Ten Principles for Teaching Children about Money

Here's a piece courtesy of Marotta Asset Management that offers ten principles for teaching children about money. Their thoughts:

As Americans try to spend less and go on a budget this provides an opportunity to teach the next generation financial principles they may never have seen in the prosperous years they have been alive. Here are ten principles for teaching children about money:

1. Talk about money. Every time money is involved, parents have a chance to teach their children the values and analysis behind their actions. Money should never be the primarily topic of discussion, but it is one of the most important topics through which we communicate our wisdom and values to our children. Every purchase, investment, or donation can be a time to teach your children something about your values.

2. Talk openly about money. Parent makes a mistake when they keep information from their children. The only way children learn what is a good deal and what is too expensive is by the experience of what their family earns and what items cost. Hiding this information robs children of the financial education they need.

3. Talk factually about money. Many parents have strong emotions about money based on their childhood experiences. These emotions are always transmitted to children. Instead of helping children, they can cripple children from growing to make sound financial decisions

4. Require chores; pay for optional work. Everyone in the family has to help complete the work that needs to be done. If you want to pay your children, only pay them for optional work they can choose to do or not to do.

5. Provide children an allowance they can make real choices with. Talk about money is important, but children need real-world lab experience to understand the consequences of their decisions. Consider giving them an allowance large enough so that they can purchase some of their own needs. Then continue to give them honest advice, and help them ask the right questions to make wise decisions based on their values.

6. Help children prioritize purchases. Ask them if this purchase is better than other purchases they are considering making.

7. Help children comparison shop. Help them consider issues such as cost, quality, and convenience.

8. Require children wait before making large purchases. Adults should wait at least a month whenever they are making a large purchase. Children shouldn't be expected to wait that long. Here is a good rule of thumb: Children should be required to wait as many days as they are old in years before being allowed to make a large purchase (over a week's allowance). There is always tomorrow and over half the time they won't remember what attracted them to it in the first place. Developing this habit will help make them resistant to impulse buying.

9. Don't use money as a punishment. Your priority should be helping to give your values to your children, not buy their outward behavior.

10. Don't loan your children money. If their desired purchase is something they should be saving for, let them save for it. If you want to buy it for them for the value of the experience, buy it for them. The principles are "If they want it, they have to save for it. If you want them to have it, you will buy it for them." Loaning your children money for items they want teaches them they aren't responsible and they don't have to prioritize.

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It's an interesting list, but I can't say that I agree with it all. Here are my thoughts on each of the suggestions:

1-3. These are really all the same tip to me. We talk to our kids about money regularly. After about the tenth time on an issue, they start to "get it." ;-)

4. We do this. Everyone does a certain amount of chores just because he/she is a member of the family. Extra chores gets extra money.

5. We have a somewhat small allowance ($5 per week), but the work requirements aren't that hard. For the "big money," the kids can take on special assignments (raking leaves, etc.). In addition, they get plenty of money for birthdays, Christmas, etc., so they always have the opportunity to make real choices with their money.

6. Easier said than done -- but we try!

7. See #6.

8. Our kids usually save up for a big purchase and that takes some time. As a result, the waiting time is automatically built in.

9. I disagree. Money can be used as both a punishment ("you broke your sister's toy and you need to buy her a new one") and a reward ("you did an extra special job on the lawn so I'm giving you a bonus.")

10. We only loan them money when we know they have it in their bank. For instance, they may want something at the store and decide to buy it with their own money. We pay for it at the store, then they reimburse us when we get home.

That said, I will someday loan my kids money and expect them to pay me back. I hope it serves as a lesson on what banks, credit card issuers, etc. will be like when the kids grow up and borrow from them.