Teach Your Child About Money

This booklet will help you teach your children how to manage money, an extremely important life skill that is not currently being taught in school. Think about what a gift you are giving your children when you teach them about money. By teaching them about money, you are giving them tools that will help them succeed in their careers and their relationships. They will have a better life tomorrow because of what you teach them today.

Did you know that a recent Gallup poll says that over 1.6 million people filed bankruptcy last year? Home foreclosures are near record levels and credit card debt is climbing. Disagreements over money are the number one cause of divorce in this country. Many college graduates cannot balance a checkbook or do their own taxes. Still, there is little if any financial literacy education in our schools. By reading this booklet you have given your child a great gift. Not only will financial literacy improve their standard of living, it will help them with their relationships, their careers, and their role in society. A parent who teaches a child about money also teaches that child about responsibility, values, patience and charity.

Many times in families, money talk is taboo, shrouded in secrecy. This is a mistake. How can children learn about money if it is never talked about? If it is not talked about, children will learn about money from Madison Avenue and celebrities, and what they learn will be incorrect and cause them much pain. Did you know that some students believe they are more likely to become rich by being on a reality TV show than by financial planning? Families should talk about their values and attitudes about money. This helps children understand that disagreements about money do arise and solutions can be found. Of course, you don’t necessarily want the whole neighborhood to know your family’s financial situation so just tell your child that how much you earn and spend is private information for your family only. Then proceed to talk about money within your family, often and openly.

Money is necessary for life. Money cannot buy happiness but generally, quality of life is improved with money. Children’s attitudes about money are shaped by their parent’s attitudes about money. You don’t want your children to be a slave to money; you want them to be smart about money. Instead of telling your children “We can’t afford that” or “I don’t have money for that” try saying, “We choose to spend our money on other things” or “We our saving our money for _________”. Don’t convey an attitude of deprivation or lack of control; you are in charge of your money. It is important to communicate that to your children. Talk about goals, talk about value, and talk about sales, pricing, and advertising. There are countless opportunities in everyday life to educate your children about money. Later, I am going to provide you with specific lessons about money, broken down by age group. But remember, children learn best by example. If you manage your money well, save and can differentiate between wants and needs so will they.

We live in a microwave society. We want what we want and we want it now. Delayed gratification has become almost obsolete. Trading the important for the immediate can have a hefty price tag; just ask the college student who can’t pay the rent because he spent too much on pizza. It’s important to teach our children how to set goals and budget their time and money. It is also important to let children make mistakes. They will make poor decisions with their money. You want them to make those mistakes now, when the stakes are low and the lessons don’t cost as much as they would when they are adults. Talk about the pros and cons of their financial decisions without criticizing. It’s difficult for a child to put off the wants of now for greater rewards tomorrow. It’s difficult for adults too, but especially hard for children who may not even be able to envision the future. Start small by helping children set a goal not too far out of reach.

The next section will provide you with specific money lessons to teach your children, broken down my age. The ages are only guidelines. Follow your child’s lead.

Preschool and Kindergarten

Exercise I “Show and Tell”

Children should be introduced to money as soon as they learn to count. You will introduce money to the child and explain what it is.

• Gather coins and bills. You need one penny, one nickel, one dime, one quarter, one dollar bill, one five dollar bill, and one ten dollar bill. If you want to show higher denominations as well, you may.

• Simply show each coin and bill and tell what each one is.

• Point out the physical characteristics of each coin. The penny is usually the first coin that young children recognize because its bronze color is different from the rest of the coins.

• Provide some “play money” for dramatic play.

Exercise II “Why is money important?”

• Ask the child what can you do with money? The child may say, “Buy toys” or “I don’t know”. Give some examples of things you can buy with money.

• Ask the child, “If you spend money for something and then change your mind, can you get your money back and buy something else?” Explain how you can sometimes return an unopened or defective item, but you cannot return something you have already used. Generally, once money is gone, it’s gone. That’s why it’s important to be sure about purchases.

• Children learn the concept of “one hundred” in kindergarten. Usually there is a celebration of the one-hundredth day of school and many times they are asked to bring in 100 of something to show their class. Ask your child what he or she would buy with $100. Let them name whatever they wish, don’t correct them at this time if they name something that cost more than $100. For now just introduce the possibilities of money.

• Ask your child “Is it important to keep money safe?” Explain that money is valuable and if it’s lost you cannot buy anything with it. Also tell them if you find money, you want to return it to its owner if at all possible.

Exercise III “Money Recognition”

• Gather your spare change. Children need lots of practice differentiating between pennies, nickels, dimes and quarters.

