or bad). They both get allowances and are able to budget for things they want, they also have ING accounts to teach them about saving, interest & compounding. So far it’s seems to be working.

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Greg February 23, 2012 at 8:41 am

It’s wonderful that the people who have commented on here had their financial IQ developed through family members. I’m not one to blame problems on “mommy and daddy”, but my life was a bit different. Even now, my father doesn’t balance his checkbook and often gets NSF fees because of it. He also keeps high credit card debt, though he has an extremely high credit score as well. On top of that, he now rents from me at 800$/mo. I won’t bore you with more details, but my older sister fairly resembles this as well.

Mom (divorced from Dad years ago) is better with money, but is not upfront in how she has achieved that, and thus never shared her intellect of money with me. I noticed these things about my parents from a young age, and have stayed committed to overcoming these obstacles in my own life. I’ve gathered every book on investing, saving, building credit, etc etc etc., including my membership to this site! Now I often feel I’m counted on to be the ‘words of wisdom’ for financial choices, but often I am not heard and that is also bothersome.

My point is really this: This is a great article, I’m devoted to growing everyone’s financial IQ around me, but children are especially important because they don’t start with the learned bad habits that many adults have grown to see as normal. As children are our best commodity, what better to teach them than how to build wealth without sacrificing happiness? Lastly, I’ve read a few of Donald Trump’s books, who was the first I’d heard of questioning why Finance is not taught early on in school. With all the other stuff they teach that rarely gets used later in life, I would think Finance class would be one of the most important to take!
Anyone else?

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MD March 14, 2012 at 3:17 pm

Just the opposite. Myparents NEVER discussed finances, and few others in my family that I know of did, either. I to this day have NO idea how much money they have. Of course, my stepmother came into the marriage with a decent amount of money of her own (courtesy of a time when women got alimony, and she had family omney, etc.)

Money is the ultimate taboo today. Tabloids spread someone’s sex life, indiscretions, etc. all over their pages, but try figuring out anyone’s net worth or income. Unless they run for president and it comes out how many houses they have (or think they have) we really don’t discuss what people have for money.

I learned about money the hard way, by not having much and learning to get by without. Oh, and reading things like this…

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