Teaching Kids Money Management

Teaching your child about money should begin early. Even before a child can read or add, he knows what money is.

When my brother, John, was four years old, my mom told him we couldn’t afford the toy he asked for. “Mom,” John replied innocently, “Just go to the ATM.”

How much you teach your child about money will depend upon their age. As children get older, money lessons will become more complex, but here are some beginning guidelines for teaching your children to be smart money managers.

Be Aware of Your Own Spending Habits

Children are always watching their parents, and they will learn from your example. If you regularly say, “I shouldn’t buy that,” but do it anyway, your kids will not realize the consequences of bad money management.

If you often declare, “This is a reward to myself for (X)” as you slide the credit card, you’ll teach your kids entitlement.

Even my mother, who is generally pretty good with money and exceptionally good at finding a deal, tends to reward herself often by spending money. I saw this as a child and unconsciously believed that I could reward myself for every little thing.

Trust me, those little “treats” add up, and pretty soon, I was spending much more than I should have.

Start a Savings Fund

Whether you believe in giving kids an allowance or not, teach them that they should pay themselves first whenever they receive money.

Let your kids pick out a jar or a piggy bank and decorate it. Put it somewhere they can’t get into it but can still see it, and help them put in 5-10% of their money every time they earn some.

If kids get into the habit of paying themselves first, they will be unlikely to live paycheck to paycheck in the future.

Also, you might want to set up a charity or tithing fund that they contribute to regularly. Some parents follow a 10-10-80 rule: 10% savings, 10% charity, and 80% spending.

No matter how you do it, make sure savings and charity come before spending.

Teach Them How to Shop

To help kids get the most out of the money they earn, teach them to be thrifty. Take them with you to the store and explain sales, coupons, and price per unit.

The more they understand, the further they can stretch their money (and the less you will have to pay for).

It’s not necessary to create a formal, write-everything-down budget (especially when kids are young). Still, help children be aware of how much they are spending and help them develop thrifty habits.

For the most part, let children be in charge of how they spend their money. Making little mistakes while they’re young will go a long way in preventing them from making big financial mistakes in the future.

Teach Them Delayed Gratification

It’s around three years of age that most kids start saying, “I want, I want!” Teaching kids that they can’t always have what they want—at least right away—is crucial to their future success.

Studies show that kids who can delay gratification perform better in school and have healthier relationships.

So teach children that if they want that new toy or book, they can save up for it. Suggest jobs that they can do to save up pennies.

Not only will learning delayed gratification prevent kids from viewing mom and dad as an ATM, but it will also give them a sense of self-worth.

Teach Them to Work

Many parents suggest only paying for children’s essential needs (food, clothing, etc.) and having children earn money for the things they want.

Whatever your method, remember that kids who work for at least some of the things they want will be much more careful about how they spend their money. They certainly won’t spend their hard-earned cash as freely as they would moms and dads.

However, you choose to teach your children about money, start early. The better a child is at managing money, the less likely he is to give in to the allurement of credit cards or living beyond his means in the future.

And he’ll be smarter about things like investing and choosing construction loan lenders or a retirement plan. Teaching your child to be financially savvy sets him up for success.

Do you encourage your kids to save money?