How Do You Teach Kids the Value of Money?

At the grocery store yesterday, I passed a man and his daughter in the snack aisle. She was maybe ten or eleven, a little overweight, and begging for cookies. He was tall and muscular, a blue-collar type, clearly exasperated with her. “You have no conception of how hard your mother and I work to earn money, do you?” he said. There was desperation in his voice.

This brief encounter has been in my mind ever since. It reminds me of something I read over at the Seeds of Wisdom forum. Jim Anthony shared a story about how he is teaching his six-year-old the value of money. Anthony doesn't like the idea of just giving his son money — he thought it created an “entitlement mentality” — but he doesn't like the idea of tying the allowance to chores, either.

The big problem I see with either of these methods is that most parents don't teach any lessons beyond this and their kids learn that money is for spending on stuff, period. There are no lessons about making money earn more money. There are no lessons about the actual value of money.

[…]

A couple of years ago, I took things in a totally different direction. I decided on no allowance but rather to put my son “in charge” of a set amount of money to be spent on specific things, his two favorite things, McDonalds and video games. I essentially gave him control over part of the household budget. This was money that we were already spending, the only thing that changed was the control of it.

He was given $20 a week to spend however he wanted on these two items. The first week, we ate at McDonalds three times in two days. The money was gone. Actually, for the first couple of months, we ate at McDonalds quite a bit until he wanted the new Sonic X game and didn't have any money for it.

It didn't take him long to figure out that a video game costs about the same a 5 or 6 trips to McDonalds. It took another couple of months before he was finally able to get his game. Today, he totally understands the value of a $20 bill.

Anthony then helped his son set up a couple of vending machines which provide a small but regular income. From there, his son moved to investing small amounts in stocks of companies with which he was familiar (e.g. Disney, Apple). His son has also started to save.

I'll admit, he's had just a little bit of coaching here and he doesn't understand any of the details behind any of this stuff [remember: the kid is six years old], but he does understand that by thinking and acting differently than everybody else, he can have much more than anybody else.

How and when to communicate money values to children is one of the toughest challenges that parents face. You want to support your children, to shield them from the hardships of life. But without facing the hardships, they won't appreciate the value of money. And what if your own money skills are poor in the first place?

JLP at All Financial Matters writes often about kids and money. He has kids himself, and deals with these issues every day. I asked him to share some of his favorite articles:

  • Kids & Money
  • Wise Spending Habits for Kids
  • Start Saving for Retirement at 16!
  • An Interview with Steve Rosen of the Kansas City Star — Rosen is one of the only columnists in the US to write specifically about kids and money.
  • An Interview with Steve Rosen of the Kansas City Star – Part 2

I'm currently reading is Kids and Money: Giving Them the Savvy to Succeed Financially by Jayne A. Pearl. This book does a great job of tackling the subject, providing all sorts of tips, tricks, and guidelines. (Also see this recent reader comment on teaching children to save.)

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Gwyn
Gwyn
13 years ago

Some of the links to the all things financial blog are broken.

J.D.
J.D.
13 years ago

Thanks, Gwyn – links are fixed.

JLP at AllFinancialMatters
JLP at AllFinancialMatters
13 years ago

J.D.,

Thanks for the mentions.

Betsy
Betsy
13 years ago

I am a huge proponent of the ‘give them money and responsibility and then let them flail at first while you step aside’ school of money management. See, both my kids get fairly generous allowances. But in return, they are expected to fund their video game habits, music purchasing preferences, toys, gadgets, and any and all snack foods they want from places like 7-11. Not to mention gifts for family members. And they know that the Bank of Mom won’t advance money, lend money, or provide opportunities to earn extra money (some exceptions on this last one) without an approved… Read more »

Economic Edge
Economic Edge
13 years ago

Besty – I like your “allowance formula” and I use something similar. If you decide to give your children an allowance, I think you should allocate a certain percentage to saving and tithing (giving/donating). The child can decide where to spend the remainder. Also, children can learn about money enormously by running a small business (lawn mowing, a lemonade stand at a garage sale, selling crafts, fundraisers for school, selling goods on Ebay, etc.). Entrepreneurship should be encouraged because it teaches kids about the value of working hard, serving customers, building assets, and using money wisely. Working in mom and… Read more »

