Teaching Kids About Money
What Teaching Kids About Money Is All About
It’s quite evident that teaching kids about money as well as the importance and need for money, should be done as they observe their parents using it. One of the best methods to teach a child about money and the value of a dollar is to show them the different ways a dollar is used, and it’s a good idea to begin when they’re young. Many understand a lot more than you realize.
Not only should we be teaching kids about money, but more importantly, they need to understand that money is earned, and not simply given for whatever reason. Items that we need in every day life, whether they be a product or a service, are exchanged for money, with the value of the exchange determined by the seller or provider. The only way that a product or service can be purchased without money, is to exchange some other product or service for it, and this is known as bartering. This is not to common here in the USA, but in some parts of the world, it is more prevalent.
Teaching kids about money should include the importance of saving. They can take their allowance and spend it all on candy or some cheap toy, but then it is gone quickly. They need to be taught that by saving a certain part of their allowance, one day they will be able to buy a more expensive item such as a bicycle that will last much longer.
Have them establish a savings plan such as 10% of their allowance which will be much easier for them to calculate. Whatever amount that they earn can be calculated simply by moving the decimal point one space to the left. The savings account isn’t used for some short term item, but is used for the longer term items. Even though the amounts saved by the child now are very small, it will teach them the importance and value of self discipline. When teaching kids about money, such as saving for retirement, at an early age might not be a good idea because this may be a concept they can’t fully comprehend.
Teaching kids about money at an early age is good because by the time they get their first job, they will find it easier to continue with those principles. Another part of money management is to teach children about charitable giving, in order to make them a responsible member of society.
It used to be that you could take your child to the bank and open a savings account with around $10.00. In today’s economic environment, banks won’t generally open accounts with small balances, as their service charges will take it all rather quickly. Some banks service charge savings accounts until the balance reaches $1,000.00, but check around, you may find a credit union that is a lot more generous and responsive, and more receptive to teaching kids about money.
It used to be as well, that banks paid a decent rate of interest on savings accounts and you could show your child that as a benefit of saving, he/she would receive additional money. Now, with savings rates below 1%, there’s not much to see unless the account balance is substantial.
The next area of good money management when teaching kids about money, is the use of credit cards. This is one area where interest rates are not low, and in many cases, well over 20%. The child should be able to understand just how much a purchase would cost if it is not paid in full when the first statement arrives. It’s very easy to see those large monthly charges, and if the balance gets high enough, by simply paying the minimum payment called for, it will never get paid in full. Teach them this trap until they completely understand it.
In my opinion, credit cards should only be used as a convenience to purchase and then paid in full when the statement arrives. In my practice, I see young couples with seven to ten credit cards all maxed out to the tune of $50,000.00 plus, and they wonder why they have marital problems. Trying to keep up with their friends or neighbors with the over sized house, big SUVs, and all the latest toys, usually leads them to a divorce lawyer or a bankruptcy lawyer, sometimes both. I believe that teaching kids about money early on, will avoid some of these problems.
Most of the blame can be placed on the credit card issuers who mail out cards to anyone who is breathing, with little regard to their credit ability. Individuals see the amount of credit granted, and the temptation is too much. They begin spending on their wants and not their needs, and are soon in trouble. Teaching kids about money in a way that they will learn to exercise extreme caution with credit cards is critical. They need to learn to keep just one for the convenience of not having to carry large amounts of cash.
- How To Get Out of Debt Quickly - May 31, 2023
- Personal Finance for Teens - May 24, 2023
- File Your Taxes Online- 8 Tips - May 17, 2023
So far, I’ve allowed my son to purchase a $5 item online using my credit card so he can get a feel of lingering around the credit trap. To me, no matter how many times you explain to a child the entire process of a credit card payment, he’ll never be able to fully understand it until he experiences it himself.
I’ve forced my kids to save at least 15% of their allowances since young. It really shocks me to see how their friends splurge all their allowances on materialistic stuff, and fortunately, they don’t succumb to such temptations since saving has become part of their habit. It really pays to start young!
Actually, I was always advised to save 20% – the extra 5% is really not as hard as you think! Warren Buffet recommends keeping 20% of your income aside for personal enjoyment and spur of the moment purchases. I like that method – by sticking to it and putting the money into a separate account, I’m never tempted to go on shopping sprees more than that specific amount that I’ve saved.
