Sending Kids the Right Money Message

Money does not grow on trees. Okay, you know this – but do your kids? Teaching children the meaning of money is vital to ensuring they know how to survive in a world full of financial hazards.

There are many ways to instill healthy habits, but the most important method is to teach by example. If your children see you using credit cards to pay for what you can’t afford, it won’t be long before they believe that depending on loans is the only way to make ends meet. If they hear you argue or fret about bills, they are likely to have a negative association with money management. As a parent, coming to grips with your own financial mishaps will not only benefit you, but will have a tremendous and lasting impact on those who are watching you. And they are watching.

Teach early
How young is too young to learn about money? This question has been much debated, but even toddlers can and should be introduced to certain rudimentary ideas. Rather than giving formal lessons (that are sure to confound and bore a three-year-old), make your outings together fun learning opportunities. By the time he or she knows numbers and the concept of less and more, hit the world together and begin the learning process.

Teach good shopping habits
When shopping, teach your child to be a selective consumer. Discuss price versus product. For example, when you are at the supermarket, pick up a couple of boxes of cereal and say, “this one costs $2.50, and this $4.50. Which should I buy?” In age-appropriate language, discuss why you would – or wouldn’t – choose the less expensive box.

At the checkout counter, hand your child the bills and allow him to pay for what you’ve chosen together. That action will help him understand that things don’t magically appear, but are bought. If you use a credit card for purchases, make sure you explain that there will be a bill at the end of the month that must be paid by a specific date.

Teach the work-income connection
Before heading off to work, take a moment to explain that you are going not just because you like your job (associating work with enjoyment and fulfillment is also an important lesson), but to earn an income so you can pay for the things you need to buy for the household. Keep it simple, light, and positive.

Bump-up the lessons
As your child gets older, keep the lessons up but increase their complexity. Read the business section of the newspaper together and discuss the basics of economics. If you are fuzzy on the details of how the stock market works or the impact of taxes in our lives, make a commitment to learn more – and to share that knowledge with your child.

Talk about marketing and advertising too. While it may not change the fact that your daughter wants a hundred dollar pair of jeans, she will at least be aware of why she desires them.

Allow them the opportunity to make mistakes and have successes
Giving money to children is a very hot topic, and there are a great many philosophies about how and when to do it. Each family has their own way, and what works for you and your kids may not for the family down the block. However, learning how to handle money is best done with cash in hand.

Whether you give an allowance that is based on chores, is freely given, or you provide a “base salary” with an opportunity to earn bonuses, make sure you give your child the chance to make mistakes. Made on a small scale, a mistake such as blowing a months’ allowance on a toy that immediately breaks can be the most effective learning device around.

Emphasize Saving
Many children are natural savers; stockpiling coins like squirrels hoard nuts. Others have to be taught to sock money away. But whether saving is innate or learned, it should always be encouraged and praised. Once again, the best way to teach is to lead by example. Talk about saving – what you do, how you do it, what you are saving for. Your excitement and commitment will be transferred to your child.

Teaching children about money – how to earn, use, and save it – can be a very enjoyable experience for all involved. However, to be the most effective instructor, you may have to change some of your own notions and habits, or learn a little more than you know now. The end result will be children who are more apt to survive the lean times – and maybe teach you a thing or two when they get older!