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Talking to Kids About Money

April 4, 2014

So our kiddos is turning 3 in a couple weeks (EEK!) and the hubby and I are starting to think about how we teach him about money. It is super important to both of us that our children have a solid foundation in personal finance. Not only do we want them to understand the value of money, but we also want them to understand how to handle/manage it. We don’t want them to be obsessed by it or stressed out about the family finances, but we do want them to understand that there are trade-offs and that sometimes, difficult decisions need to be made about how resources are allocated.

The hubs and I have great ideas about how to get the kids involved and teach them some of these concepts when they’re a bit older. For example, in later elementary school, creating a budget for their extracurricular activities and having them see/decide how those get spent. Or in middle school, providing them with money to purchase their fall and spring wardrobes and letting them make the decision on what to buy (and not bailing them out when they blow the entire budget on the one designer outfit they just HAD to have). We also talked about getting them involved in planning and budgeting for vacations, so they understand the trade-offs that have to be made during the year so that we can afford to take those trips. We also  want them to also help us figure out a charity that we’d donate to as a family each year, and get involved volunteering as a family.

The trouble we’re having is figuring out what we do from now on until he gets to the late-elementary school age. At this point, the kiddo totally gets that you have to use money to buy things and he understands that money comes in the shape of coins as well as bills. However, he doesn’t fully grasp that a penny is different than a quarter or that $1 is different that $5. He definitely gets that we want to buy things on sale (he even told the hubs that he wanted to get a certain fruit, but that we could only get it if it was on sale), but I don’t think that he actually knows what that means. He has a piggy bank in which he deposits spare change he finds around the house or that the hubs and I give him. We have talked to him about banks, and talked about compound interest in a veryyyy simple way (i.e. when you save money in certain banks, your money grows without you doing anything) and he seems to get it. He knows that Mommy and Daddy have money in banks and I think that is why he is excited to put money in a bank too. It’s more imitation than anything else at this point, though.

However, with his third birthday right around the corner, we want to figure out ways to incorporate some early lessons on money into his life. We thought about having a list of chores and an “allowance” of sorts that he would get each week for doing those (e.g. making his bed, getting himself dressed, putting away his clothes, water the plants – all things that he does/can do now on a fairly regular basis). For the allowance, we would make 3 jars: spend, save, share (charity). I think that would help him get in the habit of allocating money, but it is a little simplistic and I don’t know that it does anything to develop his understanding of how money is used or trade-offs. I mean, what is a 3 year old going to spend money on? We weren’t thinking of giving him a whole lot – basically a quarter a day (so $1.75/week), but just enough to understand the concept and develop a habit of not “spending” all of his money at once. 

My question is: Is this enough? Is it even age appropriate? Should we wait longer to try and introduce the concept to him? What would you do and how would you approach this? We really want to make sure he has a good grasp of these concepts at an early age, but we also don’t want to overwhelm him/create a bad association with money/finances? What are your thoughts? Any advice or experiences you can share to help us out?

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