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Kids & Money

Today when crisp dollar bills slide out of ATM machines, and plastic so often pays the bill instead of cash, it's harder than ever for parents to get the message across to their kids that money doesn't grow on trees. Kids who don't get this message early develop unrealistic expectations about money. Finances can be very unforgiving, as many of us learned the hard way during the "spend what you've got, charge what you need" eighties. Now, parents will do well to teach their kids more realistic attitudes about money. Today, tomorrow, and always, its not what you earn, it's what you keep.

Teaching children about money is a long-term project that takes parental time and patience. Starting with preschool lessons about how to make change, parents need to work through many stages of financial responsibility with their kids, including handling allowances, savings accounts, checking accounts, and eventually even investments and retirement planning issues. Let's look at ways of teaching children about money as they grow up.


Studies done at Texas A&M University by marketing professor James McNeal, indicate that:

  • Children don't start asking their parents for specific items in the supermarket until they are about 2 years old. Usually, their first request is for a breakfast cereal.
  • Between the ages of 2 and 4, children learn to count, and by age 4 they know that in order to get what they want in a store, they have to pay.
  • By age 5 or 6 they can distinguish between pennies, nickels, dimes and quarters. By this time many kids are already making small purchases on their own.
The earlier children get used to handling money and dealing with change, the better. It gives them "money confidence". You can take advantage of many everyday opportunities to teach preschoolers about money.

Explain what you're doing when you go to the bank, the grocery store, or the drive-thru window at a fast food restaurant.

Let your kids feed the coins into the parking meters, pay phones, coin-op laundry machines, gumball and coke machines, etc.

Let your child play store with a little bit of real money. Give her a colorful plastic change purse to carry some pennies, nickels and dimes around in. Ask, "How many pennies do you have today?" Encourage her to count them.

Get your child a piggy bank. Any fun container, especially a clear one that shows the money inside, is especially good.

If your child ever takes something from a store, a piece of candy for example, explain that it must be paid for. Accompany your child to visit the store manager or sales clerk, and have the child pay for the item.

School Age Kids

The best way to teach kids about money is to give them an allowance. School-age kids begin to understand that money spent is really gone.

The whole idea behind an allowance is to teach kids where money comes from, and where it goes. Parents who just hand their kids a few bucks and forget about it aren't getting a lesson across. Tie allowances to weekly chores or responsibilities. This links money to the idea of earning it. Here are a few hints to make allowances more effective:

Decide with your spouse the size of your child's allowance, and when it will be given. Be consistent. Just as you expect your paycheck to arrive on time, give out your child's allowance when he or she expects it.

Avoid giving your child an advance on an allowance unless the circumstances are exceptional. Doing so enforces the idea of living on credit.

Let your child choose how to spend his allowance. Of course mistakes will be made, but that's how he will learn.

How much money is enough? If your kid's allowance is too small, he can't buy anything and won't have the opportunity to make choices. If it's too much, he won't have to make wise decisions. One method is to give your kids allowances equal to their ages: a 10-year old gets $10 a week, or whatever you think is appropriate.

Teach kids the balancing act between spending and saving by dividing their allowance into three parts. The first part is for immediate spending, the second part has to be saved for something special, like a bicycle. The third part is for long-term savings toward college or other future goals. There are many variations on this three-way split. For example, you may decide to match the contribution that your child makes to the second and /or third parts. At the price of many bikes today, you might offer to go halves on the cost of a new bike.

By age 8 to 10 many children are intrigued by the idea of earning interest on their money, so you may want to think about opening a savings account in your child's name. Help him learn how a checkbook works, and occasionally pay his allowance by check. At first children feel uncomfortable about handing their "very own" money over to a stranger at the bank for nothing but a piece of paper in return. Children love getting mail though, and bank statements soon arrive looking very important and showing the interest they've earned. Most banks offer savings accounts for minors, but an adult has to sign as custodian of the account. Banks vary in their minimum opening deposit. Some have no minimum. Likewise, some banks will charge a service fee for the minor's account, while others won't. Calling several local banks to compare services is a good idea. Let your child listen as you ask customer service representatives various questions, or let your child make the calls. Either way, take some time to discuss the various options with him. Keep in mind the convenience of getting to and from the bank. Is there a branch within walking or biking distance? Would it be safe for your child to make the trip alone? Will you have to drive him every time he wants to make a deposit or withdrawal? If so, it might be best in the long run to open the account wherever you do your own banking.

