I teach an introductory college-level personal finance course. We talk about budgeting, credit cards, credit scores, mortgages, taxes, insurance and so on. The class is an eye-opener for most of my students, and time and time again, they say they wish they had learned these concepts in high school — often before they made major financial mistakes.
With that said, I believe strongly in teaching children about money and personal finance starting from an early age. Most schools don’t do it, so it’s up to parents to take the lead, no matter how qualified (or unqualified) we feel. The good news is, if you start early, you get to begin with the easy stuff.
And what’s the easy stuff, you might be asking? Start talking about money, modeling the behaviors you want your children to pick up. (But for heaven’s sake, if money’s tight, and you’re not sure if you are going to be evicted, your children DO NOT need to hear about that.) I casually work money into our everyday conversations. When we shop, we talk about comparing prices, sales and coupons. We also emphasize “not wasting,” turning off lights, faucets, etc., and discuss how that saves money and helps our planet. Finally, we’ve talked about where money comes from, namely, jobs, and what those jobs buy — a house, groceries, toys. It’s amazing how much children can pick up when you talk to them about money regularly.
Each of our boys has a Money Savvy Piggy Bank, which has four separate slots: spending (for immediate purchases), saving (for more expensive purchases), donating (to church and other charities), and investing (down the road). Since they don’t get an allowance, my husband and I periodically give them change to put in their piggy banks, and they have to put some change in each slot.
When they want a new toy that Mommy and Daddy didn’t budget for, they have to use their own money. As much as possible, I try to give them control over their own purchases. I only step in if it’s a safety issue, and tummy aches from too much candy count as a safety issue. They have to help me count out the money, since we are working on identifying coins and understanding how much they are worth. The boys also help buy presents for their friends. I establish a budget, and they have to find something that fits within the budget.
As for the donating and investing slots, we periodically clear out the “donating” portion and take the change to church, since we want to model good stewardship. And I can imagine a day when we might buy our first stocks, probably companies like Disney that they are familiar with, using the money saved up in “investing.” But that’s definitely a few years down the line. A nearer-term step might be opening an investing account that pays a dividend.
When Cooper starts kindergarten next year, he’ll earn a weekly allowance so he can learn money management. He’ll have the opportunity to earn extra money by doing chores over and above his regular chores. And, at some point, we might talk about other ways he can earn additional cash outside our home. I remember well running a children’s birthday party business with my friend Andrea when I was 11 or 12. We learned a lot about how to price our services, manage expenses, etc.
Are you ready to talk cold, hard cash with your kids? There are some great resources available online:
- BizKids, which airs on some PBS stations, has a wealth of videos, games and other useful tools on its web site. I used BizKids videos when I did a personal finance course for my church’s youth group.
- Practical Money Skills has financial literacy tools for everyone, including a great set of lesson plans for middle/high schoolers. I’ve used these as well when designing coursework.
- The FDIC also has a wonderful Money Smart curriculum for both young adults and adults.
- Shafer…Power! I love watching this family’s journey into entrepreneurship. Check in to see how Paul Shafer and his kids earn some spare change while spending time together and having a blast!
Kirsten W. Larson 
You are so organized! I had all these great ideas – including the spending, saving and charity slots – but things didn’t work out quite as I intended 🙂 My kids got allowance, but they were expected to make their beds in exchange. They stopped making their beds. I warned that their allowance would be cut off. They said fine! Oops. I wasn’t prepared for that!
Oh, that’s funny about the beds. Since I teach personal finance, I’ve learned a lot about it. Tying allowance to chores is a big source of debate (should you, shouldn’t you). My parents raised us believing that chores were something you did as part of the family, not something you did to earn cash. I want my children to learn the same thing. We’ll see how all my grand plans work out. Ha, ha.
I’m excited about your next installments, esp. for teens! We do not give allowance. We discussed it, and if they could do their chores without being reminded we would consider it. We continue to nag. They do know there is always a bucket outside waiting to be filled with weeds when they do need extra cash, but they have managed to get by somehow with birthday and Christmas money. Of course, they knew from early on, that Dad has more money than Mom: when asking for a toy in the shops Mom never seems to have any!
Julie, you might try having them do the FDIC or Practical Money Skills curriculum. FDIC even has an online version, which is kind of fun.
Thanks. About to send the big one overseas (August) to have fun with the Euro, which in itself will be a great lesson in currency!
I started learning about money when I was 5 or 6 (kindergarten) and last year (and still to this day), if I wanted something, I have to pay for it (unless if my birthday, Christmas, Easter, etc., is coming up), + tax (I always forget the tax!)
Erik
Erik, I can tell you have wonderful parents! Believe me, there are so many people who don’t realize you have to save up for something before you can buy it.
This is such super practical advice, Kristen. I had an allowance from the age of ten, out of which I had to buy everything I needed, but I had no advanced input about giving of investing. This is a well developed plan!
Joanna, you’ve raised an interesting point. It’s actually a great idea to give preteens/teenagers a monthly allowance from which they have to fund both needs and wants. This could include their cell phone, car insurance, clothes and school supplies as well as trips to the movies, toys and games, etc. That way they learn the importance of budgeting and fixed versus variable expenses.
Thanks Kirsten for sharing my blog in your post. I agree about starting the conversation early with the kids so it just becomes part of their life. I also use a different strategy with allowances which involves them coming up with ideas on how to make money around the house rather than relying on weekly “paycheck.” For example, I’ve recently paid my son for a short book that he created and I can already see his wheels starting to churn. Thanks again!
That’s a great idea Paul! I know everyone does allowance differently. I just want the boys to realize taking care of the house and their things is part of being in the family. It’s something we do out of personal responsibility and not simply for cash. I like your idea of tying innovation and entrepreneurial ideas to allowance. You’ve given me something to ponder.
Such an important topic, and you’ve given me ideas to use with my own kids. Thanks!
Good luck, Julie! We need more parents willing to start the coversation with their kids.
I like your money saving piggy bank (with four slots). Right now we have four separate jars and it makes the kids’ dresser rather cluttered. Great tips!
I had seen the jars too, as well as a cardboard box with multiple slots. So far, the plastic piggy has held his own.