Financial Education

The Dos and Don'ts of teaching kids about money

By Karen Von Der Bruegge, Chief Marketing Officer for Pioneer Financial Services

Understanding the concept of money doesn't come naturally to a child, and many schools don't teach basic personal finance. So it's up to you, the parent, to find ways to teach your kids about money that are positive and effective.

While thousands of words have been written on the subject, there are some simple and easy-to-follow dos and don'ts to help children grasp the idea of money.

Dos

Give your child an allowance—The key to an allowance is to give your children the chance to make choices regarding money. Deciding how much and how often they receive an allowance will depend on their age and how much you are willing to spend. Also, remember that an allowance is a tool to teach children about money management, not about chores—those should be considered a family responsibility. If you choose to pay them for doing tasks outside of what is normally expected, then consider the task as a way to earn extra funds.
Educate your child on the different forms money can take—Look inside your wallet and you'll find a variety of options: coins, dollars, debit cards, credit cards and checks. Eventually, your children will ask about these, so be prepared to tell them how these forms of payment work.
Encourage teenagers to get part-time jobs—Earning money is the best way to teach its value, and it introduces kids to the "real world" of adulthood. They can also use the money to buy a car, pay for insurance, or even to save for college.
Stress savings—Most financial experts recommend that children set aside 10 percent of their allowance into savings. As a way to teach them about the way a retirement account works, tell them that you'll add money to whatever they put into savings the way companies "match" money put into a retirement account. This can encourage saving money, the savings will grow faster, and children learn how quickly a little money can add up. And once your children have accumulated enough, open a savings account to teach the concept of interest.
Remember to let your children learn on their own time—Concentrate on guiding your children's attitudes and knowledge about money, not pressuring them. The positive habits you instill now can stick with your children for the rest of their lives.

Don'ts

Don't wait to teach your children about money—Research shows that the sooner children learns how to budget and save, the more likely they will retain those habits well into adulthood. Knowing the value of something and how that will affect other purchases is a lesson some adults don't even understand.
Don't control the process in the hopes they will never make mistakes—There will be errors, bad purchases, and questionable choices, but that's part of the learning process. It's much better to get them out of the way now with a new bicycle, rather than later in life with a new house.
Don't just stick to the same allowance for years—As your children get older, their tastes in clothes and music, and a desire to hang out with friends, will all become more expensive. Have a "review" every year (perhaps on their birthdays so it's easy to remember) that allows them to negotiate a higher rate. Just make sure to keep any increase within your family budget.
Don't let them get a credit card before they are ready—Getting a pre-paid debit card can be a good way to teach kids that credit has limits, but without the interest and fees. If they show they can use one wisely, then, and only then, should they be able to get a credit card. Basically, handling a credit card is best left for those children who have shown they are responsible with their finances.
Don't tell your child you don't have the money for something they want—This can cause a negative—or even spiteful—attitude toward money. Instead, say that the item has to be added to the budget, and money may need to be saved to buy it. This introduces them how to stick to a budget and avoid the "gotta have it now" mentality.

Through all of these steps, remember one important thing: Have fun! Money can sometimes be a sore subject, especially when there doesn't seem to be enough of it to go around. But by interacting with your children and teaching them a positive, effective, and successful attitude toward money, you can create a fun and interesting environment that can prevent problems in the future. And as a bonus, you may also learn a little something yourself in the process.

About the author

Karen Von Der Bruegge proudly grew up as a military brat whose father served 32 years in the United States Army. She is currently Chief Marketing Officer for Pioneer Financial Services, Inc., a company that provides responsible financial services and education exclusively to the military community. She serves on the national board of USA Cares and the Kansas City chapter of Association of the United States Army.

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