Despite my parents’ best intentions, I was rather financially foggy when I reached adulthood, and it took me quite a while to take control of our cash. So I’ve felt a lot of pressure to help my kids walk a steadier path – and I could tell, from our discussion on “keeping up with the Joneses”, that a lot of you are feeling the pressure, too.
As an over-analyzer myself, I know how easy it is to get overwhelmed by details and research and trying to find the “best” way to talk to kids about finances. But what I’ve learned about about managing my own money is that my behavior and attitude matter more than the specific details of my financial plan. And I’m finding that also applies strongly to the way I teach my kids about money.
Here are four tips I’ve discovered along the way:
1. Demonstrate active, instead of passive, money management.
It’s tempting to just say “We can’t afford it!” or “Money doesn’t grow on trees!” when your six-year-old asks for a new toy, but that doesn’t really do much to teach him about how to care for that hard-earned cash. If instead, you talk often about the way you make your budget, why you need one, and how you decide what to spend money on every month, your child can understand the big picture – that we should control our money, not the other way around. And that applies regardless of whether you happen to have twenty bucks in your pocket or not.
2. Prepare for ‘learning moments’
A few months ago I overheard a conversation between my two younger sons in the backseat. Owen, my five-year-old, was lamenting the fact that I’d told the kids they couldn’t sign up for a membership to an online computer game at five dollars a month.
“Did you hear that, Will?” Owen said conspiratorially. “Mom doesn’t even have five dollars. I have more money than she does!”
I actually did have five dollars, but it was earmarked for other things. However, I hadn’t really explained that to Owen. I’d been distracted by looking for an address when he’d asked me for the game subscription, and because I didn’t have a thorough response ready to go, I’d said something along the lines of, “We don’t have money for that.” Obviously, my meaning went right over his head.
That experience reminded me that it’s a good idea to be ready to seize these teachable moments with some go-to messages so that even when I’m distracted, I have a ‘script’ I can refer to again and again. After all, it’s not like I can’t predict my kids will ask for something that’s not in the budget…they do it, oh, about once an hour.
3. Give kids options.
Whenever one of my boys ask for something that is not in the budget – which is pretty much always as we rarely buy toys outside of Christmas and birthdays – I rarely just say “no” right off the bat. They feel empowered when I give them options: they can earn the money themselves by doing work around the house, for example. Or, they can put the item on their birthday or Christmas wish list. Generally they keep a running list all year long that changes as they lose interest in certain items and become more interested in others. Putting them in charge of getting the coveted object helps them prioritize and recognize how sometimes that thing you were so sure you wanted last month just isn’t that fascinating anymore.
4. Just start.
When my oldest boys were getting big enough to start collecting an allowance, I spent a lot of time reading different opinions on the ‘best’ way to do it. Some experts argued that money should always be tied to chores, so that children learn that you have to work to earn. Others maintained that chores are just a part of being part of a family and allowance should be kept separate. I was so conflicted over which was the “right” approach that I couldn’t seem to get started.
As the boys got older, though, I learned that the exact formula for teaching kids about work and money doesn’t really matter; what matters is that you do and say something. A points system, monopoly money they can cash in for treats, cold hard cash…as long as you’re helping kids make the connection between work and earning and teaching them about budgeting and saving, you’re doing your job. The method is just a tool, and like any other parenting decision there are many valid tools to choose from. You might also find, as with sleep and discipline, that different kids respond to different techniques.
So just do it. Pick a system that’s easy to start, doesn’t require a big investment or commitment, and is simple to maintain. Come up with a few key messages about money that you’d like your kids to understand, and return to them again and again. And go.
Don’t delude yourself into thinking your kids will be perfect with money forever if you get it exactly right- we all make mistakes, and even financial whizzes occasionally wind up with spendthrift kids. What’s important is that by talking about money early you’re laying a foundation that will help them make fewer mistakes and learn from those mistakes faster. Which is the same for anything in life, right?
