How to Teach Your Child About Responsible Spending

by Jamie Simmerman · 3 comments

For kids, money really does grow on trees. If you’re familiar with basic psychology, you’ve read about a child’s magical thinking stage, their advances to concrete operational thinking, and their propensity for egocentrism until age seven or eight. If you want to learn more about how children think differently than adults, you may want to read up on Jean Piaget’s research about how a child develops. His contributions to developmental psychology are used by advertisers and marketers, pediatricians, psychologists, teachers, and even parents. Here are a few basics that will help you effectively teach your child about responsible spending.

  1. Kids really do think money grows on trees. They believe in Santa Claus, monsters under the bed, and the invincibility of Superman and Barbie. The line between fantasy and reality is blurry at best for most young children. They often have dreams they swear really happened, and have no problem swallowing a campfire story about humanoid creatures chained in the woods who break free after months of starvation and haunt campground bathrooms to prey on small children (my mother called this the Super Duper Pooper Eater). Magical thinking is a way of life for kids, and therefore trying to teach them concrete, rational skills like money management and investing can be a real challenge. They simply can’t grasp many of the personal finance concepts you want them to learn – unless you adapt the lessons to fit their magical thinking world. Make spending and saving a game. Make it fun. You’ll have to provide extrinsic rewards for young kids to motivate them to spend and save responsibly. This means you’ll need to promise cookies, trips to the park, or time spent doing a favorite activity rather than depend on them to spend wisely for the self-satisfaction of a job well done.
  2. Enter your child’s world by thinking like a kid and explaining spending and saving in terms they understand. Have a conversation with your child about money, and take note of the words he or she uses when talking about spending and saving. When it comes time to guide your child in a money lesson, use your child’s own words and phrases about money to help your concepts resonate with him or her. Parroting language helps your message resonate deeply with your children – and it shows you listen when they speak.
  3. Understand your child’s inability to consider others. Until the age of seven or eight, children are mostly unable to think from another person’s point of view. The world revolves around them and anything that doesn’t serve their purposes is irrelevant. Don’t let personal finance fall into the great abyss of your child’s life. Adapt your money lessons according to your child’s developmental level. If they are still in the egotistical stage of development, teaching them about giving may be difficult. You may have to provide small rewards to motivate them to give of their time and money at this stage. Later on, children develop a sense of intrinsic motivation, meaning they are motivated by the positive feelings experienced when giving to others rather than direct rewards.

How do you connect with your kids to help them learn about money? Share your tips with other parents who may be looking for new ways to get kids excited about personal finance.

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  • Jean says:

    Very important about explaining things to the child in a way that they understand and can relate to the best. Avoid complicated terms and instead use examples of things like saving candy for a rainy day.


  • Sherry Vosburgh says:

    I never learned about money and am paying the price now! My parents spoiled me financially and were bohemian artists. I’m lucky to have had a good salary, but in retirement I have to budget.

  • Zach @ Dividend Stocks Online says:

    All of these are great points but I really like #2 because its so important to relate to your children on a level then can understand. Understanding the words they use and why they use them can make all the difference when talking through a teachable moment.

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