One Sunday, I was teaching a class to a group of 9 – 10 year olds. We were talking about the roles that need to be played by various family members to help the family life run smoothly. I happened to mention something needing to pay the bills so that the lights and the phone stay on. Multiple kids were shocked to realize that this is something their parents do. They were not even aware of utility bills.

It made me think of the changes in financial awareness over the generations. When I was a kid, actual paychecks came to the house, and I went with my parents to the bank to deposit them, and then I saw my parents at home at the kitchen table writing checks for the bills, and mailing them, or if they didn’t get it in the mail on time, then we would go to the utility company’s office to drop off the payment. When we went to the store, my parents sometimes paid by check, but more often we paid in cash. You could see how much things cost by how many bills got counted out and handed over. Mom often had a handful of coupons with her at the store, that I had helped her clip. Money was a physical object and our financial life had a visible presence in our house.

That’s very different from my five year old’s experience. Our paychecks are automatically deposited, many of our bills are auto-paid while we sleep. When we do financial record-keeping, our child just sees us sitting at the computer – for all he knows, we’re working, or sending emails to family members, or playing pinball – all things he knows we do on the computer. We go to the store rarely, as we order groceries online and have them delivered, and also order many of our consumer goods online and as far as he knows, they just magically appear at the house. When we do go to the store, I just pull out a card and there’s no clear indication to him whether I’m paying a lot or a little for what we buy (or where the money to buy something came from or how much money we have access to). He’s never seen me use a paper coupon or drive across town for a sale. (I feel like many people buy more stuff than they need just because “it was on sale.” I just try to buy less stuff… or I buy used.)

So, I’ve realized that just as parents need to think about literacy in terms of reading, and math literacy, and emotional literacy, it’s also worth thinking about financial literacy. It’s hugely important for their long-term success and stability, and could be considered part of their “college prep”:

While obtaining a college degree is associated with higher earnings, studies also show that people who earn more also tend to spend more. And if those college-educated high earners spend beyond their means, they’ll end up suffering the same [financial] problems as those who never graduated from high school. (source)

So, how do we build financial literacy? What are the money-world equivalents of teaching the ABC’s, then teaching how to read a Dr. Seuss and then on up to literary critique in high school? This post is full of ideas of where to start teaching your child about money, and what to teach them. I will often share my personal decisions about how to handle this, but that’s not because I think it’s the one right way – it’s just so you have an example of how one family has made these decisions. You should do what is right for your family! I’ll also offer tips from other sources.

Physical Manipulables: When we’re building pre-literacy skills with children, we give them alphabet puzzles and magnetic letters to stick on the fridge. To build money literacy, it helps if they can handle actual physical money. As soon as they’re past the mouthing stage, they can be given coins to play with, to practice counting, and to use in pretend play. Once they’ve mastered simple counting of pennies, you can teach that ten pennies is the same thing as a dime. Equivalency is both a great money skill and a great math skill. Later in pretend play, you could charge a specific amount and have them make change.

Let them help you count real money for real purchases: When I go to McDonald’s, I know a drink will cost $1.10, so even before I go to the counter, I can have my child help me count out this much money. At the farmer’s market, I can see that the berries will cost $3, so he can help me count that out. At soccer, when we buy a bracelet to go in the bouncy houses (which we do often, so the staff knows us), I give my five year old cash, and he goes to the counter to buy it. Before he goes, I ask him if he will need to wait for change or not, based on what money I’ve given him.

You can also take your child grocery shopping, and encourage them to do price comparisons – “how much is this one per serving vs. this one? This is on sale… but, that doesn’t mean we should buy it. Let’s stick to our list and not do impulse purchases – sometimes those “sale items” end up being more expensive than what we would have otherwise bought.”

My middle child had done this with me so much through the years that she started doing most of our grocery store runs as her family chore when she was 16 and could drive. She preferred that to cleaning the house.

Earning Money: Having their own money is an essential step for kids to start learning about money and about how to manage it. Some parents choose not to give an allowance, and only pay a child for work done. Here’s an example:

3 – 6 year old: Once a week is paid chore day. … A parent has a pile of money that they offer to pay for simple chores. For example, each washcloth folded is 1 cent, taking out the trash is 5 cents, sweeping the floor is a dime. The child is paid immediately for the job and then offered another job. Early Elementary: Each day as the child arrives home from school, they find an envelope with a quarter in it on the refrigerator. On the outside of the envelope there is a list of chores they must complete before 5pm in order to receive the quarter. If the chores are not done by 5pm, they must still do the chores; however, they will not receive the 25 cent bonus. (Source)

As they get older, they can take on odd jobs outside the house. (Check out Ways for Kids to Make Money for a collection of ideas.) When they reach legal working age, you can decide whether you require that they get a job, and if so, do you require that they share a portion of that income with the family. For some families this is a financial necessity. For others, it may be more of a lifestyle choice.

Allowance: Many families choose to give a weekly allowance, if their family finances allow for that.

How much? Some people say $1 per year old. Some may do 25 cents per year old. How much is appropriate for your family depends on your finances, but also on how your child will use it – what you buy for them, versus what they buy for themselves.

What do they use allowance for? For child #3, we started allowance last November when he turned 5 and was starting to understand math and money. He gets $1.25 per week. He has to save 50 cents, put 25 cents in the give-away jar (see below for more on these ideas) and can spend 50 cents. Which pretty much means he buys candy at gymnastics, and a super ball at soccer. Each time, before he puts the money in the slot, I ask him to pause… I say “you have two quarters this week, and you’re spending one of them now. Is that what you really want to do or do you want to save it for something else?” He always chooses to do it, but I want to teach that idea of Pause-To-Be-Sure before you spend the money. His spend money at this age is pretty much about whatever he WANTS – we take care of buying the things that meet his NEEDS.

When our older kids were in high school, we gave them $1 per year old, plus a clothing budget for back to school shopping in the fall, plus a Christmas gift budget. That was all they got from us. We didn’t hand them money to go out to a movie, we didn’t give them money to buy a birthday present for a friend, or to buy makeup, and we give them really minimal birthday and Christmas gifts, so that money was really their sole asset. The clothing budget was enough to buy plenty of clothes if they shopped at consignment stores. If they bought new, it wouldn’t go far. And yes, one time my child chose to spend her whole back to school budget on one high-priced item. (See discussion below on letting them live with the consequences of their actions!)

What is allowance for – how do you earn it? Some people make allowance the child’s salary for doing chores, and if they don’t do the chores, they don’t get the money. The advantage to that is it is closer to what they’ll experience in future paying jobs.

Personally, I don’t like it because it implies that household chores are optional. My oldest child who doesn’t care much about money and doesn’t like doing housework would have happily opted out of this system.

In our family, we have a mutual commitment to the work that needs to be done to keep the family functioning well (laundry, groceries, cleaning, and so on.) We all need to do our part in the work.

In exchange for meeting our responsibilities, we also all get benefits – things like a roof over our heads, food, electricity, and yes, allowance for the kids. If you don’t meet your responsibilities, you can lose a privilege of the household (in our house, that’s often screen time, since we don’t mind if they don’t have it, and they do!)

Cash Rewards? Cash for Extra Chores?

It’s good to make a conscious decision about whether there are other ways for your child to earn money. Many parents give cash for good grades. We do not. Just as my job is to go to work and do a good job, their job is to go to school and get good grades. (And again, the rewards we get for meeting our responsibilities are things like housing, food, electricity and spending money…. ) Sometimes, we do go out to eat or go to a movie to celebrate when someone’s done an especially good job at work or school. But it’s not a guaranteed cash payout.

We do pay for extra work outside of normal chores. That might be extra household chores like scraping moss off the driveway, or hemming the new curtains, or re-organizing the garage. Or, it might be doing things for my workplace. I work at non-profits, and I’ve “hired” my kids over the years to help out with some tasks that my employer can’t afford to pay a grown-up to do. So, from my agency’s point of view, my kids are volunteers, but I pay my kids extra to help. This has been everything from preparing bulk mailings to helping inventory class supplies to entering outcome evaluations data into spreadsheets. My middle child, who has always been motivated to earn money, was pretty much a fully trained admin assistant by the time she was 14. She taught my co-workers how to use the postage meter and other office equipment.

There’s a 13 year gap between my second child and my third, so many people joke that I have built-in babysitters. Here’s how we’ve handled that. In general, my husband and I are responsible for the little one. We are his parents, my older kids are not. But my older kids are expected to help out… if they’re in the kitchen and he asks for a glass of milk, they pour it. If he’s crying and I’m making dinner, they can choose to take over dinner prep or they can work with him, but they have to do one of those things. That’s just part of the jobs of the family, just like cleaning house is. If I need to run an errand, and they’re just hanging out at home, I leave him with them. But, if there’s a time when we need a babysitter where if we did not have these older children we would have to hire outside help, then we pay them for that time. So, when I worked on Tuesday nights all through one child’s senior year of high school, she watched her brother, and I paid her for that.

Save, Spend, Give – How to Divvy up the Pool of Money

When I was a kid, most kids got allowance as pure spending money – we could waste it on whatever we wanted. Many experts now recommend a different approach, that involves an essential idea of money management – saving some money for the future. And many add in a component of charitable giving.

The Moonjar financial literacy program (summarized here) recommends dividing money up into three containers: Spend, Save, and Share. TheMint.org recommends 4 jars:

A spending bank for money to be used soon on everyday things.
A saving bank for money to be used later on larger items.
An investing bank for money that will be used several years from now.
A giving bank for gifts to help others.

