Teach Children About Money

Reflect on your childhood. How did you learn about the meaning of money? When did you learn where money comes from and how to manage it?

Depending on your childhood, you may have learned that money is a scarce commodity and that people must work hard to obtain it. As a child, you may have learned that money is something given to you by parents or relatives to show love and care. Depending on your family’s circumstances, you may have learned you never had enough money, and developed a pro-income mindset. Others may have generally had enough money and subsequently developed more of a pro-investment mindset. Others had no parental guidance regarding money or learned to depend on credit for day to day finances. What was your situation?

Financial stress is a top source of depression and anxiety in adults. As parents, you can start now to teach your children the meaning of money based on your own family values.

1.       Teach your children to save

Start with a piggy bank, which will then turn into a bank account when they are older. Teach them about money as a tool of trade, rather than using it to substitute for otherwise intangible things such as parental time or affection. Help them to develop an emotional tolerance for holding on to money, knowing that it is there, without spending it.

Sometimes setting a goal for something they are saving towards can help support the process of delayed gratification.

2.       Teach your children that money is earned

This is not about allowances versus payment for chores. Balance is key. It can be frustrating for children to feel like everything must be earned because they are not yet at a developmental stage where they can earn everything for themselves. It is okay for them to be given some things. Over time, you can slowly start to incorporate the idea of earning using strategies based on your own family values, for example, a teenager may save and contribute 50% of the payment for something, while the parent pays the other 50%. In this case, a teen can feel both self-esteem for saving and contributing while also feeling supported in not having the undue stress of paying the entire cost.  

Sometimes experiencing a childhood were everything must be earned can lead to adults who later have difficulty receiving gifts from others.

3.       Teach your children to give

Sometimes when money in a family is scarce, children learn to hold on to every penny. As you teach children that money is earned and can be stored for later use, also teach them that money is unequally distributed in this world and that sharing your resources is an important part of financial stewardship.

4.       Discuss categories of needs versus wants.

Start to teach children that some items are more important to save for than others. Children usually will be primarily saving towards things they want, while their basic needs will be provided by adults as best as possible. Over time, they can learn that certain items that they want are more important or helpful (or expensive) than other items, and therefore require a greater investment. Help them to see the bigger picture. Sometimes a diagram or other visual aid can be helpful.  

5.       Expect that their money decisions may be poor at first.

Allow children to learn from their early stage money mistakes, such as initial impatience with spending money, while gently helping them reflect on the implications of their decisions. Avoid mocking or criticizing their early mistakes. Ideally, childhood should be a time for children to learn by experience in a supportive environment.

6.       Teach them about the concept of credit

Older teenagers that are gearing up to leave the nest will eventually encounter the pressure to hold a credit card. Sit with your teenager and explain meaning of credit, including the pitfalls. Teach them that it is more secure to delay gratification and pay fully for items as much as is possible, and to save credit for large needs that cannot be put off or for which there is no other alternative, rather than to use credit for smaller items such as furniture and day to day purchases which may just feel difficult to be without. Explain that, though merchants will try to tell you to have credit in order to “build your credit history”, the chronic effort to pay off credit has an emotional toll and ultimately limits financial freedom. Be the example and show them how you prioritize limiting dependence on credit.