Teaching Your Children the Value of Money

by Phil Dyer, CFP

Are we raising money-smart kids?  Increasingly, the answer seems to be an emphatic “No!”  A recent study of college students and credit card debt shows that more than four out of five college students have at least one credit card and average student credit card debt is approximately $3,000.  However, the lure of easy money consumerism starts well before college.  How can you help your child build good financial habits for success now and later in life?

• Provide Choices:  This can teach kids how to make smart financial decisions, particularly when it is their money.  This can be as easy as, “Johnny, do you want to spend your allowance on these candy bars or save for another week to buy that comic book you want?”
• Cool Off:  Kids are also very prone to impulse spending, so imposing a “cooling off” period of two to three days (or more than a week for older kids) can go a long way to curbing impulse buys.  For example, you can say, “Suzy if you still want this doll on Tuesday, we can come back and get it.”
• Paper, Not Plastic:  Although plastic money–gift cards, debit cards and credit cards–have become the norm today, many financial experts recommending teaching kids about money using old-fashioned cash.
• Lead by Example:  Kids follow the lead of their parents, for good or ill.  If you aren’t setting a good example in your own spending, saving and handling of money, it will be difficult to teach your kids to do so.
• Distinguishing Needs vs. Wants:  Parents typically cover kids’ needs–food, clothing, shelter, medical care and basic school supplies.  But what about these constant and increasingly costly “wants” that come around as kids age?  When their own money is on the line, many kids suddenly become very serious bargain.
• Save, Spend and Share:  As soon as kids start to understand the value of money–usually around 4 years old–it is important to begin teaching them the fundamentals.  Subdividing monetary gifts and allowances into three piles–one to save, one to spend and one to share–is an excellent start.
• Provide An Allowance:  Many parents institute an allowance around 5 years old and a good rule of thumb is $1 per week to start and increase $1 per week each year of elementary school ($2 per week in 1st grade, $3 per week in 2nd, etc.).  Once they are teenagers and the “opportunities” to spend money multiply, consider increasing the allowance to $10-20 per week, but require kids to purchase those “must have” extras with their own money.