How to Teach Your Child Money Management

The classic piggy bank.
The classic piggy bank.

How important is it to you that your child has a healthy attitude towards money? Knows how to manage his income and savings? Grows up and retires in financial security?

I'm willing to bet that you'd do anything to see your kid happy (now and forever).

Now, I'm not a professional anything. I'm just a person whose parents did a great job of teaching her about money and wants to share some of that knowledge with other people. I mean, how many 19-year-olds do you know that have a long-term investment portfolio, high-yield money market account, and several CDs (disclaimer: I am far from wealthy, but the little money I have is very well managed)?

Just follow these few tips to get started on teaching your child the right way to deal with the complications of finances. The earlier you start, the easier it will be to establish healthy wealth habits!

Allowance

Here's the way my parents did it, and it's the way I'll do it for my kids.

Each week on Sunday morning, my siblings and I would get our age in dollars (that is, at 12 years old, I would get 12 dollars). This then got broken up into three different places:

  • 10% to church (until we were old enough to choose our own charity)
  • 20% to savings, which were not allowed to touch
  • 70% for our own spending

The "tithe" (10% to church) was almost always immediately put into a small donation envelope, which we would then put into the plate at church (remember how this used to happen on Sunday?), but as we got older and chose specific charities to donate to, we had a jar to save the money until it was a larger sum and then sent it all at once.

The savings money was put into another jar, and quarterly we would deposit that to our individual savings accounts. We were unofficially not allowed to use that money until we turned 18 years old.

The spending we could use on anything from candy to Pokemon cards to a portable CD player. It was up to us.

"Extra" Income for Kids

Grandma sends a $40 check to your daughter on Christmas and her birthday. Her uncle passes her a $10 on her way out the door after several visits a year. What should you teach your kids to do with this money?

It depends on the situation. "Regular" income such as the checks from relatives on holidays or birthdays should probably be treated in the same way as allowance because it is received in a lump sum and is predictable.

For the occasional $5 or $10 that is tossed your kid's way, though, I would probably let him do what he wants. Who knows? He may even want to donate some of it to a charity or throw it in his "savings" jar (unless that new DVD is about to come out that he's had his eye on, of course!).

A boy with some cash.  (Photo model: Lance Mykel Yu)
A boy with some cash. (Photo model: Lance Mykel Yu)

Spending

The key to this allowance system, though, was that it was all the money we got.

But Mom, I want this new video game!

Then save up for it.

But it just came out, and I want to have it before the rest of my friends!

Well now you realize that next time you'll need to plan ahead and save up.

Can I just borrow $50 and not get allowance for the next few weeks?

Nope. But you already have $13 saved up, so it won't be long before you can buy the game anyway.

Seriously; you have to stick with the plan. Even though your kid might be mad at you for a little while about the game, he will eventually appreciate that you stuck by your guns.

Without even realizing it, you have just taught your child the worth in buying with debit instead of credit. He's learning that it's better to save up for big purchases than to buy them with someone else's money and then pay back. Right now, at an early age, he will just have to "take your word for it" that he cannot always buy on credit, and as he gets older and asks more questions, you can further explain the pros and cons of each.

Structured rules like this provide an excellent outlet for talking to your kids about money. They will not inherently understand the rules that come with buying, saving, and donating to charity. Your children need you to teach them these things! And what way to better encourage the proper ways to use their income than to lead by firm guidance?

Photo by Herman Brinkman
Photo by Herman Brinkman

For Kids With Jobs

There are always the kids who have a job. This is a good thing for you to encourage your child to do if you can't readily afford their allowance, but it also is a good idea for a kid who has expensive tastes (video gaming on multiple consoles, et cetera).

I would highly encourage you to make your kids divide their job income as they would their allowance.

Where to Draw the Line

So within this plan, what should my child not have to pay for?

Necessities. Food, clothing, shelter, school supplies (the big bags of candy at the Staples checkout probably don't count in this category, though). But keep in mind that designer clothing is not a necessity (no matter how much your daughter may insist that it is). It is one thing for you to buy your kids some "nice" clothing for special occasions. But if your daughter wants that special sweater or pair of jeans, have her save up for it (offer to pay her for babysitting or other extra chores if you like). She will appreciate it that much more.

You, as the parent, should also pay for anything they may need for positive extra-curricular activities. Think of it this way: if your child loves playing tennis, buying him some white shoes and a tennis racquet now might result in him earning a scholarship to college later! And if not, he'll reap great benefits from playing a sport and learning how to maintain his health... but that's a whole other hub right there!

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Following Up

Of course, as your child gets older (say, high school age) you can explain more in depth the options that come with savings and spending. As I said, having your child research some charities with which she might personally empathize is a great way to get her involved in where her money goes.

