Teaching Kids the Value of Money
Five-year-old Charlotte Moremon loves candy. One day a week, she walks to her local candy store in Brookline, Massachusetts, to buy herself a treat.
She gets the money for her indulgence by recycling her family's bottles and cans and collecting the nickels. Her mom, Mitra Morgan, is an entrepreneur who founded her children's accessories company, Brooks Pond, three years ago. She uses the recycling lesson as a way to teach Charlotte about the value of money.
"The bottles are a visual. They've given her a way to understand the concept of money," Morgan says. "She's starting to ask how many bottles it takes to save for things she wants, whether for candy or for something like her favorite book."
In a world of mass media, instant gratification, and credit cards, teaching kids to value and take responsibility for money is a tough challenge for parents. Having a conversation with your child about money -- what it is, how it works, and why it's important -- should start as young as the toddler years, some financial experts say.
"Kids need to know that there is a cost involved in what you're buying for them," says Blythe Berents, a financial advisor at Banc of America Investment Services, and mother of a two-and-a-half-year-old daughter. "It's like teaching your child right from wrong. The earlier you start the dialogue, over time the principles will sink in. It takes constant reinforcement."
Start the conversation by talking with your toddler about how much things cost when you're running errands at the food store or buying gas, Berents says.
In the elementary school years, teach kids the basics of counting actual coins or bills. Parents can reward kids for completing extra chores that fall outside the realm of their regular tasks. If they are expected to make their beds and keep their rooms clean, then they can earn money for doing something extra such as walking the dog, says Kathy Parks, a certified financial planner and founder of Greenbrier Capital Management in Knoxville, Tennessee.
Gina Addis has been actively speaking with her two kids, now ages 11 and 9, about money since they entered grade school. This year, she started giving them a monthly allowance of $20, which they manage. The kids also suffer $5 penalties for disciplinary infractions. Addis says she was pleasantly surprised to discover that when left to their own devices, her kids were pretty conservative with their money.
"Our goal was to make them appreciate what things cost, to understand that money goes very quickly, that you have to work hard for it, and you have to be able to share it when you have it," says Addis, who serves as public relations director for the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. "I think you can do your kids a disservice if you don't teach them to be responsible about money."
In the teen years, parents need to decide whether to introduce credit cards. Establish spending limits on the cards that correlate with how much the kids have earned through chores, Berents says. When saving money in a savings or money market account, show the child the statement, and explain the concept of interest and how it can accumulate over time.
Actions Speak Louder
Most importantly, parents should recognize their own beliefs and behaviors about money, and watch how their actions communicate to their kids, Parks says.
"As a parent, I don't think there is a way to teach the value of money, saving, and investing unless you're practicing your values," Berents says. "Kids will do what they see."
About the Author:
Christine Dunn is a freelance writer and founder of Savoir Media Co., a media training and consulting firm in Massachusetts. She worked for more than a decade at Bloomberg News, and currently also regularly contributes to Compliance Week.