You have made many good points. I guess they are never too young to start teaching them the importance of saving and budgeting.
I pretty much watched my parents go through all the ins and outs of budgeting when I was a kid, and picked up the same habits as I got older and moved on into my own life. They are very, very rigorous about allotting certain amounts of money for certain things, and though I thought it was normal at the time, apparently not all families are as strict. Now, at any given time, I have my numbers organized so that I can pull up a pie chart of my average spending by category (food, cable, entertainment, school related expenses, vacation savings, etc) with a couple mouse clicks.
I picked up the same habits from my Mom. Not so much my dad. But I kept all my money, babysitting, etc, in envelopes for different purposes, savings, saving for a particular item, fun time, etc. That’s kinda how my Mom did it but with bank accounts. So I picked up a lot of good habits there.
A superb awareness post! Yes, at their early stage, children must have some knowledge on where a dollar goes. Let them start young on money flow awareness. Thanks for this post.
I make my kids pay for certain things themselves and each week they must save something or sacrifice something to get what they want. Sometimes it’s difficult but letting them know about money early is essential.
My parents encouraged me to save some of my pocket money each week and it certainly did teach me how to save and budget, and eventually get the things I desired through that rather than borrowing to have now. In my adult life this has meant I always have saved and every few years I get a lump sum form those savings plans. Very handy!
A very important topic indeed! I believe that if more parents were teaching their children proper concepts about money, and how to save a certain percentage of their ‘income’ , our country’s debt would be much lower! Everything starts at home…. teach the next generation to respect the value of money and NOT to live outside their income! If we teach them to stay out of debt, eventually things can start to get better in our economy. We are doing our best with our two children….
A fantastic article with some great parenting advice you don’t normally come across. When you think about it, teaching children simple budgeting fundamentals and household economics in today’s economy is probably one of the best lessons they can get. Well done!
We have our kids put half of all the money that is given to them into their savings account and 20% of money that is earned. We also make them pay for items that they want and don’t give them anymore other than their allowance which is earned by work that they do for us. Their bedrooms are not included in their allowance because we feel that this is their own responsibility the same as when they become older and move out.
I always had to earn my allowance, and even then it was only $10 a month. If I wanted more money I had to do hard work like weeding the yard, spreading an entire dump truck load of bark dust (I did that for two family members), or other hard work (and I was paid less than minimum wage because our family just didn’t have a lot of money to give to the kids). Then I had friends who were given $40 a week. I also know of kids now who are given allowance, and then their parents just buy them whatever they want. I’m definitely going to teach my daughter about how money is earned and the value of it (and we’ve already started even though she’s only four years old). She gets allowance for being good (about fifty cents a day… just whatever change we have), and she has to save it up if she wants to buy something, or sell one of her toys if she wants to buy something. The only time we buy her toys is on a birthday or Christmas.
A great post and timely. Just the other day I saw a child throwing a tantrum in a department store because he wanted a toy. The child was older too, about 6 to 8, but acting like a 2 or 3 year old, stamping his feet, screaming and pulling away from his mother when she tried to get hold of him, I assumed she wanted to get out of the store. Needless to say she gave in and bought the toy. I realized then why the boy acted like a toddler rather than a boy in grade school. As a toddler he got whatever he wanted by throwing a tantrum, and as the years went by the same action got him what he wanted. How can you teach a kid the value of money when he or she relates getting whatever is wanted through pouting, throwing a tantrum, crying and so on. Money doesn’t fit into the equation at all for them.
My son is three and I am already working with him on money. I reward him with pennies and coins for helping me. Ha ha he now wants quarters! He sees me clip coupons and most of the time he shops with me and I explain that they are like pennies. When he doesn’t want to leave the house in the morning, I explain that if he likes watching Jake on TV, driving our red car and having the lights on, that takes pennies….so mommy has to go to work to earn the pennies.
I agree with you wholeheartedly, kids need to learn the importance of money and how it works. In addition to the info above, I would like to add that parents should also teach their children about tipping. It is required in so many places and still so many people don’t know how to do it properly.
I agree Ed, too many individuals have no idea the proper way to tip, and that should have been included in the post. It will be on a future one.