Young Teens

Other kids can supplement their allowances by washing cars, mowing lawns, baby-sitting, delivering newspapers, etc. Older kids usually make decisions for themselves about how to spend the money they earn. When a teenager saves up two hundred dollars and spends it all on CDs, you may feel very upset. Getting angry will only turn money into a negative issue. When you give your kids responsibility, you have to be willing to live with their choices. Allow kids to make their spending choices, but make it clear you won't turn around and bail them out later.

Older Teens

Once teenagers are able to get work outside the home, their financial independence increases. Teens may suddenly get an inflated sense of their spending money because while they are earning paychecks, Mom and Dad are still paying their living expenses. This can be a good time to reduce or withdraw their allowance. It's also a good time to explain monthly budgeting for living expenses. If your teen is planning to attend college, be sure to include him in discussions on how the family's going to pay for it, will student loans be necessary? How much does it cost to go to a state college? How expensive are private schools? Do you expect your child to work to earn their spending money during college?

One other topic to discuss with you college-age children is credit cards. Credit card companies will solicit your children, so prepare them to deal with the avalanche of letters offering them easy credit. Explain the finance charges, credit limits, and interest rates that apply to purchases. Some parents add their children's names to their own bank issued cards, Exxon cards, etc. This only makes sense if you clearly explain acceptable uses of your card. Impose a credit limit, and keep it low - maybe $50.

When it comes to bigger financial issues, such as taxes and investing, it's a good idea to encourage your children to sit in on family finance meetings occasionally. Older kids will learn a lot just from listening and observing. If you and your spouse have constructive money talks, it sets an excellent example for your children.

It's never too late to start teaching your child good money habits. The idea of saving money doesn't come easily in a world where advertisers make spending seem much more appealing. Parents have to compete with every merchandising craze that comes along, from life-size Barbies to the latest pump-up, light-up, be-like-Mike sneakers. In the long run however, the rewards of learning good money habits will out-last the crazes. Good money habits do last a lifetime.

What's Your Money Attitude?

  • Do my children have money they can spend without my guidance?
  • Have I helped my kids set up a savings and spending plan?
  • Do I avoid using money as a reward or as punishment?
  • Do my children do household chores regularly without being paid?
  • Do I praise my children when they make wise money decisions?
  • Do I allow my children to make money mistakes and then help them understand the consequences?
  • When I want something that isn't in my own budget, do I let my kids see me say no to myself, too?

Additional Resources

If You Made a Million, by David M. Schwartz, illustrated by Steven Kellogg - has easy to understand concepts and entertaining depictions of money equivalents for preschoolers and elementary-school-age-kids. Lothrop, Lee & Sheppard Books, 1989.

Biz Kids'Guide to Success, by Terri Thompson, illustrated by Shannon Keegan - features money-making ideas for school-age kids. Barron's Educational Series, Inc. 1992.

The Go-Around Dollar, by Barbara Johnston Adams, illustrated by Joyce Audy Zarins - presents a day in the life of a dollar bill. Macmillan Publishing Company, 1992.

How to Teach Children About Money, by Peggy Houser and Hassell Bradley. Order from Young American's Bank, 311 Steele St., Denver, CO 80206; 303-394-4357.

Money Skills: 101 Activities to Teach Your Child About Money, by Bonnie Drew (Career Press Inc., 1992).

It Doesn't Grow On Trees, by Jean Ross Peterson (Betterway Books, 1988).

Written by: Marcy King
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