I remember being about 6-7 years old and driving to Toys R Us with my mom. I had gotten an amazing report card and my mom wanted to reward me for a job well done. We were sitting in the car and my mom told me how much she wanted to spend that day on a reward for me.
“Why can’t I get something more expensive?” I asked my mom.
“I don’t have that much money with me right now.” She replied.
“Can’t you go to the ATM?” I questioned.
“You can’t go to the ATM if you don’t have the money in your bank account.” My mom tried to explain to me.
“Doesn’t the ATM have a big barrel of money behind it and give you the money?”
My mom still tells the story to this day and I think that story is a great example of how confusing the concept of money is to children.
When I was a little bit older my mom taught me about money by holding my money from chores, birthdays and holidays in an “account”. (Aka: An envelope in her armoire.) She had gotten me a kit that included a faux checkbook and a faux checkbook register. My mom taught me how to write out a check and how to balance a checkbook correctly with this kit. I was responsible for writing her a faux check every time I wanted to “withdraw” from my “account” and I was to correctly keep that “checkbook register” balanced so I knew what was in that “account” at all times.
Honestly, I don’t think they sell that kit anymore because kids don’t really need to know how to balance a checkbook. Everything is electronic now, but they still need to learn how to manage money, how to save money, how to budget and how to spend sensibly.
It’s important to teach kids that money doesn’t grow on trees
…nor is there a big barrel of money behind the ATM that they give you out of the goodness of their hearts.
It’s important to let your kids know exactly where our money comes from and how it’s earned. My kids have seen me work every day of their lives and they know that the hard work I put in every single day is the way that I earn money to support them. Whether you work from home or go to a job every day, you’re earning money.
My kids know that if they want money for something they don’t just ask for it, they have to earn it. They’ll do chores around the house or ask me if I need any help with anything so that they can earn money to purchase something that they want to purchase.
I started my kids earning allowance at a very young age and I don’t regret it one bit. I highly suggest that you get your kids started on chores and earning an allowance as early as you feel is fit for your child. Once you do this your child will understand that money is earned not just given to them and they will also understand how that money is earned.
Show them how to spend responsibly
There are a few ways that you can show your children how to spend responsibly.
Let them pay with cash
When my kids earn an allowance I hold the money in envelopes label with their names and when we go out I allow them to hold their envelopes. As they spend money on certain items they’ll realize that the money will lessen in their envelopes and they will, therefore, have less left to spend. They need to learn the hard way even if they don’t have the money for what they want to buy. Don’t give them the money because you feel bad for them, let them know that if they do a few more chores to earn the money, they will be able to go back to the store and buy the item. This will allow them to:
- Show them that sometimes you can’t afford what you want.
- Allow them to earn the rest of the money.
- Give them the time to really think about the item and if they still want it.
Last year I stumbled upon the Greenlight Card which is a “debit card” that you can give your kids that is ultimately controlled by you. You are able to deposit money into a “Parent’s account” on the app that you can then deposit into your child’s account as they complete chores and earn money.
You can control the stores that they are allowed to shop in and you can control the maximum that they’re allowed to spend per transaction. You will also receive a push notification on your phone that will tell you where and when your child spends.
I have Greenlight cards for both my 10 and 12 year old and they’ve learned so much about spending responsibly, checking on their balances and reviewing their spending choices with me at the end of every month.
I’m fully planning on keeping this card for my 12 year old through her teenage years. She can go out with her friends, she can spend money, but I will know every single dollar she spends and where she spends it. I plan on keeping the parental controls but changing them to be a bit more liberal and giving her a little more freedom with the card as she gets older.
If you want to sign up for a Greenlight card for your child you can get 30 days risk-free by clicking this link. You’ll also get $10 free deposited right into your account immediately!
Teach them about savings
Most kids learn about saving money from watching their parents doing the same thing but we should still explain to them the importance of saving money. I taught my kids to save money by telling them to put away 10% of whatever they earn in allowance because that’s the same thing I used to do for every paycheck I got.
Let your kids know that having a savings account is important for emergencies, their future and even saving for things such as a car and/or a house. I explained to my kids that even though you can finance things such as a car and a house you still have to put a certain percentage down (down payment) before the bank will lend you the money.
I personally think that around 10-13 years is the best time to teach your kids about why they should save money. This is the age where they will understand what you’re talking about yet they will still absorb all of the information that you’re giving them.
Teach them about budgeting
Once again, most kids learn about budgeting from watching their parents budget their money however we should teach them how to create a budget and how to spend within their budget. You should teach budgeting to your children between the ages of 13+, though my 10 year old has been learning about creating a budget and she completely comprehends it. It all depends on your child and if you think they can understand the concept.
I teach my kids by having them calculate what my income is per month and having them subtract that from the list of bills that I show them. Once they get that figure I have them help me prioritize what expenses are the most important every month. We budget for groceries, gas, savings, kids expenses, etc… and I show them how to separate that money into the monthly budgeted amount for each of the categories.
Once your kids become familiar with how money is earned and how it can easily go right out the window, they will begin to understand how to be responsible with money. It may take them some trial and error, disappointment and spending money on things they don’t need but all of those mistakes will ultimately show them how important it is to save and budget their money for what they want and need.