Teach Your Child to Manage Money

Teach Your Child to Manage Money

Money doesn’t grow on trees. And it is sometimes hard for children to fully grasp all of the intricacies involved with money management. It is not enough to teach children to save money – we need to focus on teaching our children how to manage money. Just as healthy eating is only one part of raising a healthy child, putting money in the bank is only part of raising financially secure people.

The Language of Money

Have you ever found yourself saying, “I can’t buy that for you – I don’t have the money” or “that is too much money” when your child begs for that amazingly awesome alien that spits green goo? Those answers might seem like easy, harmless ways to teach children about money management, but you might be doing more harm than you realize.

The language you use about money tells your child how money fits into your life and your decisions. While the truth might be that you don’t have extra money to spend on the green goo spitter, you do two things that set your kids up for failure when you give answers like the examples above.

  1. You indicate that if you actually had the money, that you would buy the toy. Is this really the truth? Do you really want a green goo spitter in the house? Does your child really need another toy to add to the clutter? I’m guessing that most of us still would not randomly just buy the latest fad toys to fill our homes, even if we had the means to spend frivolously at our disposal.
  2. You teach your child that money gives you power, and you are powerless without it. While some of us might nods our head and say yes, the world does work that way, it is important for our kids to learn that we still have the power to control our financial decisions. Even if we only have $25 to our name, we still have the choice how to spend that money. We might know that we need it for food for our family – even though technically we could buy a new toy. It is about choices.

To answer the pleas for toys, trips to the mall, and endless dinners out it is better to be proactive. Start with the language you use about money and your own finances. The next time your child pleads for that toy in the window, put yourself in control of the situation and the money. Say something such as:

That toy costs $(fill in with amount of money). I am not going to choose to spend my money on the toy. It is not a need that our family has right now. If it is something you truly want, you can save your money for it.

Identifying Needs vs. Wants

Using this type of approach gives you the control over your money, and it also helps distinguish for your kids the differences between needs and wants. When your children hear you openly discussing the differences they learn to identify those in their own lives.

  • Create an age appropriate list of the needs of the family (shelter, food, insurance, etc.).
  • Create another age appropriate list of the wants in your family (newer vehicle, vacation, cable/satellite television, membership to the museum, etc.).
  • Help your kids identify which ones are priorities.
  • Give your children real world examples of how much each of these items on both lists cost.

Help Your Children Create a Budget

Money management is difficult to teach effectively unless your children have access to their own or are openly involved in family finances. Helping them create a budget, even at very young ages, can be one of the best lifelong gifts you can give your child. Remember – it is about developing a sense of power and control over the finances and not letting the money control you.

  • Give your kids access to money, whether it is their allowance, birthday money, or cash earned from chores in the neighborhood.
  • Give your kids opportunities to spend money – it is the only way they can understand how to use it. If you always keep their money and never let them spend it, they won’t learn how to budget.
  • Set up some guidelines for spending, saving, and giving. One way to do this is to say 1/3 for saving, 1/3 for spending, and 1/3 for giving (charity, church offerings, birthday gifts for friends/siblings).
  • Discourage spending on whims. Kids who bring money to the mall usually end up spending money at the mall, even if they never had any focused intention of spending it. I have my children plan their purchases and the younger ones aren’t allowed to just bring money “in case” while we are shopping. Our rule is 24 hours to plan for small purchases and 3 days for larger purchases. My kids rarely go back and buy the item they thought they couldn’t live without after they have had time to think about it.
  • Teach your kids about savings accounts, interest, and real world situations of bills and financial responsibility. Show them the electric bill or take a poll to see who can estimate to the closest amount how much money insurance is each month.
  • Be a good role model. Our children soak in our spending habits like a dry sponge set out in a rainstorm. Remember to use proactive and positive language that reaffirms that while money is necessary for many things in our life, we are the ones who are in control of the decisions about how to spend it, how to save it, and how to use it best.

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  1. Molly Minks says:

    We do this with our kids. They also give to a church organization. It really helps them to manage money at a young age so they will be prepared with they start to work and become adults. I love your article. I hope you love my blog at http://www.thecribhub.com where we have a great crib sale.


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