Many parents have asked me, “How do I teach my kids to value money?” This is an important question, and one that many parents and families struggle with. When it comes to money, raising kids is a balancing act. As a parent you want you children to be happy, and have the things they want. You want them to be better off than you were. However, at the same time, you want to make sure they understand money, and learn to respect it, save it, and value it. Sadly, most parents come down firmly in the camp of giving their children anything they desire, and are weak and often lacking when it comes to teaching bestowing on their kids any kind of financial literacy. So, what is the answer to that so often asked question? The answer is, as it is in so many things in parenting,How to look after your money you need to set boundaries, and clear expectations that you hold to, while maintaining a sense of balance.
Like it or not, balancing money is an analogy for a person’s ability to balance life. A person’s ability to control ones finances will usually give you a good indicator of how he runs the rest of his life. Because we use money to accomplish goals, travel, make large purchases, and look after our well-being, the ability to control money is directly linked to the ability to control life. With this in mind you want to be sure your children leave home understanding not only how to balance a checkbook, but more importantly how to run their financial lives. “But my child is only 5 years old!” you protest. I’m not saying you make them contribute to rent at such a young age, but it is a good time to begin.
Part of the joy of being a parent is giving gifts to your children, and I am certainly not going to ask you to stop. The secret truly is to find the balance. When your children are very young, 1-3 years old, they are too young to really understand money. In this time they will be overwhelmed by gifts from friends and family. Don’t expect them to tithe or save 20%. They will just look at you like you’re an alien. In these years, you should take charge of their financial future by suggesting friends and family to contribute to college funds. Don’t worry, they will still have more gifts than you know what to do with. As you children age, you can gradually begin to shift the balance.
As your children reach the age of 4 – 6 years old, you can begin to teach them about the value of having and controlling their money. This would be a great time to introduce the idea of donating some of their toys to children who are less fortunate than themselves. They will insist they absolutely cannot live without every toy. Be firm, give them a couple of days to think it over, and then make them donate at least a few toys each Christmas and birthday. This is also a great time to begin paying them a small allowance, just a small amount of money that they know they have coming every week. Remember, they are young.
For a 5 year old, a couple of dollars per week is plenty. Just be consistent. Once you’ve introduced the idea of an allowance, begin to shift the balance a bit more. If you child absolutely must have the newest Dora The Explorer doll, (that lists for $10) tell her that she should save her allowance for it. In five weeks, she’ll have enough, and you can take her down to purchase it. (If she still wants it then.) You can still buy things in this time, but if she wants that doll she’ll have to save for it. If she saves the money in five weeks, she’ll purchase it, and get the thrill of having accomplished it. If she doesn’t save as efficiently, then that too is a very important lesson. That lesson teaches about choices, yes even to such a youngster. These are invaluable lessons. One more important step for young children: when you say no, don’t ever change your mind for begging or whining. This will create a horrible pattern that will be a nightmare in the teenage years.