Teaching Children About Money - WeHaveKids - Family
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Teaching Children About Money

Robie is a mother, a wife, and a writer with an MBA. She's a fan of frugal living and loves to share ways to acquire financial strength.

Tips on teaching children that money is a limited and hard-to-get resource. Ideas on how to explain where money may come from, how to save, and how to spend.

Tips on teaching children that money is a limited and hard-to-get resource. Ideas on how to explain where money may come from, how to save, and how to spend.

Kids: They Are Watching Us

There is never a moment when we are not role models for our children. This applies to every aspect of life, including money management. Our attitude towards money, how we handle it, and the way we spend it are “speaking” to our children about money and the role it has in our life.

Children are like sponges; they assimilate so much information from us even when we are not aware of it. Our body language, phone conversations, comments, and outbursts all leave some kind of impression on our children.

Make it fun for the kids to learn about money, and they'll grow up having a better feeling about bills, saving plans, and financial emergencies.

Make it fun for the kids to learn about money, and they'll grow up having a better feeling about bills, saving plans, and financial emergencies.

1. Where Does Money Come From?

It's not so simple for children to understand that money is a limited and hard-to-get resource. Here are some ideas on how to explain where money may come from.

  • The typical source of money is a paycheck, which means that you need to have a job and work before you can get paid.
  • A wonderful source of money, because you don't have to make much effort at all are gifts and inheritances. This is money that people give you because they love you, or at least really like you, like your grandparents.
  • Depending on the family, children may get allowances as a weekly spending fund, or as remuneration for the chores they do. Allowances are the first paycheck in a child's life, and a great opportunity to learn about different ways to use money.
  • Many people find second jobs to make some extra money, and young people do extra chores for family and neighbors and get paid for them, like washing cars, mowing lawns, and painting fences.
  • A good way to make money is to sell things, which can help with de-clattering at the same time. There are all kind of things that can be sold - at a yard sale, online, or any other creative way - used things you don't need any more, things you made, and even your crafts or artwork.
  • Some people get money from investments. Not all investments are able to make your money grow. When you earn money from investments, it's called returns or interests. However, there is always a certain degree of risk connected with your investments, especially those with potentially high returns.
  • Investment risk means that your money may grow, but there is the possibility your investment loses value and you end up with less money. Some investments are low or no risk, but these usually offer the lowest returns.
Start saving early. A budget can help save enough money for the things we want to buy.  - Photo: three different piggy banks.

Start saving early. A budget can help save enough money for the things we want to buy. - Photo: three different piggy banks.

2. How Do Banks Work?

A bank is a business that needs to make money to pay its employees and make a profit. When you put your money in a bank account, the money does not sit there waiting for when you need it back. You, as the depositing customer, may gain a small amount of money in return, as interest on your savings.

The bank puts your money to work by lending it to other people for a higher interest rate. When other people need money to make a big purchase, they may ask the bank for a loan or a mortgage. The bank lets them use your money and charges them an interest, which makes the bank profit.

No worries, though—when you need your money back, you'll have it. The bank always keeps a cash fund available.

When shopping together, explain why you buy a certain item instead of a more expensive one, when you would pay more, and how you plan to afford something in the future that you can’t buy now.

When shopping together, explain why you buy a certain item instead of a more expensive one, when you would pay more, and how you plan to afford something in the future that you can’t buy now.

3. Why Is It Important to Save?

Saving money is not easy, but it is well worth it. Saving money means not spending all the money you have available, but keeping some for the future.

The main purposes of saving are:

  1. Being able to take care of emergencies.
  2. Being able to take advantage of opportunities when they arise.

Examples

A. Using savings to take care of emergencies. (An emergency is an unpredictable event that causes an expense and usually requires to be solved as soon as possible.)

You spent all your allowance on candies and new games. Let's pretend that you drop your phone and it stops working. Since it was your fault, your parents make you pay to fix it. You need $50 to fix it but you have no savings. You'll have to start saving your allowance until you have enough money. In the meantime . . . no phone.

B. Using savings to enjoy an opportunity. (An opportunity is an unexpected offer that is too good to give up.)

A friend may ask you to go to your favorite entertainment park, but you have already spent all your money and can't afford the ticket. You have to say no, missing out on the opportunity—unless you borrow from him, and that would put you in debt.

Being in debt means that you have already spent money that you didn't have yet, and when that money comes along it's not yours anymore. You'll have to pay back the debt, leaving you with less cash available in the future.

The Power of Starting to Save Early

Age When Kid Starts SavingAmount Saved MonthlyTotal Saved by Age 18 (No Interest)

7 years old

$3

$396

 

$5

$660

 

$10

$1,320

15 years old

$3

$108

 

$5

$180

 

$10

$360

Saving for a specific goal keeps you focused.

