Teaching Kids About Money Management – 4 Subtle Money Lessons My Parents Taught Me

Parents teach even when they are not aware.If you have children under the age of about 14, sitting them down to have an educational conversation about money management is about as useful as putting wet wood in the fireplace. If you have ever tried, you know that the most effective way to teach your children about money is to do so by example. You have to exercise restraint with purchases, explain how and why money works, why people work, how to use money as a tool, and about 500 other things to get even half of the information to stick.

Kids are much more aware than you probably think. They will scrutinize your every move, which is why it is best to teach these lessons in the most subtle manner. Children are curious by nature and will ask plenty of questions about why and how things are done. If you let this occur naturally, it will teach them far more than blatant, in your face lessons.

My parents were the epitome of this tact. I couldn’t begin to count how many important things my parents taught me about money without me even knowing it. They let life progress as normal and allowed me to ask and learn as I went along. I learned some things easily and quickly, others took years for me to realize on my own. Through practical application, my parents taught me nearly everything I know about money as a concept. Here are just a few of the invaluable lessons I learned in my more impressionable days.

1. Allowance

My parents started giving me an allowance when I was about six-years-old. It was $2 per week, as long as my chores were done. Even back in 1986, $2 did not go very far. I was usually content to spend my allowance on baseball cards for the first few years. I would get four packs, put them in order, and sell or trade the doubles. At some point, after growing weary of my card collection, I got a raise to a whopping $5 per week. While this was a big difference compared to my previous allowance, it still was not much in the grand scheme of things. That said, this was my first hands-on lesson in handling money.

What This Taught Me
We all feel as if we are underpaid. My paltry allowance allowed me to manage a small amount of money that I wanted to use on far more than I could afford. It taught me (on a much smaller scale than today) how to budget for what I wanted. It may have aggravated me to no end back then, but hindsight has shown me how valuable the lesson has been in the long run.

2. Saving

When I was very young, I was bitten by a dog that belonged to our neighbor. My face was a bit torn up, but I was okay. We received a settlement from the neighbor’s homeowner’s insurance, which my parents decided to stash away until I was 18. My dad put the money into a CD and renewed it year after year. A few of those times when he went to renew it, I went with him. I would pester him to give me the money right then, but he assured me that it would be mine when I became an adult (and it did).

What This Taught Me
My parents always stressed the importance of saving money, whether for a rainy day or for future security. This was just one example of the many lessons my parents taught me about saving, but it is the one that stays with me above all others. Because the CD was rolled over for almost 13 years, the interest earned was significant. I do not recall the exact number, but it was in the thousands of dollars. I could not believe that money just sitting in the bank could grow so much. But as dad explained to me back then, the banks needed that money to lend to other people. My money in the bank actually helped the bank make money, so they paid me for letting them “borrow” my money. We all know that it’s a bit more complicated than that, but to a kid, it was the perfect explanation.

3. Birthday and Holiday Gifts

I’m not sure that anyone in my family is an early adopter of electronics. Sure, my brother and I both pay attention to new gadgets and keep up with technology, but neither of us is the first in line when a new product is released. My parents have always been the same way.

For example, when I was 5, all of my friends got a Nintendo for Christmas. I did not. At the time, I was probably pretty sore about it, but got over it. I received my precious Nintendo the next year, but the lesson of patience was probably worth far more than that machine.

What This Taught Me
To start, when products are brand new, they are more expensive. They also tend to have more problems. Later versions usually have the kinks worked out. Waiting not only saves money, but it also may save some headaches as well.

As said, it was rare that I would get a brand new electronic item at any time during my childhood. Am I any worse off because I did not have these things right away? Absolutely not. In fact, I would argue the opposite. You really can’t always have what you want, when you want it. The sooner a child realizes this, the better off he or she may be.

4. Investing

Ever since I can remember, my dad has been an investor. I can remember countless conversations he had with his friends about a certain stock or fund. While I do not recall the specifics of these conversations, I do know that he always stressed the importance of investing for the future. It was never his intention to make a quick buck. Every dollar he invested was intended to bring in a return over years, not days, weeks, or months.

What This Taught Me
Investing, both in retirement accounts and the stock market, is an important tool for future financial security. Investing is not a get-rich-quick scheme; it is something to be considered carefully. Every time I invest in anything, I work on a time line of years or decades and make sure that my goals and expectations are in line with my investments. I keep tabs on my investments and the companies with whom I have invested in order to avoid potential losses.

Final Word

My parents were instrumental in teaching me about money and how to apply what I learned to real life situations. Without that practical step, the knowledge would have been useless. Sure, I still learn a lot as an adult, (sometimes the hard way) but without the foundation I gained at a young age, I would have had a lot more challenges to face.

What are some of the lessons your parents taught you? How do you teach your kids?

  • Mindy Wright

    Only thing I would encourage parents to do differently is to give kids “Commissions” instead of “Allowances.” We do not earn an “allowance” when we work as adults. We are all on commission! We do the work, we get paid. We don’t do the work – we get fired and don’t receive pay (our commissions.) That is what we have done with our kids – if they do their work or chores, then they get paid – if they don’t, we don’t make an “allowance” for them. :)

    • http://www.moneycrashers.com mattbreed

      I know that if everything I was supposed to do was not done, I did not see a DIME!

  • http://change-is-possible.net Heather

    Good article, but I especially love the second paragraph! We rarely give kids enough credit for what they see, hear, absorb, and understand.

  • http://www.compoundingreturns.blogspot.com Pat S.

    I heard an interesting suggestion recently. When your kids give you a list for the holidays, look at the companies that manufacture the gifts, and consider buying a share of stock in addition to the toy itself. A great way to get kids interested in finance and have them associate their toys with the great companies that manufacture them.

    • http://www.moneycrashers.com mattbreed

      Very interesting…..

      I’m not so sure I’d be up for investing in every company. But I could definitely jump on board for this one.

  • Shan

    Good, down-to-earth article. Allowance is great idea, it is the only way kids learn to make their own mistakes, and learn from their mistakes. But I particularly like number 3. Waiting for an year for those electronic gadgets may seem tough, but it is definitely a lesson in patience, as you say, as well as provides a practical benefit of having an upgraded version next year.

    • http://www.moneycrashers.com mattbreed

      Absolutely. I’m just glad that I have inherited that practice. There’s no telling how much money I have saved in electronics by not being an “early adopter”…But sometimes it is hard!

  • http://www.facebook.com/profile.php?id=1096789414 Kristen Nicholson

    Great article! I would add one thing that we actively try to teach our children, and that is the power of giving. I think children are naturally compassionate, and I try to show them how giving of time as well as money benefits both parties. I think is working, because both of my kids give out of their commissions on their own, and like to choose different places based on their own interests.