Teaching Kids About Money

by Ann Douglas

You know how important it is to teach kids about money. What you might not realize, however, is just how early Junior's money management education should begin. Most money experts recommend that a child's money management education start as soon as he is able to grasp the basic concept of money -- something that typically happens at around the age of three.

Does this mean that you should arrange to take your preschooler with you the next time you sit down to talk mortgages with your bank manager? Or that you should hand him the financial pages of your daily newspaper to peruse over breakfast? Well, not exactly. What you can do, however, is introduce some basic money concepts and give your child the chance to start handling small amounts of money on her own.

Here are a few tips:

  • Set a good example for your child. You can't expect him to master the art of money management if your own financial house is in disorder. If you have bill collectors calling your house at all hours of the day or night, your credibility on the financial front will be shot.

  • Explain to your child where the money in your bank account comes from and how you get it out when you need it. Children are often surprised to discover that their parents have to work for money and that the bank machine doesn't simply print crisp $20 bills on demand.

  • Make sure that your child understands that credit and debit card transactions also involve money. If your child doesn't see any cold, hard cash changing hands, she might mistakenly conclude that you don't have actually pay for the items you purchase with plastic. (Hey, a lot of adults make the same mistake!)

  • Open up a savings account for your child before his tenth birthday and a checking account before his sixteenth birthday. That way, he'll have plenty of opportunity to master the fundamentals of banking before he leaves for college or university. If you're reluctant to go this route out of fear that your child's hard-earned savings will be gobbled up by bank charges, take heart: most of the major chartered banks offer low-cost or no-cost savings accounts to customers under the age of 18.

  • Teach your six year old how to identify the various denominations of coins and bills. Make sure that she knows how much money to give the cashier when she's making simple purchase (e.g. buying a can of pop or a bag of chips) and make sure that she understands that if money gets lost, it can't be replaced.

  • Arm your child with the skills required to become a smart consumer. Explain that a 500 gram box of cookies that costs $2.99 is more expensive on a per-cookie basis than the 1 kg box that costs $3.99; and demystify TV commercials by pointing out how much less appealing the real-life version of a fast food hamburger looks as compared to the one on TV.

  • Don't be afraid to let your child learn a few money management lessons through the School of Hard Knocks. If he's determined to blow a month's allowance on a flimsy plastic toy that's likely to break the first time it's used, explain your concerns about the quality of the toy, but then let him make his own decision. (Note: If your instincts were right and the toy breaks the first time it is used, resist the temptation to run out to replace the toy. Instead, empathize with him and encourage him to take concrete action by writing a letter of complaint to the toy's manufacturer.)

  • Teach your child to budget for future purchases rather than borrowing money from you and paying you back after the fact. That way, they'll learn that if something is really worth having, it's worth saving for.

  • Encourage your child to set aside some of his own money for charity. He's more likely to get hit with the spirit of giving if you help him to choose a charity that's likely to be near-and-dear to his heart. Needless to say, the Humane Society is a favorite with many kids!

  • Plan to review your child's allowance annually at the start of each school year. That way, you can adjust it upward if she is ready to assume responsibility for a wider range of purchases -- e.g. junk food, entertainment expenses, clothing, and so on. If your child would like a larger increase than what you initially propose, ask her to prove to you that she's ready for the added financial responsibility. If she makes a convincing case, rethink your position.

  • Be prepared to discuss your own financial situation with your child. While you might want to decide to withhold particularly sensitive financial information, just in case your child decides to broadcast it to the entire neighbourhood, your child will learn a lot if you take the time to explain just how much it costs to operate a household. Many kids are stunned to learn, for example, that you have to pay for the water that comes out of your kitchen tap.

  • Be patient. It takes time to master the art of managing money. But slowly but surely your child will start to develop some solid money smarts, thanks to your ongoing investment in his money education.

Ann Douglas is the author of numerous books about pregnancy and parenting including the bestselling "The Mother of All Pregnancy Books." She regularly contributes to a number of print and online publications, is frequently quoted in the media on a range of parenting-related topics, and has appeared as a guest on a number of television and radio shows. Ann and her husband Neil live in Peterborough, Ontario. with the youngest of their four children. Learn more at her site, having-a-baby.com.

Copyright © Ann Douglas. Permission to republish granted to Pregnancy.org.