Nurturing a Child’s Relationship with Money

Published at Mar 11, 2020, 12:00 AM in wealth management by Dr. Brad Klontz

My six year old son asks me a lot of questions about money. How much do we have? How much does that cost? Why can’t we buy this? It would seem he is a little obsessed. Maybe some of that comes with being a son of a Financial Advisor, but I think it is just a part of growing up and inserting values on what we see around us. Like it or not, money is integrated into a lot of our day-to-day decisions and even our relationships.

Amidst my child’s curiosity there are opportunities to instill good values. Opportunities to help form a healthy relationship with money. There are easy answers to his money questions. Answers like “it costs too much”, or “don’t worry about that”, or my parental favorite, “Because I said so.” Money is often treated as a taboo subject in our culture. If you avoid curiosity or ignore the questions, kids will get a confusing message. They may gain the impression that money is unimportant or that it is a hot topic. In this case they will be forced to come to their own conclusions based on media, overheard conversations, and their friends.

Better for you to take the time to mold. Sometimes you just need to find the reason behind the question to answer it. A genuine and empathetic “Why do you ask?” can work. Here’s an example:

Kid: “Are we rich?

Parent: “Why do you ask?

Kid: “Jimmy’s parents have a nicer car than us.”

Typical Parental response: “You shouldn’t worry about Jimmy’s parents”

Nurturing response: “We don’t know how much Jimmy’s parents make and what they choose to use their money to do. Our family chooses to save a good portion, give some to those who don’t have as much as us, and spend some to enjoy the things that are important to us such as vacations, where the family can be together. We try to balance all this out.”

Discussing money in this way can show what you value and help build your child’s character.

Allowance and Jar System

Money is such a big concept to a child that it helps to start with the basics. Ron Lieber, author of The Opposite of Spoiled, believes that by at least first grade kids should have an allowance. Kids should also have chores. Lieber believes these two should not be tied to each other. We don’t want to give the message that you can buy stuff as long as you do your chores. If we tie them together we make the focus on the work versus the money. Chores should be done for the same reason parents do chores, for the good of the family and they need to be done. If chores are not done properly or to expectation, there are other privileges that can be taken away (treats, tablet time, etc). A good work ethic can be modeled by your example, teachers, and coaches.

The goal of the allowance is to teach children values such as patience and self-discipline. If we tie it to work then we are sending the wrong message of: you should do in life what makes you the most money.

This is great advice from Lieber.

I would rather my children do something that is important to them. That may mean that they don’t have the highest paying job, but maybe it allows them to be home with their kids one day. The point is that values will help them decide the answer to these questions. Values should drive behavior.

Allowance as a starting point will present a need to make decisions about how they would like to utilize money. It will encourage the development of recognizing what they value. For example, my son gets a weekly allowance of $3. He has chores that are not contingent upon receiving it. He has 3 jars labeled as follows: Save, Give, and Spend. We also take gifts from birthdays and special occasions and break it into smaller amounts so they can be distributed. This is his introduction to basic budgeting. At this point, the decisions he makes are inconsequential and require some trial and error. Experience is sometimes the best teacher.

Spend Jar: This can be for the occasional impulse purchase or setting a goal of a bigger purchase. When a child sees something they want to buy, a parent can make the purchase but it is important to remember to take money out of that jar when you get home. It’s okay for them to spend all of their money on an impulsive purchase. If parents stick to the plan, kids will learn when they want something else that since they already spent all their money, they can’t get it. Wow, what an important lesson! Be careful though, because if you set this system up and then out of a sense of love and care you break the rules and buy them something they don’t have the money for, just remember that you are teaching them this life lesson “you can spend irresponsibly, but don’t worry about it, mommy and daddy will bail you out.” This is a dangerous life lesson that I have seen play out long into adulthood, and can be a recipe for a lifetime of financial dependence. The spending jar allows them to practice how they will handle impulse buying as an adult. It gives them the opportunity to make mistakes and learn from them, which will make a lasting impression.

Save Jar: Saving for bigger purchases can teach delayed gratification and can give a sense of accomplishment by working toward and achieving a long term goal. It can be fun to talk about these longer-term goals and even create a visual reminder of the goal to put on the wall. This could be something such as a picture of the particular toy they want to buy. This will help delay gratification and will make the eventual purchase a very exciting and rewarding event!

Give Jar: The giving jar is a powerful tool to pass along the values of giving. Parents can identify 3 possible charities and talk with their kids about what each does, and then allow the child to choose his or her favorite. After 6 months of savings, you can help your child donate the money. The most impactful way to do this is to find a local charity and make the giving an event, where you go to the location and your child hands a check to someone at the charity.

Kids learn best using multisensory tools. As such, it would be best to start this out using actual jars, physical cash, and breaking the cash into smaller denominations to be divided. Kids need something visual and tactile to make the impression, so avoid using abstract concepts like checking accounts until they are older.

Setting an Example

One of the biggest barriers to nurturing a child’s relationship with money is when parents are struggling with their own relationship with money. For example, while giving to a charity may be something you value, perhaps you have not been able to give yet as you would like to give. Don’t let this stop you from setting your system up for your child!

To set an example for your children it may also be helpful to take a step back and examine your own relationship with money. Your money scripts impact your gut reactions when it comes to money. They can be rooted in your development as a child. Here are some starting questions you can use to examine your own money beliefs:

Ask yourself:

What three things did my mother teach me about money? What three things did my father teach me about money? How have these lessons helped me? How have they hurt me? The answers to these questions may give you insight into your relationship with money and how it has developed and evolved over time. When we become aware of what our parents taught us about money and how it has helped us and hurt us, it will help us be more conscious in our approach with our own children.

Wishing you and your family excellent financial health