I’m still learning when it comes to kids and finances, so I’m hoping to learn from all of you, too: how do you talk to your kids about money? What strategy works best for you as far as chores, allowance, savings, etc? Do you use a particular tool, book, or plan?
I was happy to partner with MyJobChart to bring you today’s post and help support our money series. I’ve been using MyJobChart to help my boys and I keep track of and communicate about their chore lists. They can easily see how their ‘pay’ adds up and you can either set it up so that they can “cash in” for retail rewards or custom create your own rewards. It also encourages kids to save and share, either by earmarking funds for a cause you designate, or donating to a suggested charity through the interface. Besides being free (bonus!) MyJobChart is super easy to use and customize so that you can reward your child’s work in the way that feels most right for you.
Post image: kongsky / FreeDigitalPhotos.net
{ 22 comments… read them below or add one }
I usually say something like “I’m choosing not to buy that for you” rather than we can’t afford it. Then they ask why and I can do exactly what you talk about above and make it a teachable moment.
I love the “give options” advice and do that also. Anything they want can go on their wish list. It makes them feel heard and often when the time for actually giving me the list to purchase for birthdays or holidays, they’ve changed their mind on many items, even sometimes saying “why did I want this before?”
Yes, I think so often they just want to feel heard. The wish list makes all of us a lot happier.
My son’s not quite two, so the only money chat we’ve had is me convincing him that until we give the people at the store money, they aren’t our cookies yet and we can’t eat them. To my amazement, he actually seems to “get it” and holds the box of animal crackers patiently the whole shopping trip in the store, hands it/tosses it to the cashier, then demands to eat them immediately after we get in the car, lol.
I’ll be interested to read other peoples suggestions for older kids, as whatever my parents did resulted in me saving as much as possible and living modestly for my income but my brothers spending frivolously (like having to call me and my parents to ask for help with bills kind of frivolous spending.) It really makes me wonder what made the difference!
Empowering them really makes them understand. Outside of the spend, save, give requirements of their allowance, we put them in charge of their money on vacation or during season tickets to professional baseball games (we attend 6 games/yr). For example, at the beginning of the vacation or baseball season, we tell them they have $X to spend throughout the vacation or bball season. Spend it all at once, a little at time, however they want. If they have money left over they can keep it. It takes care of the constant requests, keeps us in budget and lets the kids learn that if they spend $6 on ice cream, they will not have enough for a souvenir they want. Sometimes ice cream wins sometimes not, but it’s their choice. It’s tangible and when it is gone, it is gone. Works great for us!
Love this, C. It’s not exactly money management but I’ve also started my kids off paying for some items, like food from concession stands, themselves from a pretty young age. Something about handling the money, handing it over and taking the change just seems to teach them in a more practical and real way.
So my son is 11. We give him a small monthly allowance, just as a way to let him have a small amount of money. He has to bank a portion of it in his long-term savings and then the rest is his. He has chores that are not related to his allowance, but he can do jobs to earn more money. Last year we came up with a job list and set pay for each job. Those are inside the house. The best time for him is garden season, as both my mum and I will pay for hard labour.
Right now he is of the mind that he only does the jobs when he wants money in the moment (other than his non-paying daily chores of course). He doesn’t seem to care that he could bank the money, unless it’s something he really, really wants – he’s done this twice so far in three years, once for a special cowboy hat and once for a Wii gaming system. Usually he spends it, and then asks me for more money two days later (as I look at him in slight disbelief).
Don’t know if he’s really learning, he approaches it the same way he approaches school work and everything else, so I think it’s a personality thing more than a learned thing.
I should add that he doesn’t get more money from me
I think the personality aspect can’t be underestimated, and the trick is finding ways to help kids manage their money that works with their own inclinations. I’ve shared before that I have a hard time with saving because it feels passive. It feels more natural for me to “spend” the money into savings in a different bank because then I’ve done something active with it. Just a little trick I play on my brain.
