Children and Money Management

Image of mother holding a child with a piggy bank

Financial literacy is rarely taught in America's schools. Therefore, the responsibility falls on the parents to educate their children about the value of money and how to properly manage their finances.

Financial Education For Our Children

One of the most important life skills a child can learn is money management. In the vast majority of cases, children learn their spending habits and financial values from their parents.

Unfortunately, many parents don't teach their children money skills. In many families, the household finances are deliberately kept from the children. Some parents feel that finances are not their children's business, or that financial matters are too complicated for their children to understand. Others don't want to burden their children with some of the more stressful aspects of money management, like debt and unexpected expenses. The problem with this approach is that it's difficult, if not impossible, for a child to grasp the value of proper money management if they're not involved.

Getting your kids involved with money is something that can be done as soon as they learn to count. It does not have to be complicated, nor does it require divulging details many parents don't feel comfortable discussing with their children. For example, before going grocery shopping, clip coupons to show your children an easy way to save money. Grocery shopping is also a great way to teach kids the value of comparison shopping. Choose an item on your shopping list, grab three different brands, and show your children that even though all the products are virtually identical, some cost more than others. The key here is to show your children two things: Higher prices do not always mean higher quality, and there are many substitutes for most name-brand goods. Comparison shopping is a basic money skill that is easily taught and will prove useful throughout your child's entire life.

Another skill that children need is how to save money. Most children's first instinct is to spend the money they have almost as fast as they obtain it. Knowing this, parents will sometimes take birthday and holiday money away from their children, put it in a savings account, and speak no more of it. Children often view this as forced savings, and regard it as just another one of Mom and Dad's rules. This method makes it difficult for children to see any value in saving. From the child's point of view, "saving" means Mom and Dad taking their birthday check away, and that they'll never see their money again.

Rather than miss the opportunity to pass along a valuable lesson, get your children involved. Teach them that the first thing people should do with their money is pay themselves first. Before buying bubble gum, before going to a movie, have them put some money in the bank. It doesn't have to be a large amount. Just help your children get into the habit of saving. The important point to get across is that saving is good. Bring them to the bank, open a savings account, and have your children fill out their own deposit slips from day one. This makes saving an activity, not a mandate. Review the monthly statements and show how money grows over time with interest. But don't just concentrate on growth. Discuss any withdrawals your child made and why. This will teach your children to think before they buy. If started early and reinforced consistently, Junior will build up quite a nest egg before long.

An extremely important, and oftentimes difficult thing for parents to do is allow their children to make their own spending decisions. Many parents are fearful that the money will be wasted. Nobody wants to see their children waste money, but it's better to let them make mistakes with small amounts of money while they're young instead of with larger amounts when they're older. Think about it. If a child who's learning how to ride a bike falls off and scrapes his knee, will you take the bike away? Of course not. You tell little Tommy to get back on because it's the only way to learn. But if a child makes an unwise purchase, a parents' first instinct is to control the money to prevent further waste. This is just like selling his bike after a spill. Allow your children to make money mistakes. That's how they learn to avoid them in the future. Money management is like any other learned skill. It takes practice.

Money is a tool that can have a very positive influence on somebody's life, but if it's not managed properly it quickly becomes a burden. Teaching money skills to your children will promote habits that will serve them well for their entire lives.