Ask the Readers: How do you Teach your Children about Money?

Kids and moneyWe’d like to turn the tables with this article and ask for your advice as we embark on a new part of our lives as parents. Our oldest daughter is coming up on her 6th birthday, and we believe it is time to really start making her aware of the concept of money.

Our question to you is: What do you think is the best way to introduce money to young children? What strategies are you using (or did you use) with your children that you think work well? What isn’t working out as well as you hoped?

We’ve tried to set a good example for our children by creating an environment where we don’t covet material objects, fancy new cars or houses and instead focus on spending time together as a family. But other than the occasional talk about how much something costs, or whether we should or could buy something, we haven’t had an overt talk about money.

Now that our oldest is turning six, we thought one way we could introduce money was to give her a small allowance each week. However, instead of just giving her this money with no stipulations on how it is spent, we decided to do the following with the $4 we’re giving her each week:

  • $2 each week is put aside for long-term savings.   Every four weeks we’ll take her accumulated $8 and drive together to the bank to deposit the money. This will enable her to see her balance start from $0 and grow over the course of time. Eventually we will introduce her to the concept of investing, interest and compounding, but that can wait for another day.
  • $1 each week is put towards charity. She has previously shown a real concern for helping others and this will enable her to donate to a cause she selects. We plan to become involved with the local food bank so she can see more personally how her donation of money and time can positively impact other people.
  • $1 each week is for spending.  Each month she’ll have the option to go to the store and pick out a few small items (coloring books, markers, etc.), or she can continue to accumulate this money to save towards a larger item.

We’d love to hear what you think about our system and please let us know what strategies work(ed) well for you with your children!

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Comments

  1. heavenlyjane says

    We gave our children complete freedom with their allowance and didn’t force them to allocate amounts to savings, etc.

    We gave them $1 for each year of their age, starting at about your child’s age. With that money, they had to do their own discretionary spending. We’d treat for group activities, like movies. But if they wanted something like a toy or a gift for someone else, it came out of their allowance. We did encourage certain kinds of spending. If they wanted to buy a book or something we deemed educational, we would match their contribution 50/50. They quickly learned that buying books stretched their spending money.

    We also matched any charitable donation they made and they were amazingly generous in that area. They are in their 20s now and we still match their charitable giving. It’s fun to see what causes they like to support. My kids gave more than $100 a piece when the great tsunami happened and they were quite young at the time. They figured out for themselves that their own material desires were less important at that time.

    Making them pay for their own non-necessities has made them very frugal. They stopped whining for toys or candy when we went out shopping because it was no longer them negotiating with us.

    One child would basically never spend her money, except on gifts for someone else or when a great disaster happened and they wanted to help. The other kid would spend her allowance more quickly.

    Another thing I noticed was how they learned to cooperate, to buy an expensive item together and share it in order to cut the cost individually.

    We helped them with planning, like encouraging them to set a budget for upcoming gift-giving holidays many months ahead of time and showing them how to find coupons, etc.

    They have grown into fiscally saavy young adults so it worked for them.

    • says

      Thank you for sharing such a wonderful comment — I really appreciate your time! It certainly sounds like your system worked perfectly for your children; I especially like how you match their charitable giving. We considered doing something similar by not making savings or charity mandatory and we’d match those items to provide incentives, but figured she was too young at the moment to understand that.

  2. says

    Very interesting topic and love to hear how others handle this. Our son is not even one so we’re not at that stage yet. I definitely think teaching them by example is very powerful…seeing that material and frivolous consumer items isn’t that important is pretty significant. Though it will be tough when they see their friends with those things and commercials/advertisements selling that stuff. I think your allowance plan where you have them allocate and budget their money is a great idea, and something I’d probably try to implement also. It’s never too early learn good financial skills.

    • says

      Thanks for the comment Andrew! You definitely have a few years to figure this out, but it never hurts to start contemplating it on the early side. We hope our plan works, but of course we’ll adjust as necessary. We hope to eventually not have to mandate the savings/charity and that it’ll become ingrained in them.

  3. says

    I love that three bucket approach, and think those are the big areas to touch on: giving, investing, and conscious spending. I don’t have much to add. Maybe as she gets older you might introduce the idea of a targeted savings account for a mid-term savings goal (school trip, maybe a car?).

    • says

      Thanks, glad you like the approach we’re using!