• Help your child sort the change into four different banks, cups or jars. One for pennies, one for nickels, one for dimes and one for quarters. Also have the child practice counting the number of coins.

• Ask your child which coin is the biggest? The quarter. Which is the smallest? The dime. (We are talking about size right now, not worth. Children need to recognize the coins before they can understand the monetary value attached to them.)

First and Second Grade

Understanding monetary values is a challenge for children. If you show a child one hundred pennies and eight quarters and ask him or her which one he or she would rather have, they will choose the pennies because it looks like more.

Exercise I “How much is it worth?”

• Explain each coin value in terms of how many cents each coin is worth. Practice with your child until he or she can tell you how many cents each coin is worth.

Exercise II “Play Store”

• Play “store” with your child. Gather some small household items (pencils, books, small toys etc.) and put price tags on them. Take turns with your child being the cashier and help your child make change. You can use monopoly money, play money, or real money.

Third Through Fifth Grade

• There are many excellent children’s books about money. Check your local library and read them with your child.

Exercise I “The Monthly Bills”

• Using monopoly or other play money, show your child how much money it takes to run your household. Give the child your monthly income in monopoly money. Then have him “pay the monthly bills” out of it. Show him or her the amount that goes to rent, food, electricity, water, gas, cable, phone etc. Getting a visual picture of how much money it takes to run a household is very helpful to children. This will help him or her understand limits.

Exercise II “Needs vs. Wants”

• Discuss needs and wants with your children. Have them name some of their own needs and wants. Discuss needs and wants of the family. People run into financial difficulty when they confuse needs and wants. Emphasize the importance of taking care of needs before taking care of wants.

Middle School

Exercise I “Writing the Checks”

• Have your child write the checks for the household bills and give them to you to sign. Explain how to fill out the check and how to record it in the check registry. Of course, close supervision will be necessary at first. This will help take the mystery out of the process and encourage financial maturity.

Exercise II “Compound Interest”

• Compound interest is a difficult concept to grasp. Basically, compound interest means that the interest earned will include interest calculated on the interest. Compound interest is an important tool for accumulating wealth. For example, if you invest $5000 for two years and the interest rate is 10% compounded yearly, at the end of the first year the interest would by $500. The second year, interest would be made not only on the $5000 but also on the $500 of interest earned the first year, so the interest would by $550. This is why it is so important to save from an early age. Time really is money!

High School

Exercise I “Balancing a Checkbook”

• Balancing a checkbook is an important live skill. Many young people have no idea how to balance a checkbook. You may want to give your responsible student his or her own checking account, explaining that they will be responsible for any overdraft or atm charges. Help your child select a bank that does not have a lot of hidden fees and go over the fine print with your child.

• Steps for balancing:

First, make a checkmark in your checkbook register next to each check that has cleared on your statement. Also mark all ATM transactions and deposits cleared on your statement.

Second, record in your check register any transactions that were listed on the statement that you do not have recorded in your register. Bank fees for example, or possibly ATM or debit transactions that you forgot to record.

Third, balance the account using the reconciliation form on the back of your bank statement or a blank sheet of paper.

• Write the ending balance shown on your bank statement.
• Add the total amount of outstanding deposits. These would be deposits made after the closing (ending) date of the bank statement.
• Subtract the total amount of outstanding checks. These would be checks that you have written that were not shown as clearing the bank on the statement.
• The ending amount should equal the amount listed in your check register. If it doesn’t check each of the transactions to see if the amount recorded in the check register matches the amount recorded on the bank statement. Also check your math and make necessary corrections.

Emphasize the importance of recording all transactions (including ATM transactions) in the check register, to make balancing an easier task.

Exercise II “Credit Cards”

• Improper use of credit cards is one of the leading causes of bankruptcy and financial difficulty in this country. The wise way to use a credit card is to only use it for purchases that can be paid in full each month, before interest charges are incurred, or for true financial emergencies that savings cannot cover.
• In order to use credit responsibly, it is very important that teens understand interest. Explain that whatever balance is not paid at the end of the month is charged a high interest rate. Also, talk about those minimum payments. Help them to realize that a $1000 credit card balance can take up to 12 years to pay off if they only pay the minimum payments. Their final cost? $1979.
• Explain that a poor credit rating could keep them from buying a house or a car in the future. In order to establish good credit they must pay their bills on time and not have too many credit cards. They will be bombarded with credit offers in college, make sure they are equipped with a knowledge of how credit cards work and the dangers of debt.

I hope these exercises have given you a practical way to teach your children about money. Remember, you are your child’s best teacher, and by educating him financially you are investing in his or her future.