Bean
Bean
13 years ago

I grew up with parents that tried to instil the value of the dollar. I have vivid memories of buying my first Barbie doll with allowance and birthday money. I had to split the cost of my Cabbage Patch Kid and when I lost my Swatch watch a week after Christmas I had to earn money doing odd jobs/chores around the neighborhood to pay my parents back. I think it was something like $40, but to a 9 year old that is a lot of money. All those experiences definitely helped me to prioritze my spending and to associate money… Read more »

prlinkbiz
prlinkbiz
13 years ago

My kids do not and will not receive allowances. I don’t think that trains them to deal with the real world. They should be helping around the house- they are part of the family- I don’t get paid to do the laundry or dishes, why should they? Personally I feel that allowances teach kids entitlement mentality. When my kids ask me to buy things, I’ll tell them if they want it to figure out how to come up with the money to get it. If they want it, their minds will get creative and start to see opportunities around them.… Read more »

DC Portland
DC Portland
13 years ago

I highly suggest that folks interested in this subject read “The Financially Intelligent Parent – 8 Steps to Raising Successful, Generous, and Responsible Children” by the Gallos. It focuses on the psychology of money, and has some great how-to ideas.

bree
bree
13 years ago

Great tips here – thanks!

Ken
Ken
13 years ago

Saw something good recently in the Tip Sheets (mostly reader contributions) on http://www.wejustgotback.com, the family travel planning site. About a month before any family trip, she starts paying her kids “souvenir money” for household chores. During the trip, they have to use their own “earned” money for souvenirs. She says it’s amazing how much less impulsive they are when it’s their own money. I may try that next time we go away. Souvenirs can really bleed you dry.

Martin Alak
Martin Alak
13 years ago

I wish my parents had taught me stuff like this. Parents often teach their children by their actions, and my parents never spent money, didn’t believe in paying interest, and saved all their money but never really “invested” it in anything beyond the house they lived in. My first job out of college paid more per year then they had managed to save in the bank, and for a long time my main budgeting plan was “make more then you spend”.

JoePublic
JoePublic
13 years ago

I say first teach value of money to Adults! Money is nothing but a token, which has value only if issuer promises to redeem it against “goods and services”. If such a redemption agreement does not exist, people who control the money supply will become very very rich at the expense of others! Any token/currency without redemption obligation is fake. Will you accept a casino token unless they agree to redeem it at the end of the day? If not, why do you accept currency that does not have any redemption obligation in terms of goods and services? Reality is… Read more »

Dennis Wurster
Dennis Wurster
13 years ago

A few years ago, I read Capitate Your Kids. I think I saw the author of that book on Oprah or someplace. Great book. This post makes me want to go re-read it. It suggested an allowance of sorts, but it also required the children to cover the costs of some everyday necessary items, not just snacks, McDonalds or video games…more like clothes, shoes, haircuts, etc. I agree that it’s easy to get into the entitlement mentality if money is just handed to you and you have no responsibilities for what it is spent on. I also see that it… Read more »

J. Gunter
J. Gunter
13 years ago

Hi All, A close friend forwarded me this link and it was great to read about your experiences. I run a robotics facility and work with children ages 11 and up along with the occasional 8-10 year old. While working with these children, we worked together to develop a money management tool called Young Money Manager http://www.youngmoneymanager.com. It teaches children how to manager their money by providing them with an account funded with ‘virtual’ or ‘real’ money. Children can set financial goals, allocate toward savings and spending money, learn financial terminology, track spending and savings activity, etc. Parents can post… Read more »

Financist
Financist
13 years ago

I’m just teling them that no one will be able to live their own lives only themselves.

kath
kath
13 years ago

A gift I got my nephews on year was this 4-pocket piggy-bank (spend, save, donate, invest) from Money Savvy Generation: http://www.msgen.com

They also have other books & tools for older kids as well. I think they have quite a few good resources as well.

