Recently I overheard a young boy ask his mother for a quarter. The mother looked at him, “What would you do with a quarter?” The boy replied, “I’d go to the store and buy Star Wars stuff.” In this brief dialogue, this child shows that he has figured out what money is and what it does.
For a child that hasn’t even started school, this shows an ability to understand in very simple terms how money works. Obviously, there is one big problem with this kid’s shopping plan; a quarter isn’t enough to buy Star Wars stuff.
In our society, most young kids know the nuts and bolts about money before they are old enough to read. They know what money does, what to do with it and think they know how to get it. In their mind money is very easy to understand.
Money gets stuff
Parents have money
Kids want to buy their own stuff
Kids need money
So kids ask their parents for money
As parents we decide that maybe it’s time to teach our kids about money. So we give them money and tell them that they have choices: spend, save, invest or donate. But what they really want to do is buy stuff. They want to buy stuff they can hold in their hands.
Buying stuff is the first lesson in learning about money because kids learn from hands-on activities. Shopping with one’s own money is a big thrill for any child. But simply knowing how to spend money does not help a child learn how to manage money.
The key to money management is learning how to make decisions. If the mom gives her child the quarter, he will find out that a quarter isn’t going to be enough money for what he wants. So the child is faced with a dilemma. “Do I want to go shopping anyway and buy something else?” or “How can I get enough money buy Star Wars stuff?”
When you give your children money, give them the opportunity to make their own spending choices and to live with the results. Whatever amount of allowance you give your kids, there will be limits to what they can buy. When you give your children money, also attach some responsibilities to it by the time they start school. (For example, have them use part of the allowance to buy their own school supplies.)
By setting up a system as explained in my book, The No-Cash Allowance, your children will start learning that managing money is all about making decisions. This is the basic building block of money management, from which you can expand their experience to include for more financial learning opportunities as they grow up.
In your dialogue with your children you can explain to them, “This is your money. You are responsible for certain expenses. And, by the way, if you manage your money well you’ll have more to spend for fun. You are in total control. You will make good and bad decisions and sometimes will wish you had made different choices. As your parents, we can offer advice if you want it but don’t look to us to bail you out. Learning to manage your money is an important responsibility.”Follow me on social media: