Updated on 11.02.09

Helping Other Children Learn About Money

Trent Hamm

Megan writes in:

I’m by far the most financially sensible person in my family. I spend far less than I earn, yet I’m happy with the things I do have. I have my retirement savings in very good shape (even after the mess last year!) and I have a big emergency fund and almost enough savings for a 20% down payment on a nice house – and I’m only 26!

Recently, I spent a weekend with my older brother and his two children. They both receive an allowance, but their mother indulges them constantly and allows them to spend it without even thinking about it. I would like to do something to help these kids get a good financial education when they’re young so they don’t make the mistakes that most people make in their twenties that haunt them forever (I made some of my own, too).

What do you think I should do? What’s appropriate to do?

I find myself in a similar position whenever I’m around my own nieces and nephews. There are many thing I wish I had the opportunity to teach them, but my window of opportunity for doing so is extremely limited.

In my own life, I’ve found the most success when I stick to these principles:

Connect with the children as deeply as possible. The absolute best way for a non-parent to connect with a child is to get down at their level, listen to what they say, and talk to them as if they were an adult. Do that frequently and children will quickly begin to like you and see you as something of a mentor. Doing this makes it much easier for you to introduce ideas to them – they’ll be open and receptive to what you have to say.

Offer nonthreatening advice to the parents. One really effective way to do this is to give them a book or something practical that helps the parents with the financial teaching process. For example, you could give the parents a copy of the book Raising Financially Fit Kids by Joline Godfrey. Offer it not as a criticism of what they’re already doing. One great way to do this is to say simply that you had money problems when you were younger and you’d love to be able to help those children you love not have the same difficulties you had. Most parents will appreciate such parenting advice given in this fashion.

Give gifts that reinforce money lessons. A powerful way of doing this would be to give a child a Money Savvy Bank as a gift, with a small amount already in each slot of the bank. Then, encourage them to split their allowance – or any other money they get – among the pieces of the jar. The bank comes with a great parents’ guide as well, one that might encourage the parents to get involved and reinforce the lessons of the bank.

Lead by example. If you have a strong connection with the children, they’ll want to emulate what you do. You can thus ingrain good financial choices in them by simply behaving in a financially responsible fashion yourself. Take them shopping with you and show them how you do it – make a list, don’t buy stuff that’s not on the list, etc. Tell them your own goals for the future and say you put aside money every week for that goal. Then, show them that you’ve achieved that goal when you do (like when you buy a car or some other tangible item). Don’t fill your house with lots of stuff – reject consumerism, but do it without bragging about it or dropping names. Walk the walk – children notice.

Be positive about good financial choices. When you notice the child making a good financial choice, compliment it. Positive reinforcement works far better than negative reinforcement – negative reinforcement is mostly used because it’s easier.

Good financial habits don’t appear out of thin air. They require good role models and examples that show the benefits of living in a financially stable way, as well as basic ideas on how to do it yourself. You can drop these breadcrumbs in the lap of any child if you do the groundwork of connecting with that child first.

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  1. Amanda says:

    My mom handles her finances wonderfully. She did give me an allowance through high school (except in the summers when I was working) and that’s probably where I learned the most. One month of allowance at a time, which I had to pay for gas and any food out I bought. I wasn’t home for dinner most nights (activities) and she’d provide microwaves meals or I could choose to buy – but if I spent it all on food the first week, I wouldn’t have a choice the rest of the month.

    My aunt takes vacations every year, and is more of the ‘got it, spend it sort’. She leads by a what-not-to-do (for me) example.

  2. Little House says:

    These are great tips. I can also apply some of these strategies to teaching. Obviously I can’t, and don’t want to, take my students shopping, but I could play store with them: apply price tags, set a shopping list and a budget. This would at least get them thinking about how much things cost and how to limit the amount spent.

    thanks for the post! I now have a new activity I can include in my class :)

  3. Kelly says:

    I didn’t learn anything about money management from my parents, hence the mess I am now in.

    My own son saves his money.

  4. Kelly says:

    That posted before I was done with it

    So, he puts his money that he receives from relatives in a jar at home. My mom gave him $3 for Halloween and it went right into the jar. Birthday money….right into the jar. So, we are trying to teach him to save.

  5. Looby says:

    Actually Megan, if you read yesterday’s post, what you should do is give up. As a mere aunt you will have next to no influence over these children, so why bother? Let them grow down the path to financial ruin.
    If you want to encourage financial responsibility in young people it’s best to have your own.
    Good luck!

  6. Susan says:

    I think you have provided excellent suggestions in this post. There are three keys to influencing others in a meaningful way. They are: relationship, relationship, relationship.

  7. lurker carl says:

    In a nutshell:

    1. Don’t give advice unless asked for it.

    2. Restrain from inflicting your ideologies onto children other than your own.

    3. Never assume snippets observed from a brief visit accurately reflects what occurs when you’re not present.

    It’s one thing to show children by example or answer their questions. It’s quite another to imply to children that their parents are wrong in any manner. Few parents appreciate someone undermining their authority within the household – be it right or wrong.

  8. Johanna says:

    There may be more to Megan’s letter than was quoted here, but from what we see, it’s not clear to me that there’s even a problem. The only “poor financial behavior” that Megan mentions is that the children are allowed to spend their own allowances on whatever they want. (The horror!)

    It sounds to me like maybe Megan is a bit too excited about her newfound frugality and savings habits and overly enthusiastic about sharing the good news with others. There’s nothing wrong with saving a large percentage of your income – I do so myself – but it’s not the only way to live. Saving much less than I do does not make someone financially irresponsible.

  9. Rosa says:

    One thing that I think is awesome, but I’m not sure if there’s a way to replicate it:

    A friend of ours has a sizeable investment fund that he started as a child. His aunt & uncle were brokers, and let any of their nieces and nephews invest at very, very low levels. They still have young neices and nephews, and still do this – a child can come give them $5 or $50 and they will put it into a mutual fund, and the child can withdraw at any time (and suffer the losses and gains of the market, too.)

    It’s kind of the “Bank of Dad” approach except it builds real wealth. But I’m not sure if it’s replicable for people who arent’s stockbrokers themselves – the fees eat up the kinds of money most kids have.

  10. Michele says:

    My parents decided to invest for all the grandkids from birth as a way to get them interested in finances. For birthdays, Christmas and such, they would get them a small gift (15 grandkids, after all!) and then buy them stock in ‘kid friendly’ companies- Disney, Legoland, and such. When they turned 21, each kid got the profits for them to re-invest. My dad is now gone, but my Mom continues to invest for the younger ones, ages 3-14, and four great grandkids ages 4-1. The older ones (mine included, ages 29-23) have a nice chunk of change that they have either re-invested in stocks or a home or put in a savings account. The oldest has $50,000 set aside to purchase a house. My oldest son and his wife paid cash for their wedding, honeymoon and put $100,000 down on a house last year. If it is done with love, then it can be a valuable lesson!

  11. Gretchen says:

    Interesting post after the candle in the wind buisness yesterday.

    How old are the kids?

  12. Kevin says:

    @Rosa (#9):

    No offense, but it sounds like your friends aunt and uncle taught him how to gamble, not invest.

  13. Kyle says:

    Ditto the above: stay out of it.

  14. All of the best intentions can backfire when the children tell the parents what you talked about, incompletely, and usually out of context.

    John DeFlumeri Jr.

  15. Java Monster says:

    Oh dear. I don’t think I’d like it if my sister or brother came up to me after a brief visit (or during it) and started talking to me about how I’m raising my children regarding their money education.

    It’s all in the approach: I wouldn’t mind if a relative sent them a book on how to save-whether or not my kids *read and absorb* the information in the book is another matter entirely.

    Also, I’d like to point out to Megan, the featured letter-writer, that what Mom does in the family might be very different from the way Dad approaches the issue of money. Dad might not like Mom spending on the kids like that and may not agree with her style. Or Mom might think that Dad is a skinflint who doesn’t know how to enjoy life, or does, and prefers to spend their money on himself, so she’s evening out the score.

    Honestly, does Megan really know what’s going on when she’s not there? Don’t be passive-aggressive, and don’t criticize the parents. Ask the kids how they save. And then stay out of it. Or start up an account for them that they know about, and the parents know about.

