I had a very rude money awakening when my daughter was six. I had run out of cash while shopping and my daughter suggested that I get some more from the bank or use my credit card. This stunned me. To her, the bank was a cool place filled with rows of pink piggy banks labeled with people’s names. I explained that sometimes there isn’t enough money at the bank for Mommy. Sometimes, we need to wait for things we want. She quite huffily told me the bank had lots of money. I asked if the bank just gives people money out of the goodness of their hearts? Of course, was her reply. I then asked her if she realized we have to pay back what we charge on a credit card. All I got in return was a blank stare. I knew the time had come for a serious money talk.

Household Finances

Kids have no idea how much or what Mom and Dad spend money on each day. Most of them don’t even really understand why parents work. At an early age, tell them. When toddler’s ask why Dad goes to work, explain that it’s to buy food. Simple enough to understand. As kids get older, it’s time to tell them the works. Not the nitty-gritty, exact bill amounts, but enough for them to understand the cost of running a household. For example, I explained to my daughter that the water, electricity, gas heat/water, cable and phone were monthly expenditures. I told her simply, if we don’t pay these bills, the utilities get cut off. It’s truly amazing how the little light bulb clicked on in her head. My daughter stopped unnecessarily running water and started turning off lights. Being included in the running of our household seemed to add to her own feelings of importance and rightfully so.

Next, we tackled the mortgage. Again, the specific numbers aren’t important but the theory behind a mortgage needs a good explanation. I told my daughter no one gets to live in a house for free. Very few people have enough money to purchase a house without some help from a bank. I explained that we borrow money from a bank for a fee and pay this back every month over a very long period of time. The cogs in her head were churning at this point. While confusing, she developed a new appreciation for her home. And I guess she really started realizing that life’s conveniences don’t just drop right out of the sky.

In my opinion, household expenditures include everything involved in making the house livable in a month’s time. This includes groceries. My daughter had always gleefully chucked anything that caught her eye right into the grocery cart. Lucky for me, she rarely caught me replacing things as we moved through the aisles. Our weekly grocery visits provided the perfect opportunity to explain budgets to her. I asked her if she thought we’d have enough money left over to pay the mortgage and bills if we bought every single thing we wanted at the grocery. I got a kick out of her crestfallen face. My daughter was beginning to understand that Mom sets aside a certain amount each week for the grocery and breaking this budget isn’t a good idea. Viola! I had finally gotten her to understand there wasn’t a tree in the back yard growing 20-dollar bills.

Allowance

I’m a firm believer in starting children with chores at a very young age and rewarding them accordingly. Kids need to know their help is welcome and appreciated. They also need to know they are an integral part of a family unit. A reward system involving a special candy or cookie is fine for a toddler who picked up their toys. However, older kids should get some cold, hard cash. And a list of regular chores. I know my children will not be staring at the washer, dryer and dishwasher in confusion when they are 18 years old.

There’s two lessons being taught with allowance. The first involves being part of a family. Everyone must pitch in; it’s that simple. By choosing chores that are equal to your child’s capabilities, you are letting them know how much you truly value their contribution to the running of the household. The second lesson is one of commitment and responsibility. If your child shirks chores, you pick up the slack, and they get their allowance anyway, what does this teach them? That Mom’s a pushover. Not a good idea for peace and serenity at home. It makes much more sense to train kids to do those chores for a good reward. It’s teaches them to move from being self-centric little critters to seeing their importance in the family. The bonus for parents is having an extra set of hands working towards the same goal.

Piggy Banks and Savings

I must admit, I’m a stasher of money. I have various cookie jars and coffee cans to collect errant bills and change. I’m constantly sweeping change off my husband’s bureau. I’ve told my family that any money they leave in their pockets becomes mine when it hits the laundry. Fair enough. I’m trying to get my kids to use the piggy banks all of them received as baby gifts. And now they do. Stashing coins and small bills in their banks teaches them not only to keep track of their money but to save too. Once they’ve amassed a good amount, we visit the bank.

Most banks have special programs for children’s savings accounts. Set one up and let your child participate. Help them learn to count their money, roll coins if necessary, and write out deposit slips. Even let them add their signatures. Praise your kids after they make their deposits. All kids love playing grown up and it’s really grown up and cool to have a bank account. Show them the monthly bank statements; explain interest accruals, and that they should keep adding to the savings. I can still plainly see the pride on my daughter’s face when she realized she was the proud owner of her very own bank account.

Spending their Own Money

Your children might be tempted to spend that allowance they earn each month on junk food, cheap toys, or games. This should be moderated by Mom and Dad. I know I can’t be the only parent who’s bombarded with “I gotta have that” when we visit the mall. One time, I decided to let my daughter try spending her own money. Imagine her shock and horror when her $10 only bought two items at Claire’s? It was pretty funny but a great lesson for her. She was proud of her extremely, well-thought-out purchases (the mental debate took forever). And humbled as she finally realized just how much a simple item can cost. Lucky me, I don’t get the constant demands when we are shopping anymore. Try having your kids bank their allowance every other month. This bimonthly allowance spending should alleviate any shopping urges they might have. Of course, they may forget shopping and just bank all their cash.

CDs, Bonds, and Stocks

Almost every kid receives bonds, stocks and CDs as gifts at one point in their lives. They really have no clue what these gifts are nor how important they are for their future. My daughter loves getting those little envelopes at holidays, thinking they’ll be filled with gift cards or cash. The poor thing got quite flustered a few years ago when out popped a U.S. Savings Bond. She knew it was money of some sort cause it looked kind of like money. I explained that it’s money for the future; for college or a car. I then explained about the face value versus the real value of bonds. I also explained that her college funds are the same. We’ve put money away that will grow over time because it’s invested carefully. I took her with me to stash her bond away in a safe place. Occasionally, she asks to take a peek at her bonds.

Children need to learn the lesson of saving money. Our children are bombarded daily by our fast-paced, material world. Learning to save and appreciating money is a step towards teaching them self control but also pride in their own budding ability to plan for the future.