Kids and Money

Ever wonder why there’s always candy at the grocery checkout counter, usually on one of the lower shelves?

It’s no random shelf-stocker’s decision. While moms are busy paying and the kids are idle, it’s almost inevitable that their eyes will fall on the row of treats conveniently placed at their eye level. So they’ll tug at mommy’s shirt and ask for a candy bar, or quietly slip one into the basket. It’s one of the myriad ways that store designers prey on one important bit of child psychology: their concept of money.

See, most kids learn that money can be spent before learning that it has to be earned. When their parents tell them that something is too expensive, they don’t get it. They don’t know where money comes from, or at least how hard parents have to work for it. Teaching them the value of money, rather than its power, is an important first step in raising financially responsible children. Here’s how you can give them a head start on the path to financial stability.

“Money doesn’t grow on trees”

Parents often say this to kids who ask for stuff as if money came from a magic printer in the basement. But as most of us know all too well, sometimes it simply doesn’t register. Kids don’t grasp the theory because they’ve never had the satisfaction of holding a well-deserved paycheck.

Australian mom Raelene Pickering wrote a children’s book after a futile search for child-friendly materials that would teach her kids about money. In the story, Billy a grade-schooler, wants a Turbo Blaster 10000 but couldn’t get his mom to buy it for him. One night, a wizard pays him a visit and suggests he work for his pocket money. He starts doing simple chores around the house for $5 a week, and splits his “salary” into savings and spending money until he had enough for his Blaster.

This approach teaches more than just money smarts—it also introduces important values such as patience, self-control, and organization. Even if it’s just doing the dishes or walking the dog, it’s enough to teach them that money is something to be earned.

Read more about teaching your children personal finance in our guest post for Super Parents.

Managing rewards

I once saw a kid at the candy shop carefully filling a small bag with jelly beans. Every few spoonfuls, he would run to the counter and have the cashier weigh his stash. He only had one dollar, it turns out, and with sales tax factored in, could only afford a small handful. When he had eighty-six cents’ worth, the cashier told him he’d reached his limit. He looked at his bag again, back at the pot of beans, and satisfied that he’d chosen all the right flavours, forked his dollar over and skipped happily away.

Kids like these learn at an early age that money isn’t always easy to come by. The boy knew that his next dollar wouldn’t come for another few days, so he had to make the most of it. Giving them a fixed amount at regular intervals will teach them to stretch their money over a few days instead of blowing everything in one go.

Their first account

When kids start getting bigger, more regular allowances—when they’re able to choose their own lunch from the cafeteria, for example—it’s time to graduate from the coin jar and open a real bank account. Most Australian banks have starter accounts just for kids, with a low minimum balance and rewards for making regular deposits. You may have to explain how banks work and why it’s better to keep their money in a bank rather than a piggy bank.

Once that’s done, make it a point to take them to the bank and deposit money on a regular basis, whether it’s once a week, once every two weeks, or once a month. Don’t just drop by after work and do it for them—it’s important that they experience banking, and the satisfaction of growing their own money, for themselves. You can even give them monthly “bonuses,” such as an extra $15, if they meet their savings goals. When they know that holding out on the after-school ice cream will mean bigger rewards later on, they’ll learn to appreciate money, and the work that goes into earning it, even more.

Chipping in

A $50 toy is one thing; a $300 console is another. When it comes to big-ticket items, a better approach is to split the costs with your child. Make it a rule that if an item is above a certain price range, you will only shoulder part of the costs—they will have to work for the rest. If they’re upgrading, consider selling the old item and factoring in the price. And to keep them from abusing the rule, limit them to a handful of major purchases per year.

Take it a step further and have them do the market research: look for good deals on eBay or local shops, compare prices, look at different models. Give them a hand at first and show them where to look, or which features to consider. What this teaches them is that a lot can be saved by just lifting a few more fingers, working a little bit harder, and taking a bit more time before splurging. It’ll make them more discerning with future purchases, whether it’s a new camera or a bag of popcorn.

The entitlement trap

One risk to the working-for-money approach is that kids can feel entitled to rewards for even the smallest of favours. Some parents would even say it’s unfair—they don’t get paid to do the dishes, so why should the kids get anything? Kids can ask the same question. The best you can do is be honest: since they’re too young to work at the gas station, you’re giving them minor tasks instead so they’ll be prepared for the real world later on.

Explain that the Bank of Mom isn’t a bottomless pit of dollars, that you too have to work for your money. Once in a while, help them come up with ways to make their own, such as selling old stuff or setting up a lemonade stand. When you hold garage sale, have them decide what to let go of, help them set prices, and let them keep part of the proceeds.