A Look at Kids and Money

Children's first teachers are parents. The majority of parents feel it is necessary for children to know the alphabet by the time they enroll in school. Why? To better prepare kids for the challenges they will face in school. In short, to make children's lives easier. An equally important, yet often ignored lesson, is the value of money. Parents frequently complain, "My child thinks money grows on trees!" If parents allow that thought process, children will assume a constant source of money is available.

Parents need to take a pro-active roll in teaching children money management lessons. Learning positive spending and saving habits as a youngster will better prepare your child for financial challenges later in life. Educating children about money is the single most important thing parents can do which will make adult life less stressful. Financial struggles continue to top the list of stresses for adults. Like the basics of ABC's, teaching money management skills will prepare children for financial responsibility in adulthood.

Where to start poses the biggest problem for parents. Many adults do not feel themselves capable of teaching money management, simply because they lack confidence about their own financial situation. Rather than stare at the roadblock, parents should evaluate this question: What is money? Contemplating the question will allow parents to travel the path for their children. The answer? Money empowers people. Money allows people to make decisions. Money helps people feel safe and secure. Understanding how to use money will empower a child to grow into a fiscally responsible adult. The idea of empowering their children will help parents follow through on a very difficult lesson.

Start early. Talk to your toddler about money. Children are introduced to money early in life. A study at Texas A&M University shows children begin asking for specific things at 2 years old. Depending on the child, counting starts between 2 and 4 years. By the time a child reaches 4, he knows he must have money to pay for what he wants in a store. As children reach kindergarten, they learn to distinguish between coins and bills.

Talking to children about money encourages children to think about money as well as consider the things they want. A great learning tool for younger children is using regular shopping trips to encourage choices. For example, when making a trip to the grocery store, visit the cereal aisle first and allow the child to pick one box of cereal. Let her carry it, and look at the box if she wishes. As you continue shopping, if she requests another item, explain to her that she has to choose between the two. Empower her to make the decision. Allow her that choice. Stick to the plan, and take her to put the cereal back. Empowering kids to make choices involving money will make her realize the value of money over time. Making choices will also allow her to examine her wants and needs. If a child goes without her favorite cereal for a week, television advertising targeted at young children will remind her of the cereal she left at the store.

Use Allowance Wisely. Allowance is a great tool for parents and children. From the age of 5 or 6, children who receive a regular allowance learn the value of money if rules are followed. The purpose of an allowance is to teach children money management. Many parents mistakenly tie chores to the allowance, with the idea that children need to know, when they don't work, the result is they won't get paid. This lesson will be learned later, when the child gets a job outside the home. This common error doesn't properly evaluate the purpose of chores. Why do children have chores? Is it to get paid? Or is it to contribute to a smoothly running household? When children fail to perform expected chores, consider a punishment that reflects give and take in the household, such as no TV or telephone, rather than losing the opportunity to learn money management skills.

Give allowance in smaller bills. Encourage saving by giving allowance in $1 bills. Suggest setting aside $1 of allowance in a piggy bank for a special purchase. Children should be encouraged to make spending and saving choices. If a child wants a video game that costs $50, help him break down the math on a simple savings plan. The math is probably something he could figure out on his own, but he will need guidance to formulate his goal into a tangible reality. In making allowance work, do not undermine his efforts on a goal. This means do not go buy the game for him, or if he fails to achieve his savings goals, do not buy it for him anyway. Children need to learn the consequences of money. If he follows through, great! But resist the temptation to reward him with extra money for other items since he is saving. By sticking to the plan, parents will reinforce what he is learning. From this experience, he learns sacrifices are necessary when choosing purchases. If he failed to follow through, maybe he decided he didn't want the game that much after all. What did he learn from this experience? His wants will change over time, and he doesn't need everything he wants.

Discuss Family Money. Several financial experts recommend including older children in family financial discussions to introduce the realities involved in cost of living expenses. Many parents are uncomfortable with this suggestion. An alternative activity that divulges less information and still addresses cost of living issues is to include the kids in creating a family budget for an upcoming family vacation. Discuss the total amount of money allotted for the trip. Initially, children will probably be impressed with the large number. Present hotel choices as well as campground cabins. Include varying price ranges so the kids have a visual of money leaving the budget for where they will be sleeping. Consider menu prices at different restaurants in the destination area. The children will see another chunk of money being removed for food. Next, discuss travel arrangements. Will the family fly or drive? Price both options, and discuss the pros and cons of both scenarios. As a decision is reached, kids are watching another large chunk of money disappearing from the vacation pile. After the cost of living essentials are handled, let the kids be involved in the fun choices. Do not shield them from what they don't get to do. If a desired attraction can't be fit into the budget, invite the kids to revise the budget in order to free up the needed funds. The lesson involves making choices, and appreciating what they do have instead of yearning for what they don't have.

A life long skill, money management begins with comprehending the differences in wants, needs and wishes. Children will need to understand and use money for the rest of their lives. By encouraging choices, continuing allowances, and discussing budgets, parents will empower their children. Introducing smart money concepts in childhood prepares kids for the adult world of financial responsibility.