  16. Rosa says:

    @Kevin – what, you don’t have any money in the stock market? It’s a mutual fund, not a lottery ticket – there’s some risk, but it’s still an investment.

    When I was a kid I invested my birthday money in candy and Girl Scout Camp. And Tiger Beat magazine. There were some investments in my name but I didn’t get to choose or affect any of them. Getting to choose to invest and watch the effects would have been great financial training.

  17. steve says:

    Speaking from my own experience, (which is not the final word on the subject), you have little leverage to do this job so don’t try to do it.

    There’s really nothing you can do because you are not in the position of primary influence here. Whatever example you give on your occasional visits is outweighed by what these kids live every hour of the day, day of the week, and month of the year.

    In the end, you have to sit down with yourself, and maybe a freind, and evaluate how important this is to you and, if so, why it does seem important to you. For example, is it really about the kids’ welfare, or is it because it somehow reflects on you, or because it’s a way to “straighten out” your brother and his wife? Be brutally honest with yourself. If after your soulsearching it’s really important to you and it’s for the right reasons, if you are going to make a difference you will need to convince the parents first. But really do you have so much more to offer than the parents do? After all, they are parenting the kids every day and you are not. Inserting yourself between them and the kids is something that can put dings on your relationship with your family members.

    I would just let the issue lie. Wait three to 5 years and see how your perspective changes. Mark it on your calendar if you want and revisit the issue every year in, say, january.

    I think you will find that you may have another opportunity/window when they reach their late teens to reach them. And that they will turn out fine even without your input. But really, why is this so important to you? Their life is their life, it’s not your life. It sounds like you have an anxiety around the issue that is making this very important to you when it might be best to focus primarily on your own life.

  18. J says:

    Concentrate on finding a mate, having kids of your own and then realizing your brother and his wife are likely doing a very fine job of raising their kids. So many of the “boy, if I had kids this is how I’d ….” things I used to say when I was single are now by the wayside it’s not even funny — now that I have kids.

    Unless they are headed for financial ruin (which doesn’t sound like the case here), let them be. Eventually the kid will want something that costs more than their allowance and they will need to save for it — which takes it from a abstract concept to a very concrete one. You’ll sound like one of the adults from Peanuts talking about your great financial habits, retrement fund and so on. Or an annoying missionary / evangelist / salesperson / telemarketer.

    Why not just go over, be the “fun” aunt, give your brother and his wife a night off, take the kids to a movie or the park? Enjoy your brother’s kids and get to know them well.

    Giving a book basically communicates “I think you are doing a really crappy job raising your kids”, and me NOT being a parent, I really don’t know the kids intimately. Let them do their thing and ask you for advice if they want it — but like others have said, don’t let one visit define your whole view. Maybe your brother/sister-in-law has other bigger issues in their life right now that they haven’t told you about (work, health, marriage, money) and the fact that the kids blow their allowance on candy is the least of their worries. Maybe it took them a year of work to get the kids to even accept the allowance, or have the parents stick with it — you don’t know the intimate details of the family life.

    I’m not trying to echo any of the “candle in the wind” stuff from yesterday — but I will say that actually being a parent (and I mean biological, adoptive, foster, found the baby in the woods or animated a wooden puppet) is a WHOLE different experience than babysitting or being an aunt/uncle — and no book ever written will work exactly for every family — and getting parenting advice about one very specific thing from someone who hasn’t lived is equal parts funny, rude and misguided.

  19. John says:

    I give bonds to my grand kids for special ocasions, as my grandmother did my kids was excited about it. I thnink if you show a child the way by example is better.

  20. Matt Kelly says:

    My son is now 8 and we have had this system in place since he was about 4. He has 3 envelopes: Give, Save and Spend. He works on commission; if we works he gets paid and if he doesn’t work he doesn’t get paid.

    The work has evolved so that the jobs are age appropriate. On average he earns about $5 per week. Our rule is that one dollar must go in each envelope and then the remaining money can be divided as he chooses.

    This system has been amazing. He has learned the value of money, what it feels like to be ripped off by slick marketing and what it feels like to give generously.

    I highly recommend it.

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