Money Management: What Do Your Kids See?

Kids believe what they see. They believe in Santa Claus because they see presents left under the tree. With money, kids see spending but they don’t see money management. Why is this?

Spending, especially when shopping in stores, is a visible activity. What has become less visible is cash itself. Cash is used less frequently now, because checks, credit and debit cards are more convenient.

Money management is not something your kids can see.  Knowing when and how much to spend is a mental activity. Your kids see you spend but don’t see you manage. They have no idea what choices and decisions you are making about money.

When it comes to money and what it represents, kids also believe what they see. They believe that visible possessions are a sure sign of wealth; more stuff means more wealth.

Once a neighborhood child was at our house playing with my kids. We were in the kitchen making lemonade when I opened a kitchen drawer stuffed with tableware and other utensils. She looked at me and said, “Wow, you must be rich.”  Far from it, I just happened to have overfilled, unorganized kitchen drawers.

When it comes to understanding wealth, kids don’t realize that money can be invisible in the form of savings and investments. A number showing the balance on any specific date represents this type of wealth. Most of this money is volatile in value and subject to gains and losses based on economic activity.

On the flip side, kids can’t see debt because debt is also a number in an account. Because debt is invisible kids don’t realize that people often borrow money to acquire many of their tangible possessions. Borrowing can be as simple as using a credit card and not paying the full balance when the bill is due.

So what do your kids see when it comes how you manage your money? Obviously, kids see you spend when you go through a checkout line. They see you buy food, household supplies, clothing and other necessities of life.

What they don’t see is the money you spend in other less visible ways, such as online or through automated withdrawals. They do not see you pay the mortgage, utilities, and insurance or put money in savings and investments.

What they also don’t see is how you make your money management decisions. They don’t know what choices you are faced with, or understand the implications of your decision to buy the more expensive automobile, or to shorten the family vacation.

You are forced to look at the big picture of your money. You can’t avoid looking at the bottom line. You realize that you have to make choices.

Did you learn this as a child? Probably not. For most adults, the reality of money management arrives when that first paycheck has to pay for all one’s necessities. This is no longer the “fun” spending of childhood.

How can you help your children be prepared for adult money management? As parents you are in the best position to give your kids real-world money management experience. You can create a situation where your children have to make choices that include real spending responsibilities as well as spending for fun.

Kids also need to realize that money management is a combination of both visible and invisible spending. Money management is a delicate balance about how and when to making money decisions. Children can only learn this through a hands-on money management system that requires them to make choices that are not all fun and games.

Kids eventually realize why Santa doesn’t bring gifts for adults. They are not destroyed by this new awareness. Likewise, learning first hand that money is not a gift to spend anyway one wants will not harm your kids.

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