Saving for a specific goal keeps you focused.

4. Why Is a Budget Important?

We all have things we want. Parents may want a new car; children may want a new bike or new games. A budget can help save enough money for the things we want to buy.

A budget is a tool for you to know how much money you get (income) and spend (expenses) each month and helps you figure out how much you have left over each month, and how much you still need to save to reach your goals.

  • Families need to make sure they have enough money for regular bills—groceries, electricity, water, etc.
  • They also need to take care of emergencies and unexpected expenses, like a flat tire, a birthday invitation, a sick pet, etc.

To figure out how to best use their money, most families do a budget, listing all money earned and money spent.

Children can do their own budget, too. They can look at what they are currently spending and decide what they can cut or determine if they need to do some extra chores to meet their goal.

Free your kids from a life of financial stress

Free your kids from a life of financial stress

Talk to Your Children About How You Manage Your Money

Teaching the value of money by example is a great way to go, but explaining why we handle it one way instead of another can make the message much more powerful.

Every time your child is bugging you to buy candies, toys, ice creams, and what not, is a great opportunity to enrich the “No” answer with a brief explanation of “why not”, besides the obvious because I said so.

You don’t need to be a financial expert; actually, it’s better if you keep it simple. It will sound even more like everyday essential knowledge.

Explain why you buy a certain item instead of a more expensive one, what would make you decide to go for the costlier, how you will be able to afford something in the future that you can’t buy now.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2012 Robie Benve

Comments

Robie Benve (author) from Ohio on August 20, 2019:

Thanks a lot!

erinshelby from United States on August 16, 2019:

Yes, children absorb messages about money.... love the kid-friendly pictures (especially Kermit with his shopping cart!)

Jason Mackenzie from Perth WA 6000 on March 05, 2017:

I think whatever has been discussed in this hub is really important. To a great extent it shapes up the future of the child because being able to manage finances is half the battle.

Robie Benve (author) from Ohio on September 28, 2012:

Marcy, I like how you describe teaching children about money "an art". It surely is a balancing act trying to teach about saving and being frugal in our society full of consumerist contradictions.

I appreciate you reading and commenting. :)

Marcy Goodfleisch from Planet Earth on September 26, 2012:

We have really lost the art of teaching our children to save money - it seems everyone wants their rewards before they pay the price. These are terrific points and tips - thanks!

Voted up!!

Robie Benve (author) from Ohio on September 26, 2012:

Glimmer, that sounds like my daughter (she's seven) if I say I don't have the money for something, she goes "but you have your credit card, just use that", like it's just a virtual buying tool. lol I love her intent expression when I explain the connection between working, checkbook, bank account, and credit card. Hopefully one day she'll get it completely and stop asking to buy everything she sees.

I appreciate you reading and taking the time to comment. :)

Robie Benve (author) from Ohio on September 26, 2012:

Michael, your experience reminds me so much of the three years that I did financial counseling for the Army. So many young (and sometimes not-so-young) soldiers getting in financial hard waters, often because they didn't know any better. That is exactly what prompts me to write these articles. Thanks a lot for your feedback and nice words. :)

Claudia Mitchell on September 25, 2012:

Useful hub! We are always trying to teach our daughter about money and budgeting. She seems to think we have unending funds for anything and then gets quite disappointed when we don't.

Robie Benve (author) from Ohio on September 25, 2012:

Hi coffeegginmyrice, your comment made me smile! How true that our role as moms never ends! My mom does not see me for months in a row, and when I'm visiting she's all like "be careful in the traffic", "make sure your lights are on", "don't get back too late", etc. I'm sure your girls deep down appreciate your care and concern, even if in surface I can just see them rolling their eyes. ;)

Marites Mabugat-Simbajon from Toronto, Ontario on September 24, 2012:

My girls are 22 and 16 and they are big enough to know how to save, but still as a parent, I need to follow up and check often with their paychecks and make sure some savings are put aside. For sure, that makes me again as an annoying mom to them, but "what the heck children, this is mommy's role." :)

Michael Tully on September 24, 2012:

Thanks for a very timely and relevant article. Sadly, it was my experience over many years of public accounting practice that few people discuss money management with their kids. As a consequence, we have young people graduating from high school with no idea how to balance a checkbook, let alone manage their finances.

You've shown your readers how to discuss money issues with their children in language they can easily understand. Here's hoping that they take the ball and run with it.

Robie Benve (author) from Ohio on September 24, 2012:

Nettlemere, saving with a goal in mind can be a great help to reach that goal, and as you said it's a good habit to learn young. Thanks a lot for reading and commenting. :)

Nettlemere from Burnley, Lancashire, UK on September 23, 2012:

I like the idea of labeling the piggy bank with what they are saving up for. Definitely a good habit to learn young.

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