Your Kids and Money

by Kimberly Cole on October 13, 2010

kids-moneyThe recent financial collapse was enough for us to know that we never want it to happen again. But how can we ensure that future generations will learn from our mistakes? A sensible place to start is with our kids.

In an interview with personal finance expert Jean Chatzky, the author of Not Your Parents’ Money Book, she suggested that when it comes to talking to your kids about money, the sooner the better.

“I think it’s best to start the conversation as soon as your kids go to school. This is usually the time that they start asking for things.” Chatzky explained that the most valuable lesson for children is to understand that money is a limited resource. “Children need to know that you have to make choices around what to spend your money on in order to meet various needs.”

Some parents may find it difficult to talk to their kids about money because their own relationship with money growing up was so different. Chatzky says that this has more to do with a technology gap, rather than a generational gap. “The degree to which technology plays a role in how we manage our money has greatly increased. I remember going to the bank with my mother or watching her pay bills at the kitchen table, but none of that really happens any more.”

The physical disconnect with money is all the more reason to bring kids into the conversation early, to make it a tangible and real presence in their life.

An allowance is an obvious and valuable tool when it comes to teaching kids about money if done correctly. However, Chatzky says that many parents approach it in the wrong way. “One mistake that parents often make is that they don’t give their children a clear sense of the things that they need to pay for with their allowance.”

Chatzky suggests that kids certainly become responsible for their social lives as they get older, including buying gifts for friends. Depending on the amount of responsibility you want to give them, their allowance could even include things such as budgeting for school supplies and clothes.

She explained that ideally a child should have increasing responsibility in terms of the things they need to pay for as they get older, with the hope that once they go to college they will have a solid understanding of what things cost and will be able to manage their own budget.

Steadily increasing your child’s allowance to cover the essentials is an important element of Chatzky’s advice. If an allowance is only used as play money (i.e. to go to the movies or buy a new video game), a child may come to view money as a means to get something extra. Giving your child increasing responsibility for the essentials, on the other hand, will help them to develop an appreciation for how much it costs to cover basic expenses and later, how hard you have to work to earn the money to do so.

Although Chatzky thinks that both household chores and an allowance are important teaching tools for children, she is hesitant to tie the two together. “Kids should definitely have household responsibilities, but you actually want them to have the money in order to make financial choices, and some kids won’t be motivated by money.” Therefore, she suggests using something like TV time or computer time to motivate them to do chores, and keep the allowance separate.

If you are hesitant to talk to your kids about money because you feel that you have not been the best financial role model yourself, you are not alone – many people have struggled financially, particularly in the past few years. However, as Chatzky suggests, you do not have to be a financial guru to help your kids understand the value of a dollar. If they learn these lessons now, they are far less likely to repeat our mistakes.

Bringing your kids into the money conversation early is even more important today than it was during our parents’ generation because the stakes are higher. This primarily has to do with the change in access to credit. The ability to get into debt is far greater today than it was then, so a child’s ability to responsibly manage their money is all the more crucial.

So what have we learned?

  1. Start the money conversation early.
  2. Make money a tangible presence in your child’s life.
  3. Gradually increase your child’s financial responsibility.
  4. Don’t let your financial missteps stop you from helping to make your child’s financial future better.

Jean Chatzky is the author of Not Your Parent’s Money Book, and is a frequent contributor to the Today Show and MSNBC.

Discussion

fram87
Teaching kids money management skills needs to start early so that they learn to make good saving and spending decisions. We use www.moneytrail.net to help them keep track of their allowance and money from odd jobs. It is a free website.
November 9 at 20:29 pm
heaps!
Marie gives a good point, teaching children is so important to their future and so many people are currently in debt or struggling with their finances because they believe they can have it all and deserve it all thanks to the help of the magic credit card. Your kids can have what they want, if they work for it. Here are some more tips on how to teach children about money, saving and money management.

http://blog.heaps.co.nz/life-stages/families/how-to-teach-kids-about-money/
October 18 at 18:30 pm
Marie
I can't believe anyone would pay money--in hard times--for this kind of common sense advice. You want to educate your kids about money? Put them to work. Stop paying for all the extras--and no, they shouldn't just get an allowance for "being part of the family". And don't spoil them with over-the-top teen parties , clothes, and cars the second they turn 16 (no not even the "used compact". They can drive the family car and ride their bikes. The exercise is good for the kids. They can pay for fun.
October 15 at 01:47 am
Meze
This a great book. I'm a Jean fan and follower. Her advice on the Today show and on her blog is always right on. I got turned on to www.threejars.com fron her. We use it to help the kids practice managing money. Great features for kids and parents and It's a way to put Jean's advice to work.
October 14 at 08:57 am

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