My parents were really great on the money front. Well, not in all ways– they definitely fought about money a lot– but in terms of the mechanics and so on. I had an allowance. I could buy whatever I wanted with it, no matter how much they disapproved because it was *my money.* My dad taught me how to figure out what the best price at the supermarket was by looking at the per oz etc. number. He taught me the basics of the stock market by showing me how to follow Exxon, a stock that often did very exciting things. My mom showed me how to balance a checkbook and sign checks… I learned never to go into debt for a depreciating asset. And that when my friends were getting new cars and video game systems at 16 but couldn’t go to the college of their choice at 18, that maybe I was the kid who was better off, for all the sacrifices we made.
I was kind of shocked when I found out that people didn’t get these kinds of lessons growing up. I even taught my husband some basics! Who doesn’t know how to grocery shop? Or cook? Apparently a lot of people.
DS is only 4. He gets 80 cents/week. He’s still a bit unclear on the concept, but he’ll get there.
I’m not even sure I heard the term “depreciating asset” until I was in my 20s!
The weird thing is my dad was a banker for years, so he KNEW about those things. I guess just not how to teach about them.
So glad you mentioned that about the chores and earning allowance. I find it hard to connect the two with my kids. They do their chores, and I deposit money into their savings account regardless. But they are good about doing their chores, and they don’t ask for money, they would rather have a sticker. I was trying so hard to connect the two, but it wasn’t working. Enter our trip to Disneyland…
I knew they would be overwhelmed with all the things they would want to buy, and so would my budget. So before they trip I bought them each a giftcard to Disneyland with X amount of dollars on it. I explained to them that this was the money they had to use the whole time we were there, whether it was for a special cup, lollipops, toys, t-shirts, hats, etc. Once the money was gone, it was gone. I cautioned them to take their time shopping, we could always go back to buy something, and they didn’t have to do it all the first hour we were there. It worked great! They were so frugile with their money, they have dollars left over for their next trip. I felt this taught them more about the value of a dollar than the chore chart.
Finally, I totally relate on the whole our parents trying to teach us about handling funds and struggling with it once on our own. I’m 36 and finally getting a grasp on how I manage our money. It’s kind of a sad, scary truth…but at least we are present to it, and can be more mindful with our own kids.
My oldest is just four but he’s picking up a lot. I think out loud my comparison shopping, often using the phrase “better price.” It could be embarassing, but I figure anyone who can hear me can see that I’m talking to a little kid. A lot of times he does ask whether something he sees is a good price and he can interpret the price labels and knows whether one is less than or greater than the other.
As to script… A long time ago, I saw some “expert” on TV point out that “we can’t afford” is a scary thing for a kid to hear. She suggested “that’s not a wise way for us to spend our money.” I’ve been using something like that for a script and we’ve talked about some of the things we also need money for (our home, our food, our clothes) when pointing out that we should only sometimes use our money for toys or candy or that we might choose a more modest toy. “Sometimes use our money for toys” is a script for me, too. I think it sends a nicer message than just NO (though any persistence is met with firm nos). It’s not: no, never, I don’t want you to have, because I said so. It’s conveying moderation, I hope.
I remember as a kid (probably five) responding “so use a cheque” when my parents told me they didn’t have the money for something I wanted. I was kinda humiliated at how hard they laughed at me but they did then explain and I got the point. So I’ve already been over the “magical” ATM – explaining that it is our money, money that is only put in the bank for us when we do work, and that it is not bottomless.
I think he’s really starting to get it but it wasn’t that long ago, at Chinese New Year, that he opened the envelopes and handed me the cash because he really just wanted the envelopes. They are pretty, I guess.
Anyway, I’m kinda wondering at what age (approx) birthday money and other cash gifts should go straight to the kid. We’re still tossing all that money in the college funds.
