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Teaching Your Children About Money


Article by Kate Baxendale

Photography by Stock Images

As parents, one of the many difficult responsibilities you have is to teach your children about money. The sooner they have an understanding of how it works, the more likely they will be able to make sound decisions with their own earnings as they get older. Here are a few tips from financial experts for teaching your kids about money.

Ages 3-5

The Lesson: You may have to wait to buy something you want.

"This is a hard concept for people to learn of all ages," says Beth Kobliner, author of the New York Times bestseller Get a Financial Life, and a member of the President’s Advisory Council on Financial Capability who spearheaded the creation of Money as You Grow, which offers age-appropriate money lessons for children. However, the ability to delay gratification can also predict how successful one will be as a grown-up. Kids at this age need to learn that if they really want something, they should wait and save to buy it.

Money lessons at this age set the tone for later on. "You really can’t start too early," says Kobliner. Speaking of her own family, she says, "When we go into a store, if I say, ‘We don’t have money for this,’ they’re smart — they know we have credit cards," So, she would say, 'We’re here to buy a gift for X, and we’re not going to buy anything for you, because we’re not here for that.' Kids then quickly learn that going into a store doesn’t always mean you’ll buy something."

READ MORE: The 5 Most Important Money Lessons to Teach Your Kids

How to Teach Elementary Students and Middle Schoolers About Money

Show opportunity cost.

That’s just another way of saying, “If you buy this video game, then you won’t have the money to buy that pair of shoes.” At this age, your kids should be able to weigh decisions and understand the possible outcomes.

Give commissions, not allowances.

Don’t just give your kids money for breathing. Pay them commissions based on chores they do around the house like taking out the trash, cleaning their room, or mowing the grass. Dave and his daughter Rachel Cruze talk a lot about this system in their book, Smart Money Smart Kids. This concept helps your kids understand that money is earned—it’s not just given to them.

Avoid impulse buys.

“Mom, I just found this cute dress. It’s perfect and I love it! Can we buy it please?” Does this sound familiar? This age group really knows how to capitalize on the impulse buy—especially when it uses someone else’s money.

READ MORE: 15 Ways to Teach Kids About Money

Discuss big purchases with your kids.

"Kids hear everything you say, anyway, whether you think they are listening or not, so why not talk about money in an intentional way?" asks Stefanie Lewis, regional wealth planning manager for Wells Fargo Private Bank in Fort Lauderdale, Florida.

If you're making a significant purchase like a new car or perhaps taking a big vacation, Lewis suggests talking about what factored into that financial decision. "Did you save up for the purchase for a long time? Does the purchase have particular meaning or significance to you? Talking about 'the why' can teach your kids your values on saving."

Encourage teens to get jobs and earn money.

If you have a younger teenager, you may want to suggest he or she look for opportunities to babysit or mow lawns for money. If you have an older teen, you might want to help them get a job at a restaurant or in retail. After all, if your teen starts working, he or she will appreciate all of the work you do – and what it takes to fund your family's lifestyle.

READ MORE: 17 Ways to Teach Kids About Money