When children are very young, they have no real regard or respect for money at all. They see something they want and can usually figure out a way to get it—depending on their age—through whining or guilt. But there comes a point when your 10-year-old is asking for an iMac laptop, and you have to draw the line and say “No!”
Understanding Money and Its Value
When children reach 3 or 4 years old, they begin to notice the cause and effect of money. They see mom and dad pulling it out of their wallets and being rewarded with items in return. They are also old enough to figure out that if someone gives them a dollar bill, they can buy something they want from the candy aisle. What they don’t yet understand is that what they buy has to cost less than or equal to that dollar. In my opinion, this is the best starting point for educating children about money. Elementary math will soon clarify why they can’t buy something that costs $1.25 with just a dollar, but it won’t help them understand the role money plays in everyday life.
One key point to understand is that our children will largely adopt our views on money based on how we portray it. If we are constantly obsessing over the cost of things, complaining about not having enough, feeling broke, or wishing for more, our children will quickly pick up on the negative side of money. They will begin to perceive themselves, at a young age, as lacking. Conversely, if we remain hopeful and respectful of financial situations and the value of money, our children will learn to do the same, feeling grateful for what they have and perceiving themselves as fortunate.
Parents’ money worries should not be passed down to our kids. We can avoid this while still approaching the subject of money in a pragmatic way that will enable our children in their future. Does this mean we shouldn’t tell them that something they want is too expensive? On the contrary, by pointing out the cost of things and comparing prices when we shop, we are showing our children respect for money and the work that earns it. It is wise to explain the cost of an item by putting it into terms they can understand, like how long it takes to earn that money. For instance, is this sweater worth three hours of your father’s time at work? Children will then begin to unravel the cause and effect of both working and spending.
One of the best ways to teach a child, even a young one, about the value of money is to allow them to have and control their own. As impersonal as it may feel to give a child a gift card or a ten-dollar bill, it really serves as a valuable life lesson. Taking them to the store armed with their ‘present,’ they will quickly realize the value of a buck when the toy they covet is out of their price range. This is when the dialogue (and lots of patience) can successfully open up about saving money to buy what they really want later or buying something on impulse just to have it now. As difficult as it is to avoid pitching in the extra $3 so they can get what they want (and you can get out of the store), it is best to hold back and teach the lesson that they won’t always get what they want when they want it. Money may not grow on trees, but it can be earned in increments.
This is also a great time to offer to open a savings account for them. The younger they are, the more likely they are to settle for the lesser thing. Pointing out how quarters, dimes, and even pennies can add up over time helps develop patience and long-term goal-setting. As they age and are continually empowered with their own money, they will begin to understand the impact that saving and making wise financial decisions can have. They will see the use of goal-setting, saving, and careful decision-making, and will be more willing to take responsibility by earning extra money through odd jobs around the house. They will also become more appreciative of money gifts or allowances they earn and will feel a sense of purpose as they get closer to their savings goals. When they are finally able to buy that special item, they will have a greater sense of pride and accomplishment. They may even realize that they didn’t really want what they thought they did. In my experience, children are much more cautious when spending their own money than they are when spending their parents’.
Educating children about money can empower them to have a successful financial future of their own. Moreover, being mindful of our purchases and choosing only the things we truly need shows our children that materialistic collections are not what make a person rich. Children may not understand why some of their friends go to Disney World twice a year when they’ve never been, but they will recognize that, in the grand scheme of life, Disney World is not as important as the car they ride in, the roof over their heads, the food they eat, and partaking in things that are truly affordable for their family.
Every family holds different values when it comes to money. As long as children are learning about money in a way that empowers them and allows them to understand that all the money they need or want in life is accessible through hard work and wise decisions, they will become guardians of the dollar. They will continue their money education through their endeavors, and by using their family as a stellar example of responsible earning and spending, they will begin a life that appreciates financial gain and fiscal responsibility. It is important to educate children about money in truthful, logical, and positive terms so that they develop a healthy relationship with finances. If this is accomplished early in life, they may never ask you for the iMac laptop and may instead begin saving for it themselves.