Raising Financially Savvy Kids

“Mom, I want that!”  “Dad, can I get this?”  “Why can’t I just get a new one?”  Have you ever heard your child utter those words?  Or maybe you have heard someone else’s child complaining as you rolled by with your little one in the stroller thinking, “That isn’t going to happen to me.”  It doesn’t have to happen to you if you work to help your children understand how to be financially savvy at a young age.  

More often children learn from observation and imitation rather than through any other method.  As you do your best to make sound financial decisions, your children will see and often emulate your commitment to fiscal responsibility. Outside of being an example for your children, you should also talk to them about fiscal responsibility. Here’s a few tips for what you should emphasize in these lessons.

Lesson #1:  Money has value.  One of the first lessons to teach children is that money has value.  Whether you have millions of them, or only a few, one dollar is one dollar.  It has the same purchasing potential regardless of who is holding it.  As children learn that money has value, you should explain that they will acquire the things they need and want by using money.

Lesson #2:  Understand the difference between “wants” and “needs.”  While this may be a different discussion for different age groups, it is important for your child to understand that not everything he or she “wants” to have is a “need”.  You can use the example that food is a “need,” but candy is a “want” even though it is considered “food”.  As children get older, the lines blur between wants and needs, so be sure to teach this lesson when your children are young.  It’s important to impress the point that, acquiring the things we “want” is not bad. But, it should only happen after our needs are met, and there is money available to do so.  

Lesson #3:  Patience is an important virtue when it comes to money matters.  Exercising patience is another virtue that can pay dividends when teaching your children financial responsibility.  While it is enticing (and easy) to purchase a “want” right now, it is not always the best move. For example, purchasing the newest cell phone technology the first day it becomes available isn’t a fiscally responsible move.  When the technology is new it costs more, but if you are patient for six months you can save a good deal of money and possibly avoid technology glitches or design flaws.

Lesson #4: Providing an allowance.  Using an allowance is a method many parents use to teach their children about money; but it can be a harmful endeavor, depending how you go about it.  If money has value, and you intend to give your child an allowance, it would be consistent with earlier lessons to require your child to put forth effort and earn the allowance. Take care to interfere with that lesson by adding variables to it.  For example, if you want to teach the concept that “work equals money,” you would not also want to teach lessons about behavior or grades using the same trade off.  It can be confusing for a child to distinguish between money they’ve received for grades or behavior versus money they’ve received for their effort.

Lesson #5:  Allow them to make final decisions.  One of the more difficult parts of teaching about finance is when it comes time to take a step back and watch your children implement what you have taught them. It can be difficult to step aside and let them make their own choices, but it’s important to let them do so.  When they ask for something, you should simply respond with the statement, “it’s your money.”  Children need to learn to make decisions, and then discover both the benefits and consequences, before they reach an age where a financial decision can make or break their credit history.