Children & Money: Instill the Value of a Dollar at an Early Age

Most children today do not actually know where money comes from. Think about how different the world is from our childhood. While technology has greatly simplified our monetary transactions, it has created a significant disconnect for our children. Items are seldom purchased with cash; rather we use a magical plastic card to fulfill their material wants. Paychecks are deposited automatically into banking accounts, while money appears to be earned simply by typing a secret code into an Automated Teller Machine. Bills are paid electronically or automatically. To top it all off, there is very little taught in school on the subject of money. How are our children to learn?

When my son was five, we ordered him a scooter off the internet. As soon as I completed the transaction, he sprinted down to the mailbox to look inside. He came back disappointed to learn that the scooter had not magically appeared in the mailbox. I had to explain not only how the financial transaction occurred, but also how the order was fulfilled and then eventually mailed to our home. The instant gratification world our children and most of us live in does not prepare us for the long-term focus required to manage our money and create wealth and prosperity.

What can we do? Here are a few ideas to get you started:

1. Break the spending habit.

2. Explain how money flows through the economy. For example, “Our money is earned by creating some sort of value in our community. The greater the value created, the greater the money earned. This money is generally deposited directly into our account via electronic credits. Some of the money earned is immediately saved in a different investment account for our future. Some of the money is given to our favorite charities and/or our religious organizations. What is left is ours to spend on our way of living. We use credit cards to buy things but pay them off each month with the money we earn. If we spend too much, we have to pay the credit card company interest. This makes it harder for us to pay our expenses the next month”.

3. Consider replacing the allowance, an “entitlement concept”, with specific payments for specific services. In other words, let them earn their “allowance”. One of my clients implemented this with his children. The children asked if they were able to reduce the household utility bills by a percentage, could they keep 50% of the savings. Although the kids wanted to eat dinner in the dark and kept turning the lights out on their parents, they were able to cut the bills by $30 per month and kept $15 for themselves!

4. Open a savings account with their money. You can take them down to the local bank or better yet, open a mutual fund.

5. Teach them about interest and compounding! After completing the above step, your children will truly begin to understand this.

6. With the exception of birthdays and holidays, require your children to buy all or part of the items they really want. Teaching your children to earn money and buy the things the want will help them to develop the skills that will last them a lifetime.

7. Suggest they begin giving some of their savings to charity. If possible, let them experience your giving directly.

8. Teach them that it’s a “round world” that we live in. The more you give, the more get. Another similar concept is to “Pay it Forward”.

9. Together, learn how to sell things on eBay. This will provide them with many valuable tools that will help them in the future.

10. Teach them the importance of planning for their future. As we all know, a failure to plan is a plan to fail. Encourage them to save money for their future. If they are old enough to earn money outside the home, have them open a Roth IRA. Have them save up for the really big things they want. If you have your child save up for that new X-Box, they will develop a sense of accomplishment, take better care of their belongings and begin to appreciate the value of a dollar.