Jason Purdy
Jason Purdy
13 years ago

Good article & great timing: I read in a Wall St. column in last Sunday’s paper that kids establish their attitude towards money at age 10.

Carl
Carl
13 years ago

“ate at McDonalds three times in two days”

Oh gosh. That’s disgusting.
Especially for children.

Positivity Blog
Positivity Blog
13 years ago

That´s an excellent story. Great find and post.

Miss Cellania
Miss Cellania
13 years ago

Last week on a trip to New York, I handed each of my two daughters a $20 bill. They were astounded, because I never gave them that much before. The first time they asked me to buy them something, I said are you kidding? You have money! From that point on, they carefully considered each souvenir purchase before making a decision. And they made some pretty good ones. They even came home with some left over. It makes a big difference when you are spending your own money!

Joe
Joe
13 years ago

It is so important to teach kids how to earn and manage money at a young age. This article hits it right on the head. Kids will only know the value of money after they have had the chance to expereince their own success and failure managing money. Check out http://www.finance-4-kids.com for additional resources to help kids manage money and start their own business.

Joe
Joe
13 years ago

I have 1 child (6 girl) and my wife has 2 (8 boy, 11 girl). For a while there was a constant nagging of buy me this or that every time we went to Walmart. Frankly I tired of it quickly and tried to think of a reward/reprimand system. First, we tried awarding poker chips for chores (each chip being $0.50), but not enough motivation. They had to get used to having money to spend before wanting to work for it. So we gave out one “free” chip a day every day they were with us. Roughly $10 per month.… Read more »

Helen
Helen
13 years ago

A few thoughts: 1) connecting chores to allowances: We wrestled with the issue of connecting chores with allowance too. We didn’t do it initially – many “experts” say not to (“it will turn them into mercenaries”, they say. “They’ll only do things if you pay them”). On the other hand, and to exaggerate the point to make it clear, I found that instead, my kids turned into socialists (“I don’t earn money – I just GET money, even if I don’t do my chores, or do them poorly”). There’s a great article on the subject here: http://www.fool.com/fribble/2000/fribble000823.htm We’ve since changed… Read more »

Dave Bull
Dave Bull
13 years ago

Just stumbled across your site this afternoon, and will follow your feed from now on.

As to the thread about teaching kids the value of money, you may find this short piece of interest:
http://www.asahi-net.or.jp/~xs3d-bull/essays/1995/needy_children.html

It describes how I ‘solved’ the problem of handling the clothing allowance for two teenage daughters.

Shana Albert
Shana Albert
13 years ago

Great Post!! I often worried about whether my youngest three children will ever understand the value of a dollar. When I had my two oldest children (they are both now 16) me and their father didn’t have a lot of money. We managed on just their father’s salary while I went to College. Over the years my finances have changed significantly and I have noticed the difference in how all five of my children are about the value of money. The 16 year olds are very careful about how they spend their money. My 11 year old has just started… Read more »

Kim
Kim
12 years ago

Thank you for the tips. I want to make sure my children are responsible with money. I also found the book, “Wealthy Child: Financial Success for the Children in Your life” very good.

There is a synopsis at http://www.growwealthy.com/wc.htm

Kiepie
Kiepie
11 years ago

Awesome article and a lot of sound advice that followed. Thanks to all who contributed.

Mandie
Mandie
11 years ago

Our kids have been getting a $20/month allowance for about a year. The 1st couple of months they spent it as soon as they got it; but now they both save & are much more willing to do without a coke at a ballgame when they think about how that dollar is taking away from their goals. (My son’s currently saving for a $75 baseball glove) Thanks for the article!

Poplar
Poplar
10 years ago

Excellent article. We’re in the UK and have been doing a bit a research since we had little ones. Came across this recently http://www.teachchildrenaboutmoney.com.

Justin
Justin
7 years ago

These sound like great ideas. I have no children to teach currently but I wish that I had lessons like these when I was a child.
What I was taught about money is that we have none to spare on anything. 😉

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