Money matters can be a tricky topic to tackle with kids.
How do you teach someone who can’t legally work yet the value of a dollar?
How do you teach that money is a finite resource when you use only electronic payments, or even your phone to pay for goods and services?
How do you explain the concept of a checking account when you don’t carry a checkbook?
Every parent has that moment when their child counters a “no, we can’t buy that” with a “just get more money at the bank” argument.
While five-year-olds cannot be faulted for this logic, it’s important for them to learn what’s behind the money you’re spending.
Here are five ways to help teach your kids what money means – and how to spend smartly:
Just start the conversation
Like anything else, talking about money in context is how kids learn. Long before they know what most words mean, they use them.
It’s why my two-year-old tried to reason with me every time I said no at the store, and later on he declared things, “a waste of money.”
He was trying out those phrases, seeing what fit where.
Now that he’s older, he asks about the budget for something before we start looking, because he knows there is one.
Let them watch you pay for things
My kids have never seen me use a checkbook register or pay for gas with cash.
But they have seen me enter purchases in the budgeting software we use and pay bills online.
I’ve talked them through how my bank card is attached to apps on my phone, and they know that our paychecks are directly deposited into our bank account.
I’m sure the tools they use to manage their money will evolve, but the concept of deposits and expenditures will remain constant.
Make some rules about lasting purchases
And then stick with them, and explain them as you go.
A couple of years ago, I figured out buying a better backpack means that they can last for more than a school year.
Now, when they pick them out, they know that the packs are lasting at a minimum, two school years, even if their favorite color changes or there’s a new latest and greatest style.
They’re growing too fast for me to make such pledges about clothing, but you get the idea.
Certain things need to last, and things aren’t replaced until they are no longer functional.
Each mood change potentially costs money, and that can become wasteful.
Talk about bigger expenses
Shortly after we moved into our new home, a straight-line wind caused some major damage during a storm.
The kids got to see the homeowners insurance claim process first hand and learn how deductibles work.
Now every time there’s a tornado watch, they guesstimate the value of our house.
Car insurance, life insurance, health insurance and retirement funds all fall into this “bigger things” category.
Give them some control
We’ve never been able to stick to an allowance structure (if you can, more power to you), but we’ve been successful having the kids work toward short term goals.
For this year’s family trip, we had them earn their spending money.
We tracked what they earned by doing things around the house. Then, on vacation, they each had an envelope of cash to spend how they chose on souvenirs and snacks.
Interesting observation: they were far less interested in ice cream when they were paying for it themselves.
This summer their day camp also had a canteen with snacks.
I set a limit to what they could earn at home, and then spend at the canteen. Some weeks their money was gone on Tuesday, other weeks they made it last.
Understanding how to earn, spend, and save money is not a small task, but it’s an important one. Starting young and building skill upon skill will create a financial education your kids can take to the bank.