Teach Your Child the Value of Money

“Money doesn’t grow on trees!” How many times did your parents tell you that? In some cases, that’s all they may have told you about money. For some reason, money ranks up there with sex as a taboo topic. But it shouldn’t. Teaching your children about money-- how to manage it, save it, and spend it wisely-- are important tools to give to your child.

Money is a great way to teach your children about decision making. Almost everything to do with money is based on a decision. Is something too expensive? Should you save for something else?

It’s important to introduce the concept of money to your children early. As soon as they can count, start teaching the basics. Tell them how you deal with money in your household. Do you invest it, or save it, or spend it only on necessities? Open up the conversation and include them in your decision-making process.

Nicole Weisman, a mother of two in Los Angeles, California, teaches her four year-old important lessons whenever they go into a store. “I tell her before we go into a store whether it’s a ‘buying day’ or a ‘looking day.’ Most of the time it’s a looking day, and we talk about what we would like to buy someday if we save our money. Then, about once a month, we go for a ‘buying day’ and she gets to bring her own money and pick out something special.”

Teaching your child the lesson of saving is not easy. Paul Richard, Executive Director of the Institute of Consumer Financial Education, encourages parents to set goals for their children whenever they ask for something they don’t have. Saving for something special is a powerful motivator and helps children become responsible about money.

Heidi Emberling, a Parent Educator in Palo Alto, California, has a special technique for teaching her children the value of money. “If my son gets himself ready for school in the morning (he's in kindergarten) by doing four things--going potty, getting dressed, brushing his teeth, and brushing his hair without any fussing, he gets a sticker on his calendar. At the end of the week, each sticker is worth $1. He has three jars in his room--one save, one give, and one spend. He divides the money as he likes, but at least one dollar goes in each jar. He can immediately spend the money in the spend jar, or he can combine it with the save jar for something he really wants that costs a lot. He knows that the 'give' money is for people (or animals, or some other cause) who don't have money of their own.” By allowing her son to decide where the money goes, Emberling empowers him to make his own financial decisions.

As your children get older, Richard stresses the importance of teaching them about saving for long-term goals. Introduce them to savings bonds, let them open a savings account, teach them how to keep track of how much they have. Teach them the difference between cash, checks and credit cards. He recommends you set aside one day a month to go over financial issues with your kids. Talk about how much interest they may earned in their savings account, or what their stocks are doing. With teenagers you can discuss the economy, how it affects their money, what inflation is and how to economize at home.

Being sensible with how you manage money yourself is perhaps the best tool you can give your child. If you discourage credit card debt, live within your means and encourage long term saving, you will set a good example for your children about spending money. The more you include them in your decisions about money the more they will learn the importance of good judgment when it comes to money in their life.