How to Teach Your Kids About Money

So your child has just received some money as a gift--now what? When it comes to teaching financial planning, a little can go a long way. Here’s what you can do to instill your children with a sense of financial responsibility from a young age.

Start young. Children as young as five are capable of understanding basic money concepts, so now is the time to start talking. Make sure the concepts are age-appropriate, and include objects that resonate with them--ice cream or toys, for example. Take a grocery receipt and talk about how long you had to work to earn enough money to buy food. Highlight something you bought for them and explain how many week’s allowance that would have cost.

Be consistent. Don’t expect your children to master money concepts after a five-minute conversation while viewing a toy commercial on Saturday morning. Set aside a regular time--a particular meal works best--to discuss or reinforce money concepts.

Teach them how to budget. Giving a child an allowance provides ample budgeting opportunities. Be clear on what the allowance covers and what you’ll cover. Set limitations on what the allowance can be spent on. If your child runs out of money due to poor money management, do not provide a bail-out. Bail-outs encourage poor behavior.

Teach the importance of saving. It’s a good idea to talk with your child and decide upon a percentage or amount of his or her allowance that will be saved rather than spent. One way to encourage saving is to have your child choose something she really wants and set up a savings plan to get it; you may even agree to "match" her savings at the end to help her cross the finish line.

Teach the concept of interest. Take your kids to the store and allow them to pick out an item they want to buy. Explain they could have it now for a month’s worth of allowance or they could have it in two weeks for two week’s worth of allowance. Let them choose. If they choose wisely, they’ll have the item of their dreams in two weeks’ time. Congratulate them. If they are short-sighted, remind them in two weeks that this item would be paid for already if they’d have just waited. Now, if only we adults could find a saving’s account with interest rates like that!

Teach the value of hard work. Don’t just give your child discretionary money without requirements. Teach them that money comes as a result of work. In addition to well-done, age-appropriate chores, foster in your child an entrepreneurial spirit by allowing him to propose useful jobs in order to make a little extra cash.

Teach them to give. Teach your kids to love people and use money, not the other way around. Encourage them to set aside a certain percentage of their allowance or earnings--ten percent is often manageable--to give to charity or those in need. They’ll be far more blessed by the ten percent they give than the ninety percent they spend.