Part 5: Money Lessons
Posted by Gail | Filed under Kids & Money
With your guidance, an allowance can be used to teach important lessons in borrowing and lending, the pleasure derived from generosity, how to be a good consumer and the importance of considering those less fortunate.
Ultimately your children will learn all about the family’s budget and how they can contribute to the family’s financial well-being: ways to save expenses (turn off those darned lights!) and how to shop smartly (who better to advise on the purchase of the family’s home computer than your techno-whiz?). They will learn that the little things add up (20% saved on this item means two dollars that can be spent on something else) and that every nickel does count. Children progress pretty quickly from bubble gum to fancy jeans. While the dollar amounts they spend rise dramatically as they age, their respect for money doesn’t automatically increase proportionately. Only by helping them to learn the important money lessons will they develop the appropriate attitudes towards money.
From the ages of five and six, kids are ready to learn some financial basics: why we save, how to make change and how to manage an allowance. By age 10 or so, they can branch into investing. And by 16, they should be managing and budgeting for just about all the money you’d normally be spending on them: from baseball team memberships to back-to-school clothing allowances.
Understand that kids grasp financial principles at different ages. Resist the urge to bury your child in money lessons now that you’re convince this is an important step. And don’t think you’re “preserving their innocence” by not teaching about money. What you’re preserving is their ignorance. And perhaps your power. Innocence isn’t the issue. Since there’s nothing inherently bad, dirty, evil about money, innocence shouldn’t come into the equation.
Kids understand far more than we think they do and it’s a good idea to be aware of what kids may be learning even as toddlers. Pick up a penny on the sidewalk and you show that even the smallest denomination is valuable. Throw your change into a draw, into a jar, into a box without explanation, and you teach your kids that small change is worthless to you, not worth your time and energy to sort and bank.
Do your children even know where your money comes from? Sure, they see you taking money out of an ABM. But have you explained that you had to work for that money, that you put it in the bank to keep it safe and earn interest, and that you can only take out as much as you have available? Do they know how long you had to work for the $60 you just pulled out in cash?
Between ages 4 and 6, introduce your child to the basic concept that we use money in order to buy goods and services. Give your child the change to operate a vending machine or buy a newspaper. Explain that when you pay for something, the machine keeps the money, but you get the pop or newspaper. You can progress from here to paying for small things like popsicles or candy. Ultimately the message is when you spend money it’s gone. You get something in return. But you don’t have the money anymore, so choose wisely.
Kids also need to learn that when you buy something, you’ll be dipping into a finite amount of money. Give your child a dollar to buy something the next time you go to the grocery store, and tell her she can choose just one thing. (Don’t be surprised if your preschooler doesn’t yet understand that there are 100 cents in a dollar. Helping her with the prices will be a great math lesson, too.) This will show your child that money can be used up, and she has to choose carefully to get what she really wants.
Since busy people often run into stores to buy things, it’s only natural for little ones to think: “When we go in a store, we buy something” — in your child’s mind, anything at all. To counter this “store equals stuff” mentality, make a list before you go shopping, then show your child both your list and the money you have to pay for the items. Don’t forget to do it when you hit the toy store for birthday party gifts too. This will help him see that some shopping trips are not about him.
Next: More Money Lessons (Kids 7-9, Tweens and Teenagers)
March 19, 2009 at 9:35 am
I made a comment to my stepson a couple weeks ago…he made a request (almost like a demand) that we at least have chips in our house the next time he comes! I am very serious about our budget and there is not a lot that goes to groceries, so I choose the green peppers and broccoli over chips…not a hard decision….I digress…so I told him he can sit down with me the next time I do our weekly budget, and help me with the grocery list and when diapers, formula, baby food, and other necessities are done if there was any money left from the $90 that we have, then we can get some chips. Well, he almost swallowed his tongue and his eyes almost popped out! He exclaimed “90 dollars???” that’s all?” I guess his mom would rather buy groceries and clothes and internet than pay the phone bill (which is regularly cut off). So he knows nothing about it…It was a short but good lesson and there was no more talk about chips…I did tell him that next time we would make cookies…to lighten the blow. But I felt good telling him that because everyone else just gets things for him (and he’s old enough to understand…12)
March 19, 2009 at 10:19 am
Wow. Good for you, michelle! I’m so impressed that you were able to get through to him. Good work. And there are sooo many homemade treats and snacks you can make that can be way more satisfying than chips. Maybe if you make the cookies together it will be a lesson in learning how to make do and find enjoyment with what you already have.
