Money Matters with Kids
Posted: July 24, 2012
You may be thinking that this is easy to say, but it really can difficult if as adults we don’t model sound financial practices. As a parent, you should show your children the effort you put into budgeting by paying bills out in the open or taking them grocery shopping with you, so they can see the things you can and can’t buy. This teaches your children the importance of a budget.
Every day you make choices with your money, but do you explain how you are making these choices with your children? Most likely, you are not unless they are asking you to purchase something for them. Even then, you may just say, “I don’t have the money to buy you a CD.” You don’t need to get into a lot of detail about your finances, but depending on the age of the child, there are things you can do to help them better understand that you only have a certain amount of money for essential (needs) and nonessential items (wants).
Most of us learn best through hands-on experiences, and teaching children about budgeting needs to be practical and at the level they understand. For example, try using the “three jar system:”
• Have three jars; label one for spending, one for saving, and one for charity
• Split the child’s allowance and/or earnings into the three jars with any ratio you want (or agree upon with child)
• Set a limit on how long they have to save the money in the “save jar”
• Let them spend the money in the “spend jar” whenever they want
• At the end of a set amount of time, let them choose a charity or person to donate the “charity jar” money to
Another example to teach children about budgeting is to take them to an arcade where they can purchase a limited amount of tokens (works well if they are using their own money). The rule is that they will not get additional tokens to spend. Let them play in the arcade until they use their tokens. Once they have their tickets, take them to the prize redemption desk. Let them shop with the tickets they earned. Let them know they can save tickets for the next time they come to the arcade, if they don’t have enough for a prize they want right then (savings). They are able to learn that things cost money, and they have to budget the amount of tickets they have for the things they want. They can only spend what they have on hand. Yes, the parent ATM cash and credit machine is closed for the day. This is a good example of how a family manages money as well – learning to live within your means.
I found with my own children that talking about money prior to going shopping was very beneficial. They all had their want list in addition to mine. Make a list and estimate the costs prior to going shopping, or even while traveling in the car. An elementary age child can write down the list of things that need purchased and add up the estimated costs. Tell them how much money you have to spend, and together prioritize the items on the list. They are now part of the decision-making process. Having discussions like these helps children understand that your money tree doesn’t exist. Again, we have to live within our means.
“Mother, let’s use a credit card!” At some point during the month, if you receive a credit card bill, show it to your children. Go over each item on the bill and share that it has to be paid in full by the date shown. If it isn’t paid, then you have to pay a penalty and it will cost you more money, which means something else gets taken off the list that someone in the family may need. This teaches them that there are consequences for not paying the amount in full.
Talking about money with children is a very personal and sensitive matter that most people don’t feel comfortable doing. The bottom line is that parents role model their spending and saving habits to their children by example. For better or worse, this is how children learn their financial management practices. Regardless of your income level, how you handle your money matters, as it helps to form your children’s understanding and value of money.