The Share Jar or “Giving Bank” can be only for charitable giving; or some families also use this for gifts for family and friends. Having a Share Jar is one way to talk about your family values with your child – is it important to give to people who have less than you do? Or important to give to causes that are important to you? Talk about it.

This article by Sahara Pirie offers a variation of four jars. Her child was required to put 10% of her allowance into each jar, and then divide the other 60% up as she saw fit.

• Play (spending money for now)
• Buy Later (a short-term savings which “which teaches the discipline, and deferred gratification, of saving funds to purchase something special”)
• Give (charity – “Contributing to a larger good is one of our family values”), and
• Financial Freedom (“We explained that the money would “never come out,” but would grow for when she wanted to retire. We later helped her transfer the money from the jar into a savings account, and later she will get to move the funds, if she wishes, into her own investments.”) Note: I personally find this definition of the financial freedom jar far too abstract for a young child… If I were to do it, I would wait to add that jar till my child was in high school, and I would tell them that was their rainy day fund for when they enter adult life after college.

We used the three jar concept with our older kids….. kind of. But, we were not as successful as we could have been with it. Most weeks when allowance day rolled around, we didn’t have cash, so we kind of scribbled down notes about where money would go or sort of kept track in our heads… really, we didn’t keep good track. So our kids didn’t really learn the lessons well. It would work much better to actually have real physical cash in hand. Especially for younger kids (say under age 8) who really need concrete objects to help them understand abstract ideas. We just need to go to the bank and get the cash stash we need to make this happen.

This points out a key thing to remember about allowance: whatever system you set up, make sure it’s easy for you to maintain. Consistency is important!

Tracking spending money

Encourage  your child to keep a money diary where they track what they spend their spending money on so they can decide in retrospect if those choices have made them happy. (I know plenty of adults who had a Starbucks habit or other habit that was “just a couple bucks here and there” then they then added up how much they spent in a month on that, and decided there were other things they’d rather do with that money.)

Saving toward a goal

We were not good with our older kids about setting goals for the savings jar. What tended to happen was they would build up a sum in there for a while, and then spontaneously decide to buy something pricey and use up all the money they saved. It would be much better to set a goal for something that’s important to them, develop a savings plan, track progress, and so on. This allows you to teach financial skills like budgeting, but also allows for more discussion about family values and priorities.

Recently, I had a discussion with my siblings (all in their 50’s) and we each remembered a story from our teens about we had worked very hard for and saved a long time to buy – a guitar, a stereo, a used car, a week at camp… we remembered lots and lots of hours of hard work babysitting, snow shoveling, weed pulling. We remembered tracking our progress toward our goal (and standing outside the music store window and dreaming) and the sense of accomplishment when we achieved what seemed an unreachable goal.

Talking about Money

Do your kids know how much you make? (roughly)  Do they know how you make financial decisions? They should! You are the biggest role model they’ll ever have for how to manage money. Talk to them about it. Be open and honest. Talk about your struggles and your mistakes. Talk about the smart choices you have made.

Do your kids understand their relative privilege? If you have kids 10 or older, I think it’s important for them to understand where your family stands in the relative scheme of financial status – amongst their classmates and within the nation. Some children may need to learn that not everyone has access to the same options. Some children should also understand that they may not be able to have the lifestyle that they may see on TV but that what we see on TV is really not representative of most of our nation. We should also talk with them about our cultural attitudes toward money – for example, there’s a cultural message that if you just work hard enough you’ll be successful, but that narrative does not acknowledge all the inequities and systematic advantages some people (often white people) have over others (often BIPOC). There are also careers that are valued differently. No matter how hard I work in my field of social work, I will never be paid what my partner is paid for his work as a software developer. So, for older children, it is helpful not just to know your family’s financial status, but also the greater cultural forces that play into that.

Prioritizing: What else could I get for that much money? As your children start getting older, they can understand price tags – that item costs $15. They may have saved up $15 and thus be capable of buying it, but you may want them to pause for a moment and realize that money spent on one thing is opportunity lost for spending it on something else. One way of doing this is to compare it to other items – “if you’re going to spend $15, what else could you get for that much money? OK, then, of the options you can afford, which one would you most like to have? Or would you rather keep saving money so that you could buy one of these other items that costs $20?”

How much does that really cost us? It is helpful if your child can contextualize dollar amounts within your family’s lifestyle. $15 can mean a lot of money for some families, and not much for others. So, you could say “That item costs as much as Mama earns in an hour. So, that’s one hour of Mama being at work.”

Wants versus Needs: We had a lot of long talks with our kids about the difference between what we want and what we need. We generally took care of their Needs, but they were on their own for Wants. My daughter told me recently that she remembers when she was young having no idea what that meant, but growing in understanding of it over the years.