Have a conversation with your teen about what he has learned from the 10/20/70 plan you outlined for him at a young age. Remind him what he has learned about the value of a dollar through having to save up for his big buys. Ask him what he has learned about credit and borrowing money.

Enforcing such simple rules throughout your child's development will do wonders for the way he views and deals with money when he leaves the nest!

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Comments 23 comments

Marisa Wright profile image

Marisa Wright 8 years ago from Sydney

Great advice!


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Thanks for reading, Marisa! I may not be a parent yet, but I'm still pretty close to the kid's side of things, and I like to think that I have a pretty good handle on things.


sminut13 profile image

sminut13 8 years ago from singapore

this is a great hub.


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Glad you approve, sminut! Thanks for the nice comment. :)


Lissie profile image

Lissie 8 years ago from New Zealand

This is sensible practical advice which illustrates that parents aren't just ATM's on legs! I think also that parents should pay for basic clothing- but not for the designer version - if kids want the expensive stuff they should save and pay for the difference


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Wow, great point, Lissie! I'll definitely add that point; it's one thing to buy a few "nice" things for kids to wear on special occasions, and quite another to buy ALL designer clothes! If a kid wants that special pair of jeans, she should have to save up for them. She will appreciate them that much more.

Thanks so much for the comment!


Whitney05 profile image

Whitney05 8 years ago from Georgia

Wow! This is great information. My parents used to let me do whatever I wanted with the money that I would earn. But, my grandmother used to tell me to put half in savings, a quarter in a drawer, and a quarter in my wallet. Use the hidden cash for emergencies, and don't touch the savings. That's usually what I did. I try to continue that practice now.


Lela Davidson profile image

Lela Davidson 8 years ago from Bentonville, Arkansas

Great Hub! This is an excellent system. You're right, the trick is to stick with it.


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Whitney -- Thanks! Half in savings! That would be really tough for me to do, especially now! I think that what's most important is that the habit (or a suggestion of the habit) is introduced. As long as you have an idea of what's the right thing to do, you at least have the decision of whether or not to do it, right?

Lela -- Thanks for the comment. And you're right; if you give in, it just means that your kid learns to pester you more next time. ;)


Robin profile image

Robin 8 years ago from San Francisco

Great Hub! Teaching kids the value of money can be difficult, but you laid out a plan very well. Our daughter saved for over a year to go to Disneyland. We called it her Disneyland Fund. We paid for her admission and food at Disneyland, but other things that she wanted, toys, etc. came out of her fund. It was really great. She was very thoughtful of her purchases and actually bought presents for her sister and cousin with her own money, too.


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Thanks, Robin. That's the best, when a kid saves up and then is thoughtful enough to spend that hard-earned money on someone else! And, like you said, it makes them very thoughtful about what is "worth" buying and what is not. Thank you so much for sharing your specific story about setting guidelines and having it really work!


MoralsEthics1960 profile image

MoralsEthics1960 8 years ago from Florida

Well laid plans for children is essential-great job


caspar profile image

caspar 8 years ago from UK

Great tips - thanks!


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

MoralsEthics and caspar -- Thank you both for your kind words! I appreciate it.


Whitney05 profile image

Whitney05 8 years ago from Georgia

Helena- Your exactly right! Introducing children the the idea, is the perfect solution. Still giving them the option to spend or save.

I think waiting too late can cause problems when their older and they have no clue how to save.


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Not only will they have no clue of how to save, they also might not understand the value of money! If, whenever little Betty goes into the toy store and asks for a new doll, her mom buys her one, how will she possibly understand that it is MONEY -- and not mommy -- that is buying those toys?


ripplemaker profile image

ripplemaker 8 years ago from Cebu, Philippines

Thanks for sharing. I agree wholeheartedly. The younger we start learning money management the better. :-) And like me, I also learned to divide my "income" into 3 - tithing, savings and spending!


gale583 profile image

gale583 8 years ago from New England

This is a really great idea. I hope I remember it come time that I have kids. I certainly know if my current boyfriend becomes my husband he won't be any help 'cause his parents certainly never taught him how to manage money!


DarleneMarie profile image

DarleneMarie 8 years ago from USA

It is so good to see a young person like yourself have a great relationship with money. Your parents must be proud!


Bill 8 years ago

Thank you for the tips. I want to make sure my children are responsible with money. I also found the book, "Wealthy Child: Financial Success for the Children in Your life" very good.There is a synopsis at www.growwealthy.com


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Thanks for your positive comments, everyone! I appreciate it.


Divine 7 years ago

great tips can make the child know how to make money and save money


ClaireHaley profile image

ClaireHaley 5 years ago from UK

This is a really interesting hub. My kids are still very young but i am already trying to teach them the value of money so they don't just expect to get everything they want, and more importantly understand the reason for this. Ultimately, money doesn't grow on trees. I also try to teach them that money doesn't bring you happiness.

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