I feel very fortunate. I have a well-paying job, only mortgage debt, and a wife who supports me in frugal, savings-oriented living.

Most importantly, though, I have two wonderful children. They are young, but they have entered the phase where my oldest (currently age four) is starting to learn serious lessons about money.

Here, I plan to document the various things we do to teach our children about money. In a sense, this is really his journal. All about what he does to learn, save and spend. I think it will be fun to keep a record of his efforts starting from (nearly) day one.

Today's lesson: the bank will give your money back.

Red Chief (my son, read this) went with me to the bank today. We've talked about banks before, and he knows that they are a great place to keep your money. He doesn't have an account yet, but he will soon.

Until today, though, he had never seen me get money out of the bank. Largely because I almost never do. I prefer to use debit cards and online transfers. Since I want him to make deposits, though, I wanted him to see with his own eyes that the guys behind the desks really will give you money.

So, since I had to deposit some checks anyway, we went to the bank and withdrew $21: a $20 bill and a couple rolls of pennies (for another game we play). I took some time to show him that the bill they gave me had a 20 in the corner, which is different than the others he has seen and held (all singles so far).

So now he's seen it. The bank will, in fact, give your money back.

One thing that has gone well with Red Chief so far is discussing the idea of goals. He hasn't started an allowance yet (that will start with the bank account soon), but he does earn money by doing extra jobs or as a reward for things we want to motivate (usually school-related).

Every time he has gotten focused on earning money it has been because he has a goal. So far he has saved up and purchased:

A $5.00 fax machine for his "office" (thrift store)
A $4.00 harmonica
A $6.00 typewriter (also thrift store)
A $1.00 roll of masking tape (he's obsessed with tape, so we decided not long ago that perhaps he would waste less if he bought it himself).
There are probably others, but those are the ones that come to mind immediately

I'm fairly pleased with his ability to reach goals. While he's saving for something specific he has an easy time avoiding temptations. It also helps that his money is in a piggy-bank at the top of his closet, so he can't get into it without asking us. And even if he did, he can't get to a store without us either.

Actually, we've just recently come across the first time he has money (a little over a dollar at the moment), but no clear goal. I'm pleased to see that he's still saving, even though he isn't sure yet what it's for.

You have been an inspiration to me. I have a young child and have not started teaching her about money. Now after reading your posts, I have learned some ideas. Thank you.

Thanks, it's nice to know someone (besides me) finds this useful. Best of luck with your daughter.

Recognizing money:

Red Chief is still trying to master the art of recognizing different coins. He knows that they are money, but can't always tell me which is which. To help, we started playing "name that coin."

Periodically, I surprise him with a coin in my hand and say "can you name that coin? If so, you can keep it!" He gets very excited because he loves to get new coins for his piggy bank. It has helped him be much better at recognizing them.

Lately, he is doing pretty well. Nickels are the only ones he's still having trouble with on occasion (it's harder when you're looking at a single coin, without others next to it to compare against). Earlier, though, I would give him a chance to practice first. We would dump a pile of coins on the table, then sort and name them together before he had his pop quiz.

A little bit of financial motivation can go a long way.

Over the weekend we went as a family to the zoo. On the way, we had a chat. My wife and I explained that we brought $0.51 cents for him to use as he pleased. He could either feed the goats, or squash a penny in the souvenir penny machine. Main goal? Understand that money is limited, and you have to choose.

He thought about it for a while, and decided on squashing a penny. His sister decided to feed the goats.

Then when we got there, the penny squasher was out of order. He fed the goats instead.

Just wanted to let you know that I don't have alot to add b/c I don't have children - but I'm finding your posts really interesting.

I'm glad to hear you're enjoying them. Working with kids is a great deal of fun because they really do start from scratch. It's fun to think about the basics - the real basics - and work your way up to the "fancy" stuff like credit (of which he knows nothing - we've talked about Daddy's cards before, but he thinks they're all debit cards at the moment).

One thing to be cautious of is not to overwhelm them. They tend to do best with little bits here and there over time. My son, for example, never sits still for more than a few minutes, so teaching has to be mostly opportunistic. We talk about things as they happen. It's not something we schedule as a time to sit down for a few hours and talk. When he's older, that might work.

Advertisements are everywhere, and my son has noticed. We've been having fun lately as we look around pointing out the ads we can see. It's an interesting activity to grab the National Geographic, for example, and see if he can pick out which pictures are ads and which ones are stories. He does well.

We've talked, and he knows that the goal of advertisements is to get you to buy what you see in the ad. That explanation worked pretty well until he saw an ad for a dentist, which confused him a little (nope, we're not buying the dentist). We had to explain that in that case, they were trying to convince you that they were the best dentist you could visit.

We've also used his independence to our advantage. "Do you like people telling you what to do?" Of course not. "So should we buy things just because we see them in ads?" Nope.

But are ads bad? Not really. We've also talked about how ads help pay for the things we use daily. For him, the most concrete examples are the free real-estate newspaper things you can pick up outside restaurants. He loves to grab them and feel important while he reads his paper. We've explained that the reason they are free is because of the advertisements inside. TV would be a great example, too, but he only watches PBS, so he doesn't really see commercials on there.

