Teaching Children about Money: Ten Principles

Money and KidsBy David John Marotta

As Americans try to spend less and go on a budget, this provides an opportunity to teach the next generation financial principles they may never have seen in the prosperous years they have been alive. Here are ten principles for teaching children about money:

Talk about money. Every time money is involved, parents have a chance to teach their children the values and analysis behind their actions. Money should never be the primarily topic of discussion, but it is one of the most important topics through which we communicate our wisdom and values to our children. Every purchase, investment, or donation can be a time to teach your children something about your values.

Talk openly about money. Parent makes a mistake when they keep information from their children. The only way children learn what is a good deal and what is too expensive is by the experience of what their family earns and what items cost. Hiding this information robs children of the financial education they need.

Talk factually about money. Many parents have strong emotions about money based on their childhood experiences. These emotions are always transmitted to children. Instead of helping children, they can cripple children from growing to make sound financial decisions

Require chores; pay for optional work. Everyone in the family has to help complete the work that needs to be done. If you want to pay your children, only pay them for optional work they can choose to do or not to do.

Provide children an allowance they can make real choices with. Talk about money is important, but children need real-world lab experience to understand the consequences of their decisions. Consider giving them an allowance large enough so that they can purchase some of their own needs. Then continue to give them honest advice, and help them ask the right questions to make wise decisions based on their values.

Help children prioritize purchases. Ask them if this purchase is better than other purchases they are considering making.

Help children comparison shop. Help them consider issues such as cost, quality, and convenience.

Require children wait before making large purchases. Adults should wait at least a month whenever they are making a large purchase. Children shouldn’t be expected to wait that long. Here is a good rule of thumb: Children should be required to wait as many days as they are old in years before being allowed to make a large purchase (over a week’s allowance). There is always tomorrow and over half the time they won’t remember what attracted them to it in the first place. Developing this habit will help make them resistant to impulse buying.

Don’t use money as a punishment. Your priority should be helping to give your values to your children, not buy their outward behavior.

Don’t loan your children money. If their desired purchase is something they should be saving for, let them save for it. If you want to buy it for them for the value of the experience, buy it for them. The principles are “If they want it, they have to save for it. If you want them to have it, you will buy it for them.” Loaning your children money for items they want teaches them they aren’t responsible and they don’t have to prioritize.

David John Marotta works at Marotta Asset Management, Inc. of Charlottesville which provides fee-only financial planning and asset management.

Image courtesy of Jeffrey Strain

This entry was posted in Personal Finance. Bookmark the permalink.

9 Responses to Teaching Children about Money: Ten Principles

  1. Minimum Wage says:

    I just tried out the millionaire calculator and came up with an inspiring result, which is even more inspiring after reading this post.

    If a parent invests $30 per month ($1 per day) at 8 percent for their child starting the day the child is born, and the child takes over at the point they are able to earn money for optional jobs, if they maintain this $30 per month pace, the child will ultimately have a cool million in about 814 months (68 years).

    Now THAT is a retirement plan I can relate to.

  2. And you would expect one of the top ten principles to deal with saving – but, no. Lots about spending but nary a hint about saving.

    It seems paying a fee for finacial advice does not require the advisor to have judgment – just knowledge. Proof again that folks who take on the mantle of financial planning and write about money often are so bound up with conventional wisdom that they overlook common sense.

  3. Stacy says:

    I think these are good ideas. It is good to be open (to a point) about money with kids. I especially like the part that was added about making kids wait to make large purchases.

  4. Parker T says:

    Great write up.


  5. Pingback: Retirementsketch

  6. Pingback: 8 Ways to Raise a Thankful Child | Preschool Education & Everything Preschool

  7. Gina Wadding says:

    I have two comments, where can I put a dollar a day away and get 8% return?

    with my children I sometimes let them help me with the bill paying I let them put the checks in the envelopes and put the stamps on them then check pd on my Budget chart for that month. I answer all there questions and help them to understand that everything costs money. We even got to pay for the water that is used when we flush the toilet.

  8. awdata says:

    Savings relies on having more income than expenses. For children, I recommend an allowance with a component that they can spend as they want, and one for some of their “regular” candy/toy/clothing purchases. Then for savings, let them build short term and long term savings, where they can raid the short term savings for certain jointly approved purchases.

  9. me+gary says:

    Our children must EARN their allowance, no freebies!! As a single parent that was *less* than good with money throughout my youth, teaching children about money is CRUCIAL, in my mind. I

Leave a Reply

Your email address will not be published. Required fields are marked *