Sorry if someone covered this but when is a good time to start? My daughter is 2 but I’m afraid she won’t get it just yet…
Thank you!
Jessica, I don’t think it’s ever too early to start talking about money in a natural way, but you’re right that heavy-handed lessons will probably go over her head at this point. Honestly, heavy-handed lessons have a way of going over kids’ heads at ANY age. I’d keep it very natural and relevant to whatever you’re doing – say you’re getting ice cream; you can point out to her that you’re giving the cashier X dollars and getting 24 cents in change, etc. Just so she gets the idea that money is something you “trade” for goods, services or experiences, and has value.
I’m sure others can chime in with more suggestions!
I have a paper chore list for my children which, when all the boxes are completed, earn them their allowance for the week. They are allowed to spend this on anything except sweets (trying to protect their teeth and not get huge dental bills in the future!). If they want something which is more than their allowance at the toy store for example, I explain how many weeks of chores they would need to complete to save for that toy. They seem to have this notion that if its in a big box, its going to take weeks!!
Your post has actually highlighted that I need to set them up their own bank accounts so they can learn to accumulate funds although I did read a couple of financial planning books which suggested buying stocks for them instead and teaching them how to watch their investments grow. Not sure when to start that as they have just turned 7
Oh and I am guilty of saying “did you see the money tree in the backyard?” – I think I will show them the budget so they know where our money goes instead.
Oh and I forgot to add that I do explain to them that if we don’t spend money on trivial things, we can save up for nice holidays somewhere and their Dad won’t need to do overtime so they will see him a lot more!
So, here’s my question . . . what if I don’t want my kids buying a whole bunch of toys (or sweets, as Nat mentioned), but I still want them to learn about money management? Our small house is already filled with more toys than they play with. They both (ages 5 & 2) have winter bdays, so i addition to Christmas we get overloaded then. Any gift money they receive for these holidays I usually put away to buy them/let them buy a couple of things in the summer when their “new” toys are getting old. Honestly, they don’t need anything else. One of our family values is to try not to be consumers for the sake of consuming, and buy purposely. And any outings or lessons that their in I consider my gift to them — don’t feel like they should have to pay an entrance fee to the zoo, kwim? Anyway, my 5 1/2 year old is probably ready for some sort of allowance system, but given these values, what do I do? I have started a voluntary chore chart where she simply earns smiley faces, and try to just connect this to being a family helper. But, I don’t want to leave a gaping hole in her financial education. Suggestions appreciated!
Shari, as another mom who really doesn’t want more toys coming into the house, I hear you! But we all want SOMETHING for our money, or we wouldn’t bother earning any, right? So maybe you can figure out where your ‘spending values’ lie and work with that as an example. Do you value experiences over things – a family vacation (that you can all save up for together) or an outing to the theatre? Do you want to sponsor a needy child or contribute to some bigger financial goal? Or maybe you just show them that there is more to shopping and buying than getting as much stuff as you can for the least possible amount of money. For example, I talk to my kids about how I am willing to pay more for good quality objects, and why. Or that I like to spend some of our family’s money at local stores – even though it usually costs a little more – and why. I also talk about how it makes sense to hold off and make sure that you’re buying something that’s worth the exchange in labor or effort. That way I’m not encouraging them to just blow all the cash they earn. (There’s also a saving and giving component in there that they need to learn, and that keeps them from blowing all their dough on crap.)
Your kids are pretty young to pay for their own outings and lessons, but as they get older you will encounter more and more opportunities for them to foot some of the bill as they begin to choose activities more independently from you, and as those activities become more and more expensive. It’s only too easy for a kid to shrug and say “Sure” when you’re asking him if he wants to go to music camp…he can’t appreciate the cost yet. But if he’s going to have to come up with some of the fees, he may be more choosy about what he signs on for or more appreciative of the money you’re putting in.