Right now, with two in college, the rule is we pay tuition, room, board and books. That’s it. No more money for anything. If they choose to go out for pizza or a movie or want clothes or whatever, that’s on their dime. We also require that they get summer jobs. (We told them we required part-time school year jobs, but somehow that hasn’t happened….) Our older one has had some mighty lean Aprils and Mays when all the year’s money is used up, and a paycheck won’t come till May. We also told them that if they did badly in school and lost their academic scholarships, they would be required to take out loans and cover all those costs themselves in the future. Or if they took more than four years to complete a degree, they would need to take loans for that extra time.

Mistakes – Do you bail them out or make them live with the consequences?

The only way that our kids really learn anything is to have full responsibility for it. And that includes responsibility for their mistakes.

USU recommends

Resist the temptation to come to their rescue. Let kids feel the effects of the buying decisions, good or bad. If you’ll reinforce that they don’t get any more money, they’ll hopefully spend more wisely in the future. You do, of course, have the right to veto certain purchases that are unhealthy, unsafe, or in violation of your family’s principles. Spell those out in the beginning when discussing what allowances can and cannot cover (source)

Ron Lieber, the author of The Opposite of Spoiled says

Stand back and watch them fail spectacularly. No bailouts. You should want them to feel their mistakes deeply and earn money to solve their problems if need be. Better now than at age 24, when errors lead to wrecked credit scores and worse. (Source)

So, remember the year that my middle child spent all her back to school money on one expensive dress? At the time, she rationalized it as “I have lots of older clothes that are fine. So I’ll be fine with nothing else new.” About a month into the school year, she was regretting having no new clothes. And as much as she loved the dress, it wasn’t really something she could wear often. So, she suffered through some regrets, and then ended up taking on lots of extra jobs at home and for my work in order to supplement her clothing supply – with lots of carefully chosen items from the consignment store.

Role Modelling

Remember your children are watching you! I learned from my parents a lot of thrifty habits (coupons, budgeting, reading the insurance bills to make sure everything got paid correctly, and so on.) But I also learned that careful planning led to having money left over in the year’s budget to allow for special family trips.

One of my friends learned that when the monthly paycheck came, life was great for the next week or so – lots of special treats, going out to eat, going to the movies and so on. But, for the last week of the month… scraping to get by, not having enough food in the house to make a lunch for school, and so on. As an adult, she’s had to figure out how not to slip into this trap.

What are you modelling for your child?

Reading Books to Your Child

The Money as you Grow Bookshelf incorporates children’s books into a financial literacy program. Reading and talking about books is one of the best ways for parents to teach children. Here’s a sampling of recommendations from their chart on recommended books, and what key money management concepts each book teaches.

Title	Age	Decision Making
Sheep  in a Shop	4 and up	Decision making and problem solving
Ox Cart Man	4 and up	Goal setting and allocating resources
The Purse	5 and up	Goal setting, saving and problem solving
A Chair for My Mother	6 and up	Recognizing resources, recognizing success
Something Good	7 and up	Prioritizing

For each of the 12 books they cover, the curriculum includes facilitator and parent guides. They’re designed to be used for a class, but I also think parents could easily use them as a resource for family discussions and activities. As a sample, for the book Sheep in a Shop, the guide suggests:

• First, read the book to yourself, and think about these ideas: the sheep have to choose a gift, there are many things to choose from, it’s hard to decide
• As you read to your child, talk about: Why was it hard for the sheep to make a decision? They didn’t have enough money – how did they solve this problem?
• Plan a swap meet with friends where kids can trade toys
• Help your child choose a gift for someone

Working through one of these books and lesson plans every few months, starting when your child starts kindergarten, would be a great way to ground them in some good financial decision-making skills.

Resources

• Money as You Grow Bookshelf. This is a fully fleshed out curriculum (even includes icebreakers and evaluation tools if you’re an educator who wants to use this in a group setting.) It is for teaching financial literacy to parents of children age 4 – 10, especially low income parents. It covers everything: one section is on developmental characteristics of each age, and what you should teach at this age.
• Why Is teaching children money matters so important from Utah State (USU) extension is a whole packet of tips. (Note to educators: this could be a source of handouts for your class – you wouldn’t have to use the whole packet, just the most helpful pages.)
• Hands On Banking from Wells Fargo – an interactive set of videos to explain basic concepts of finances and banking. I’m not sure what age group it’s designed for – my five year old found it engaging, but the activities were way over his head. (“If a scooter costs $45.99 and a shirt costs $12.99, how much would a scooter and two shirts cost – don’t forget to include the 10% sales tax.”)
• There are lots more good resources out there. Start your search at Jump $tart – this is a searchable database – search for materials by age group and cost (includes lots of free items that are downloadable, plus recommendations for books and more)

photo credit: HODL! via photopin (license)