      She is a very numbers oriented girl, so setting savings targets would definitely appeal to her — will have to use that…

  4. says

    I like your approach, and I’ve been thinking of doing something similar for my oldest, who is turning 6 this summer. He has actually learned quite a bit just from observing my husband and me — he knows we have “emergency money”, and we don’t have extra money to just do whatever we want. Recently he wanted a new toy truck, so we had him do extra jobs around the house to earn the money. It took him a few weeks, but he did it and was very proud of himself. Occasionally he would earn money and set some aside for the poor, completely unprompted. I was very moved by that. We have not given him a regular allowance yet, nor have we consistently enforced particular chores for him. I really need to get it together.

    I’m glad to know that I’m not the only one who blogs about finances but isn’t quite sure how to teach it to kids! It’s a really daunting prospect, especially since I can’t draw from my own childhood experience.

    • says

      Hi Jen — thank you so much for the thoughtful comment! You are absolutely not the only PF blogger who isn’t 100% sure how to teach their kids :) Most of us are just trying to figure it out as we go and hope that by setting a good example we set our kids up for a lifetime of good financial choices.

      That’s so great that he felt such bride in earning that new toy truck! Can you imagine how special that much have been to him and what a sense of accomplishment he must have felt at a young age? That’s something that could stick with him for years to come…

  5. says

    We also give allowance to our kids at the rate of $1 per age. You do need to be careful not to overrun them with financial concepts, however….especially at the age of 6. You may have to stage the introductions of the different concepts. I’m a big fan of the “earlier the better” when it comes to introducing kids to financial concepts – and I take every opportunity I can when real world situations prevent themselves to teach my kids about how to save money, budget their money, and make wise decisions. Whether it’s a trip to Target to buy a movie, or my son wanting to buy a new monitor for his computer – there are countless life lessons to use as learning opportunities.

    • says

      That’s a great point about not overrunning them with financial concepts at an early age — I completely agree. We were surprised and impressed when we were playing Monopoly and she seemed to intuitively understand — without us telling her — that she needed to save money for the future and not just buy tons of houses and hotels. So we had some sense that she was ready for the concept of saving in real life :)

      Great comment Travis — I appreciate you stopping by! And again, I couldn’t agree more that there are so many opportunities to teach kids about money; I suspect they get many lessons, both good and bad, without parents even knowing about it at times…

  6. says

    My kids are only 3 and 5, but we’re already teaching them about money in subtle ways. For example, we teach them that nothing is free. We also try to explain to them that we work for a living to earn money to pay for the roof over our head. I’m not sure they “get it” now but they hopefully will at a certain point.

    • says

      I think subtlety is probably best with kids rather than sitting them down to talk about this. I can’t imagine that going over too well, right? I think a lot of it is leading by example and filling them in on our thought-process for why we save and why we would/would not purchase something.

  7. says

    Great comments! I have 2 daughters that are now grown and out of college, both doing well. I loosely followed much of what has been written here in the comments. Two additional things that I did that I think helped are:
    1) I set up DRIPs for them based on foods they liked when they were very young and made sure they knew that they “owned” a part of the company. When the annual reports for Hersey, Heinz, PepsiCo and the others came in the mail, it was fun to watch them actually look at the reports. They always knew what brands each stock was associated with and eventually asked about what all the number meant. Each of them still own several of these stocks and have average overall returns in the low teens.
    2) We made sure they knew how to calculate simple change. I was amazed how this simple skill is no longer acquired by anyone let along children. Just down the street from the house we have a small corner store that sold Ice cream bars and “penny candy” which was not really a penny but more like 20 cents, candy like Airheads, pops etc. They would be each given 1 dollar to spend and if they could figure out the change due back before the cashier gave them the change, they could keep it. Each of the girls went on to excel in Math in high school and I think this one simple lesson really helped. We also had them calculate the tip amount in restaurants another simple math skill that most adults struggle with.

    • says

      What a fantastic comment — thank you!

      I love that idea about buying shares of companies they are interested in! Funny that we literally just sold the few shares of Disney my parents and aunt bought for me when I was a kid :) We actually had the old stock certificates which was really neat…

      We’re going to grab that idea about the change and use it with our kids, no question about it. My wife and I both feel that math is essential in life and we’ve tried to make the basic understanding of math a real part of everyday life for our kids. Things like estimating and your point about change can make a real difference in your understanding of the world, and even though it seems simple to us, the vast majority of adults seemingly don’t have this basic grasp of math.

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