His biggest misconception so far is that there has to be an ad before you could buy something. He still says things on occasion like "I will find an ad for a microscope some day so that I can buy one." Perhaps we can shift that into a need to comparison shop or hunt for coupons somehow....

I think it's great that you're teaching him at such a young age. So many kids today are getting the wrong message from mom & dad on how to manage their finances.

I think that what you are trying to teach your children about money is wonderful.

But I think you might want to read up a little on child development and learning. Some of the issues you've mentioned are typical - understanding that coins are symbols for "value" but not understanding the meaning of denomination are pretty typical. It usually takes a few years beyond 4 before a child can truly understand ranking much less relative value. In other words, at 4 the child might be able to count to 20 but probably does not understand the concept of 20 being greater than 1. Similarly, "5" as the word in the word in the counting sequence, "5" as the symbol written down or on a $5 bill, and a bowl with 5 objects in it might be completely different concepts to the child.

I'm not saying there is anything wrong with what you are doing or that you shouldn't keep doing it. But some of the things you've said are right out of the classic child development writers including Piaget! If your read up on some of that material you might be able to be even more effective at teaching your child about money.

I have to agree with this one. My oldest was a smart cookie so I started early giving her an allowance (couple dollars a month) in a piggy bank. We also would give her quarters from time to time. More than once she got ripped off when she was little, trading her dollars, for some cheap trinket from a friend not because she even wanted the trinket but because "it made my friend happy". Basically she would give away both her toys and also money to her friends. And trading a dollar for multiple shiny coins worth less than a dollar because in her mind coins were more valuable.
We had her save her allowance to bring to Disney World at age 5. She was so excited and felt proud to have her own purse and wallet with $44 in it and we thought it would be a great lesson for spending and making choices. But on the first day there she played in a playground and took off her purse in one of the play spaces. By the time we realized what she had done and returned to the spot, needless to say her purse was gone.
Now she is 8 and great about money. She has her allowance electronically deposited and hasn't touched it yet other than us doing joint donations at Christmas. Since she still loves coin her granfather gave her a collection of inexpensive international coins she can play with. So in retrospect while I was well-meaning, a lot of those lessons came too soon.
I also have a 4 year old daughter. But I'm waiting on the allowance until she seems more interested and mature.

Thanks for the thoughts and concerns. You're right that I'm certainly no expert in child development. I could certainly benefit from learning a bit more.

At the same time, I think I may have given a bit of the wrong impression. I certainly understand that there's a big difference between a four-year-old and older children. My wife used to teach in an elementary school prior to becoming a mom and I do volunteer work with children of various ages (boy scouts and cub scouts). We both know that there is a huge difference between children of different ages. Among those of the same age there are huge differences as well.

We aren't bothered if he can't rank coins, break change or do other related things. He will learn that in time, but we are happy to wait and enjoy the progress he does make each day.

We do, however, want to take every opportunity to explain the world around him. When we were talking about the $20 bill being different than a $1, for example, it was because the next place we went was the dollar store (buying a mother's day gift). I wanted him to understand the reason behind something that might have otherwise seemed odd: Usually when he buys something at the dollar store they take his dollar and he gets the item. When Daddy gave them his "dollar," though, Daddy got the item and several bills back as well. The money multiplied! It's like magic! I pointed out the 20 just to show that not all bills are alike - not because I hoped he'd understand its exact value.

I love working with my children. They open my eyes to the world around me in a way that keeps it looking new and fresh all the time. It also helps me to make my own ideas more concrete.

Thanks again for your thoughts.

Mr. Mordecai I wasn't trying to be critical, the opposite sharing my child's unfortunate early money experiences (which we can now laugh about), even though I took child development and should have "known better" but in fact needed "concrete" examples before I really understood. It was interesting and eye opening to me to see how my daughter perceived money as a little kid.
And even if they were unfortunate lessons they were still lessons that she learned something from.
And I love the idea of learning by weaving it into every day experience.

Here's an ethical dilemma.
I know how I'm going to respond to this but this is a good example of what goes on. My older daughter has enough money in her account to buy the newest American Girl doll, but won't despite her friend's insistence because she doesn't want to spend that much money on a single doll. I let her know I was going to let her younger sister get a new American Girl doll for her 5th birthday (well leave aside whether spending $100 on a doll is insane -the cost will be prorated among relatives) and I'm sure the two dolls can "play together".
Later, I overheard the older sister talking to the younger sister, that if she gets so and so doll, she'll trade her AG doll for her doll. Now my youngest sees the older daughter's AG doll as highly desirable because she doesn't get to play with it, plus she loves her older sister to bits and likes to please her. Needless to say she excitedly said "yes" to the deal. I don't know if they know I overheard all this.

What do you think? Win-win situation (everyone is happy) or a good parent wouldn't let a child who doesn't have full decision-making capacity get taken advantage? She may not know now she's getting the short end of the stick, but will figure it out at some point...