Updated on 10.31.06

Educating Children on Fiscal Responsibility

Trent Hamm

I grew up in a very poor home. We had so little money that we were required to grow, fish, and hunt for some of our food, and I remember many nights where we had “mystery stew” and other such dishes that were made up of whatever could be thrown into a pot together. To put it simply, there was no money with which I could learn any fiscal responsibility because there was no money, period.

I managed to get into a good school and I wound up with a job that paid more in three months than my entire family’s income was for an average year. But the problem was that I had no idea what to do with the money, and I just went crazy with it, digging myself into a deep financial hole because I had no idea how to manage money at all.

Now that I’m learning good financial planning, my thoughts turn to my own child, who is approaching his first birthday. How do I go about teaching my son how to deal with money? More importantly, what can I do to keep him from making the same mistakes I did?

I’ve been reading several very insightful documents and books on this topic and they all seem to boil down to these essential points:

1. Show your children how you spend money. Take them shopping with them, show them prices on the shelves, and then talk with them about what things cost.

2. Allow them to manage a small amount of money themselves. It can be in the form of an allowance or some other form, but it should have clear limits and they should manage it themselves. Talk to them about how to manage it: should they buy a toy now, or save for something else?

3. Involve them in the finances of the house. Show them what you spend each month and demonstrate that you save each month. Tell them when there are financial problems and when there are windfalls.

My parents never really did any of the above, simply because there was very little money to be had and what little money we did have went into keeping the electricity on and food on the table. There was no such thing as savings plans, and the children weren’t involved in any family discussions.

I think that on my son’s fourth birthday, I am going to give him a piggy bank and start him on a small allowance and see where things go from there.

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  1. DadCafe says:

    I agree with your three tips but I’d add the following:

    Save before anything else.
    I give our young child his pocket money as two coins and he puts one in his piggy bank (which he can’t open by himself) and the other in his purse to spend. Hopefully this will encourage the habit of saving automatically.

    Pay them interest on their piggy bank.
    At the start of every month I count his savings with him and give him 1 percent, recording it in a little notebook. At the moment he just likes playing with the coins but eventually he’ll realise he’s getting free money just by not spending it.

    I don’t want to give him handouts when he’s older (can’t afford to anyway!) but good education should hopefully be worth more.

  2. Marya says:

    Our 12 year old has run a lemonade stand several years now, and it has been a great introduction to the ideas of profit and loss. This year he even went and got a business license so he’d be “official”. We don’t give him a large allowance so he needs to be creative about getting more pocket money…

  3. benjaminsmom says:

    My 4 year old has a little $ and just plays with it. He doesn’t get it. But by the time a child is 5-6, they naturally get interested in money and learn how to count money in kindergarten. My 6-year-old is definitely ready for an allowance now. I just haven’t decided whether to tie it to helping around the house (life energy), or have it be independent of that. I love the idea of paying a little interest on the savings in the piggy bank. What a great idea!

    Other things we’ve done so far to teach fiscal prudence:

    Made him save up for an expensive toy instead of just buying it for him. (We normally only buy them stuff for Xmas and birthdays, anyway.)

    Talk to our children about economic stuff, whenever we see a teachable moment. Sample topics: stocks and bonds, why a local business we drive past may have failed, the credit crisis, the gold standard and inflation. Talking about the disconnect from the precious metal standard, was a good introduction to the idea that money is valuable only b/c we assign value to it, and that it represents time you spent working (life energy, a la Dominguez/Robin). He is only 6.5, but he soaks it up!

    And also giving them a chance to donate, or see you giving to a charity, teaches them to share their money with others.

  4. Rob says:

    I always told tbe children how much they could spend on a shopping trip. Eliminated the “buy me this” discussions at the store. They always had the option to save the money and add to the next trip!

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