Money Management for Kids

Tips for Teaching Kids Money Management

Money management for kids can be challenging, but easily handled by teaching kids about money issues at a young age. It is good if both mom and dad are on the same page with their overall philosophy of money management. There are many ideas about teaching kids money management. Some circulate in parenting magazines, some are garnered from talking with other parents, and of course, many are handed down from one’s own parents and how they managed their money.

Many parents decide to start saving money for kids by opening a child savings account right after birth. They may put a portion of each paycheck in this account. They may also add to it by depositing monetary gifts the child receives at birth or subsequent birthdays and holidays. It may not be meaningful to the child for many years in the future but it will be appreciated when they are off to college, getting married, or making a down payment on a house or car.

One of the first decisions that needs to be made is if your child will receive an allowance. Some parents attach no “strings” to a kid's allowance but feel that as part of the family, a child should receive an allowance and then can be taught how to manage money. Others feel a child needs to have certain chores or responsibilities to receive an allowance. While there is no right or wrong way to administer an allowance, it is necessary to have the parents cohesive in their philosophy. Otherwise, the children will begin to pit one parent against the other.

Other decisions that need to be made if an allowance is to be given are:

1. What age will the allowance begin?
2. How much will the child receive?
3. How will the child receive this money (in an account, in cash, etc.)?
4. How often will the allowance be given?
5. How can/must the child use this money?

An important lesson in money management for kids is to teach them to divide their allowance in three ways—spending, saving and helping others. A young child can easily learn this. Sometimes it is helpful to immediately divide the allowance into three containers.

A child will have no trouble learning to spend money. One great way to do this is at a dollar store. It offers lots of choices that don't cost a lot of money. They may find that they want to buy an edible treat or a toy. Sometimes they may not be able to get everything they want and must learn to distinguish a need vs. want.

Teaching children the importance of saving money will help them to realize that some things cost more money then they currently have. You will be showing them a valuable lesson by helping them save for a larger purchase. Start out by helping them pick out a goal to save for in a short period of time like a few weeks or a month. That way, they will not be discouraged but will learn about saving and waiting. It is hard to teach young children to save for college but as they get older and see that savings account that you started for them grow, they may learn to appreciate the savings advantage.

The last category for the child's allowance is helping others. If your family goes to church, they can give an offering to the church. There are numerous other possibilities to help children learn to help others with their money—food shelves, packaging food for third world countries and many others. This is an important lesson in money management for kids.

Remember your child will learn much from you about how to manage money. They will see how you use your resources and how you handle money. They will mimic you when they see you help others in need. Money management for kids isn't really so much different than our adult money management, is it?

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