March 19, 2009 at 12:11 pm
I completely related to this blog. Unfortunately, my parents didn’t teach me a thing about money and used the ‘innocence’ thing as an excuse, but really it was about power. I am trying very hard not to be controlling and opinionated over my children’s allowances. It’s very, very hard. lol. But I’m getting there. It’s hard to see them spend their money on cheap, horrible things when I finally know how much a dollar, even a penny is really worth, but it’s a lesson that they themselves must learn. Thanks Gail for all your advice and helping me to be a better parent!
I have to add that my daughter (who is now 7) when she was 4 wanted to buy something and I told her that we didn’t have money to buy it. She then told me how we should just go to the bank and buy some money. lol. It’s funny to see through their eyes sometimes. The money lessons started that day. lol.
March 19, 2009 at 12:41 pm
Thanks SQ! He’s a good kid, and always offers to help in the making process…and my hubby made the cookies this past weekend while I was at work and my stepson offered to help and hubby told him not to worry about it – then forgot to add sugar…next time my stepson will help! Gross cookies by the way lol! Hopefully we can get some more short lessons in here and there…it’s just too important to ignore!
March 19, 2009 at 1:52 pm
michelle, lol, that is so funny! i’m sure you’re stepson wouldn’t have forgotten the sugar! maybe in return for the money lessons he can offer your husband some baking lessons!
March 19, 2009 at 5:35 pm
My parents always aid it was RUDE to talk about money and how much we paid for something… I got in trouble for even asking about money. And I was not invited to go grocery shopping so even food pricing was a mystery. When I moved out of the house I was completely ignorant (not innocent as my parents may have hoped).
The good part was that I did know ( to the penny ) how much I had, how long it had to last and I was good enough at math to figure out that I had to be very careful with that small amount.
I had no idea what may happen if I was late with a bill so right from day one I paid on time and in full.
My children know a whole bunch of the details about why we can’t have everything exactly when we want it. They understand the idea of delayed gratification and making sacrifices to get to the goals sooner. And they have seen me go into a store and leave grumbling about not finding what was on the list, or the prices of fresh produce being criminally expensive so I can only get one red pepper instead of 3, etc. etc.
Truthfully the 7 year old doesn’t give a boo about it yet, but the 12 year old is very interested and asks questions all the time.
March 20, 2009 at 4:24 pm
I recently had a conversation about money with my 4-year-old, who was asking about a big sign at the mall. She wanted to know why the people in the signs were standing around and laughing, so I explained that they were ads. The people were showing us their clothes so that we would want to buy them. She was pretty taken aback, and decided it wasn’t a ‘nice’ thing to do to try to sell clothes.
So then we talked about how people make money. About how some people sell things, or make things, or help other people out, and that they get money for it. There’s nothing wrong with it, but we have to decide what to spend our money on. She was actually really interested, and I was glad that we had that opportunity to talk about this stuff.
March 23, 2009 at 7:44 am
My 4 year old had 5 bucks, he decided to buy 12 pairs of star shaped sunglasses for birthday party at our local supermarket for $4.39.
I asked him if he really wanted 12 pairs, and even after offering him to return the items and shop to the discount store next door, he still refused and was happy with the fact he just spent his whole money
My 7 year old spent 50 cents, and he’s glad he kept all his allowance.
I guess age makes a little difference in behaviour but also personnality, my second one is very generous, he often thinks about the others and is glad to offer half of his treats to anyone who asks him.
I talk to them a lot about money and budget, growing up had no idea how much my parents were earning (they refused to say) so I had to sneak on their payslips.. Crazy that money is still a taboo nowadays.
March 25, 2009 at 2:52 am
I have had my kids have their own bank accounts since they were 6 years old. They have a debit card because that way they understand how that works (no magic money machine). The frustrating thing is the tax being extra so my son would have $10 and see an item that cost $9.99 and didn’t have enough. Until he was about 10 I covered the taxes to avoid confusion.
Also, my older son (12) saw the amount of money for my husband’s pay and accused us of lying about not having any money. We explained about taxes and insurance (amazing how many type of insurance there are) and he got a dose of reality.
And the jars are helpful for the kids to see that the money is not a neverending resource. When the jar is empty it is the end.
Susan