Here are ten principles for teaching children about money:
1. Talk about money.
When money is involved, you have a chance to teach your children the values and analysis behind your actions. Money should not be your only topic of discussion, but talking about it will communicate your wisdom and values to your children. Every purchase, investment, or donation can be a time to teach your children something about your values.
2. Talk openly.
Parents make a mistake when they keep information from their children. Children learn through experience. For example, the experience of what their family earns and what items cost teaches them what is a good deal and what is too expensive. Hiding this information robs children of the financial education they need.
3. Talk factually about money.
Many parents have strong emotions about money from their own childhood experiences. These emotions are often transmitted to their children. Instead of helping children though, they cripple children from growing to make sound financial decisions. To avoid this, be careful to speak factually to your children about money.
4. Require chores; pay for optional work.
Everyone in the family has to help complete some of the work that needs to be done. Clearing the table of your dishes, for example, should just be expected. However, if you want to pay your children, you can consider paying them for other optional work which they can choose to do or not to do. This will teach them both the value of hard work and the self-motivation required to stick to a job.
5. Make sure your children can make real choices with their own real money.
Talking about money is important, but children need real-world experience to understand the consequences of their decisions. Consider giving them an allowance large enough so that they can purchase some of their own needs. Paying this allowance in response to the family work they do is even better. Then, continue to give them honest advice and help them ask the right questions to make wise decisions based on their values.
6. Help children prioritize purchases.
When your kids are shopping, ask them question. Ask them if this purchase is better than other purchases they are considering making.
7. Help children comparison shop.
Help them consider issues such as cost, quality, and convenience.
8. Require children wait before making large purchases.
Although it can be helpful for adults to wait as long as a month before making a large purchase, children can’t be expected to wait that long. The younger the child, the shorter the period of time they can be expected to wait. When a child is considering a large purchase costing over a week’s allowance, here is a good rule of thumb: Children should wait as many days as they are old in years before making a large purchase. Over half the time, they won’t remember what attracted them to it in the first place. Developing this habit will help make them resistant to impulse buying.
9. Don’t use money as a punishment.
Your priority should be helping to give your values to your children, not buy their outward behavior.
10. Don’t loan your children money.
If their desired purchase is something they should be saving for, let them save for it. If you want to buy it for them, buy it for them. The principles they should learn are: If they want it, they have to save for it. If you want them to have it, you will buy it for them. Loaning your children money for items they want teaches them they don’t need to be responsible and don’t have to prioritize.
This article was originally published March 1, 2004. Photo used here under Flickr Creative Commons.