Teaching the Value of Money in the Early Years (4-8)
As early as possible, teach children the value of money. I mean this. Make sure they know the values of pennies, nickels, and dimes.
Consider buying a toy cash register, but replace the toy money with real money. Assign values to toys allowing for an association between how much money is needed to purchase things they want or need.
For your typical four and five-year-old child, you have many opportunities to teach them the value of money when you go to the grocery store. Helping them understand the terminology of dollars and cents is a foundational conversation.
Financial conversations should occur regularly and should span a child’s development through the years.
During your conversations regarding money, introduce early on the concepts of need, want, and wish. These three concepts provide excellent discussion points on your trips to the grocery store or the mall.
Ask your child, “is that Lego set a need, want, or wish?” Allowing your child the chance to critically think about which category fits their considered purchase is an exercise in self-determination and self-worth.
In addition to need, want, and wish are the financial action terms of spend, save, and give. I would suggest you communicate this terminology in a different order though and teach as give, save, and spend.
Emphasizing giving and saving in your conversations can change the emotional message of money in your kids and your grandkids’ lives.
And even at this early age, let your child make mistakes. If a child is remembered to take their money to the theater in hopes of spending quarters on candy and treat machines in the lobby, let them do so.
Allow them to put those cherished quarters into the machine with the robot arm that if move maneuvered correctly, gives them a stuffed animal or toy. And sadly watch them as they spend all of their money on this machine without ever getting a toy.
They see all of their money is gone, and they cry.
Hug them and tell them you love them. But do not give them more money. And also, allow them to spend that money to learn the lesson in the future. A helicopter parent would warn them not to spend that money and not allow them to learn that lesson. Making mistakes allows the child to learn.
- Teach the valuation of money at an early age allowing them to play with actual money using a toy cash register and pretend product.
- Introduce the terms need, want, and wish as well as the terms give, save, and Make financial conversations a consistent part of your dialogue with your child.
- Allow your child to learn from their mistakes, and allow them some independence in learning how to spend their money even though it may be painful to watch.
Teaching the Value of Money in Late Elementary to Middle School (8-13)
Hopefully, you have been having financial conversations with your child from an early age. But if you have not, do not despair. Financial conversations can begin at any time.
So, if you have a late elementary to middle school child, now is the time to introduce an allowance into their lives. The period from late elementary to middle school is also when most of my clients begin to question me about an appropriate system for their children’s allowances.
While I do tend to adhere to the “one dollar per year of a child’s age” rule of thumb, there can be exceptions.
Discussing an allowance should occur as a more formal conversation allowing for input from the child and an appropriate exchange of ideas. Ask the child what he or she thinks they should spend their money on, and make sure they know they have a voice in the discussion.
Often a child will come up with interesting new ideas a parent had not considered. One example of outside the box thinking would be allowing a child to spend part of their allowance on an Xbox live account.
Another example would be a child who volunteers to spend their money on movie tickets but refusing to ever go to the movies. Kids can be very creative during these years.
From the ages of 8 to 12, I encourage an allowance to be distributed in the form of cash. If an allowance is $10, give your child a $5-dollar bill and five 1 dollar bills. Holding and counting this money encourages the child to understand further the value of money based which corresponds to their developmental level.
Money can be kept in an old-school piggy bank or jar, so they can visually see the money accumulate over time. After a year or two of handling real money and saving it in a fun way, consider moving into technology which will make your allowance system ultimately much easier.
While it may seem very old school, I do encourage families to go to the bank and open up an account in their child’s name. Helping them understand that there is a physical space where their money is housed can help dispel the myth that money magically appears.
While I do think it is valuable for kids to understand, the old school method of a check register, providing this as an educational foundation for money is unnecessary at this point. However, introducing them to spreadsheets, QuickBooks, and online banking is very important at this age.
“Financial conversations should occur regularly.”
Kids are technologically savvy and are likely to be more invested if there is a technological component to their allowance system. Once you have their account set up, the rest is easy.
On your online banking account, you can now create a recurring payment to your child’s account in the amount of their allowance. This makes the consistency of distributing an allowance supremely easy.
However, making the allowance distribution easy could let most parents off the hook.
Technology allows for consistency of an allowance system. But technology does not replace financial conversations which must continue throughout the middle school years.
Renegotiating what a child pays for and what a parent provides can be and should be an ongoing conversation. In the past, I have had some parents provide a $300 a month allowance.
While this sounds shocking, these kids were also responsible for their year’s clothing allowance as well as gas for the car and other entertainment expenses. These teens were exceptionally mature but ultimately gained a tremendous financial education.
While this may be an extreme example, as mentioned earlier, allowance systems should fit a particular family and a child’s nature rather than adhering to a rigid standard which is inflexible.
- When giving an allowance, make sure the money is physically given, so a child understands money is real and not based on the magic of a credit or debit card.
- Have open conversations about how the money is to be used and for what the parent and child are each responsible.
- Open a bank account with the child, so they understand where money is stored and teach them how to account for the money.
- Help them set up an Excel spreadsheet or an envelope system which helps them understand how their money is being given, saved, and spent.
- Use technology to make your life easier and allow for consistent distribution of money.
- Never stop having regular conversations about money and continue to use real-world examples of purchases. Included in these conversations should be the concept of sales tax and interest.
Teaching the Value of Money High School (14-18)
In high school, I feel like this is where the fun begins. Developmentally, this stage of life is where the most enduring lessons are learned.
I strongly encourage families to aggressively help kids understand budgets and the true value of what it means to live on a daily basis within a reasonable budget. The lessons explored during this period of child development include discussions of utility bills, home insurance, and what a mortgage means.
“Allow your child to learn from their mistakes.”
Understanding the difference between a lease of a car and a purchase is a conversation that few children have with their parents. Financial conversations should be deliberate and consistent conversations during this time of development.
Interestingly, if you have developed your child’s financial intelligence quotient over time, your child will begin to comment on how you and their friends use or misuse money.
Sitting down on a weekly basis to improve your child’s financial education is invaluable. Helping your young adult children understand the stock market, interest rates, and the emotional role that money plays with people increases their financial IQ.
Making your high school student more aware of the family’s financial goals can only help them. Helping a child understand the value of their home and the expenses associated including property taxes, house insurance, as well as home repairs can open up their eyes in a very healthy way allowing them to prepare for their futures.
- Keep the financial conversation going.
- Accept and welcome critiques of your spending habits from your child.
- Continue to allow them to make mistakes.
- Open up the world of the family’s finances and help them think through their futures.
The Four C’s of Parenting
Barbara Coloroso speaks of the four C’s of parenting.
The first C is that of care which involves caring for the child, changing diapers, and meeting their most basic needs.
The second C is that of control. Learning to control a child from running into the street or making decisions which will be harmful to them represents the second C.
The third C emphasizes coaching. Coaches do not need to explain the rules but will enforce them based on consequences which affect the player. Lecturing and nagging do little good with the third C and a teenager.
Should you successfully navigate this third C, the fourth C awaits you. This fourth C represents you as a counselor. The hope is that if you successfully navigate the first three C’s, you will find yourself in the position of a counselor.
“Four C’s of Parenting: caring, control, coaching, and counseling.”
With successful financial conversations throughout the lifespan, you can potentially become a financial counselor to your adult child. The hope is that you will become a person whom your child will approach for advice because financial conversations will have become a conversation devoid of emotional baggage.
You will become a parent who has successfully provided financial choices and financial education to your young adult children. The hope would be this education will be communicated to generations to come and reverse the trend of helicopter parenting and the emotional baggage attached to money.