Kids And Finances

By Diane Schlindwein

December 29, 2014 4 min read

Parents automatically give health and safety advice to their children, but teaching your youngster about finances is one of the most important life skills you can provide.

"As a parent, grandparent and veteran financial adviser, I can talk all day about what I can do for an individual's specific needs, but so much of it comes down to the basics of how we're raised," says C. Ernie Nivens, the author of "Baker's Dozen: Thirteen Insights from Highly Successful Financial Advisors." "When children are 'spoiled' and never taught the value of money, parents have neglected to empower them with the ability to budget and prioritize resources."

Financial professionals, such as Nivens, often note that kids are never too young to begin learning lessons about money. Discipline expert and author Amy Morin agrees; she believes that one of the best ways to help kids start learning about money is to let them earn it.

Give your kids age-appropriate chores that are assigned daily or weekly, she says. If your children want to earn more money, provide them with opportunities to do more chores. If your children want a higher-priced item, such as a video game, explain to them how long it will take them to earn enough to pay for it.

Help your children set financial goals. Saving for a car or college is a realistic goal for a young teenager. A tween might put away money for a bike or a skateboard, whereas a very young child might save for an inexpensive toy or even a trip to the ice cream parlor.

Nivens says that when children earn money or are given monetary gifts, that should be divided or placed in one of these four "pockets": a college savings pocket, because they need to understand the concept and need for establishing a budget for their future betterment; a dream pocket, because children need to understand that the entertainment they consume on a regular basis isn't free; a God pocket, which might include donations to a church or charity or even a gift for a friend, because "money isn't the ultimate goal in life"; and a "saving for the future" pocket, because no one can predict money needs down to the last dollar.

Children can also learn valuable money lessons just by observing daily activities. They need to understand that money just doesn't pop out of an ATM. Explain what you are doing when you write a check, use an ATM card or pay for groceries.

For example, explain how the ATM holds money you earned by working at your job. When you take money out of the ATM, that amount (and sometimes a service charge) is taken from your bank account, so you will now have less in your account to spend later.

Compare prices at the supermarket, and show your children how to choose the best price. Explain how bill paying works. If your power bill is $175, tell them how many days you have to work to pay just that one bill. When a child is old enough, explain how much interest is charged when you use a credit card.

Most importantly, remember that your kids are watching you. Setting a good example will provide the strongest lessons for your child. Youngsters are naturally observant and will eventually begin to understand money concepts by copying your smart behavior.

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