Beyond an Allowance: How to Engage Young Kids in Learning about Money

Updated: February 15th, 2017 by Kara Downing, CFP® 

Remeber the early days in life when it seemed like everything in the candy aisle was free if you begged your parents long enough? There’s something beautifully unburdened in the way which children experience the world: recklessly present and innocently ambivalent. Teaching your children lessons about money from a young age won’t crush that. What it will do is to set them on a path to future financial freedom and success. Children’s monetary habits are formed as young as age seven, according to a report published by University of Cambridge researchers. That means your children are going to learn about how to treat their money from someone, and it’s better for that person to be you.

Take them on errands with you. Regardless if it’s the farmers’ market or a visit to the bank, take your children with you. These shopping experiences will teach them how to behave in monetary transactions. Engaging children, rather than dragging them along, is the goal. Let them be in charge of the grocery list and allow them to cross items off as an example of how to avoid impulse buying. If they’re old enough, ask them to compare prices on similar items, like two boxes of cereal, to see which one is the better deal. It's also a great opportunity to explain to them the difference in cost or quality between a store brand and name brand product. When they get older, allow them to observe a larger purchase, like a car or household appliance, to gain valuable negotiation skills. 

Let them pay. A lecture on how much things costs does little in comparison to experience. Before your child spends their birthday or allowance money, help them first determine how much they want to spend compared to what they want. Help them pull out the correct amount of change from their money container and then let them physically give the cash to the cashier. They’ll quickly understand that when they want something, they have to pay for it with “hard earned” money.

Use a clear container for saving. Piggy banks are cute, but a clear container allows kids to physically see their savings grow as the jar fills. Keep your own jar close by and put extra change in it. Children are natural imitators and will want to keep putting money in their jar like you.

Spend, save, and share. Spending money comes naturally to most everyone, especially kids, but what about saving and sharing? An easy way to do demonstrate the difference is to label three large jars. The Spending jar is for smaller splurges, the Savings jar is for future purchases, and the Sharing jar is for someone else who needs it more than they do. As children receive money, set up a system that automatically allocates a portion into each jar. We suggest they give monthly or quarterly to something that interests them like an animal shelter, church, or local fundraiser.

Teaching children about money isn't always easy, but it's certainly worthwhile. Having a strong, knowledgeable foundation is a step in the right direction toward financial security as an adult.