This is one of my favorite topics! We have a simple system in our family. Our 10-year-old daughter gets an allowance, but “taxes” are taken off the top. (Right now her allowance is $10 every other week, but she only sees $9 of it.) Then she has split her take-home into three pots: spending, saving and giving. We don’t tie chores with her allowance — we simply expect her to do those. But we do pay her for short-term chores that go above and beyond. (Like helping us with demo before a renovation project!)
But I have to say that one of the biggest issues is the math involved. Too often, I hear parents say that they’re just not good at math, so they can’t figure out how much something on sale will cost or how to make a budget, etc. These messages are as critical as the ones we send about money. And, let’s face it, too often discomfort with math translates to bad money decisions. *smile*
I just wanted to add that my father paid a lot of attention to teaching me about advertising. My son’s too small for any of this right now, can’t ask for anything but ice cream at the moment, but when he becomes more able to talk (and maybe before, since he can understand pretty well) I will start analyzing ads with him. We all hate advertising that’s aimed at children, and I think it’s awful that it exists, but it’s really lame from your adult’s point of view, so explaining it to kids is probably not that hard. I see lots of commercials for sugary cereals showing cartoon children having adventures with the cereal mascots (has nothing to do with how the cereal tastes) and McDonalds commercials showing kids playing with Ronald McDonald or having birthday get-togethers with family and friends. Again, this has nothing to do with whether or not McDonald’s has tasty food that you actually would like to eat. Same thing with the “toys” in the happy meals. Are they really so cool? I mean, of course we want our children to be diverted and it’s OK to take them for fast food occasionally, but the commercials always tell them to “collect all 8″ toys or whatever. Ask your kid if the little toys are really worth it. Just have conversations about advertising. I think that helps them to learn to see through the hype and decide what they really like in toys and foods and experiences so they can be more conscientious consumers. And I am really digging everyone’s suggestions for talking and teaching directly about money.
We have two boys age 9 and 7 so a bit further along than some of the other commentators. We started each boy with an allowance in Kindergarten. The speech was “you are now old enough to learn how to manage some of your own money. At the same time, you’re now old enough to be responsible for some of the work that needs to be done around the house. You’re part of the family team.” BUT, we didn’t actively link the allowance to specific chores.
We made the kids divide the allowance into Spend-Save-Share jars and told them that the Save jar was for something big like college or buying a new car.
They system worked OK to an extent but we’ve recently introduced a new approach where we’ve a) decided exactly what the boys will now be responsible for in terms of buying things and b) given them complete control over whether they spend, save or share. So now my 9 year old has decided to devote part of his allowance to that $5 monthly online game site but it’s his choice and he can learn whether it’s good value for him or not.
I’ve blogged more about our new approach here: http://www.growingrichkids.com/the-5-difference-to-kids-allowances-that-delivers-powerful-lessons
I hear you, Meagan, on how easy it is to get bogged down in trying to find the single, right approach. Definitely happened to me! But as you note, like a lot of parenting, what works for one child or one family might not work for another. And, you need to keep evolving it as the children grow and are ready for bigger concepts and responsibilities.
I think it’s also important not to think that just by giving an allowance, you have done all you need to do to educate kids about money. It’s just one tool. Kids are watching parents and absorbing how they are acting, talking and even feeling about money. it’s as much as what you are doing as what you are saying.
I believe strongly in involving the kids in money conversations. I didn’t do that with my older ones and wish I had. These opportunities are everywhere. However, I’ve found that unless they understand some money basics, a lot of that will go over their head.
I couldn’t find a book/system I liked so I created one. It is a workbook that utilizes an “envelope” system. It’s very fun for the kids and gives them the ability to handle their own money – another area I feel is important. The system itself instigates conversations as they learn how to determine needs and wants, how to save, spend, give, etc. The parents might even learn a thing or two.
You can see it at http://www.kidbudget.com. It may not be for everyone and it probably won’t be useful for kids under 5 or 6 but it works.
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