Ways to Teach Kids That Money Doesn't Grow on Trees

by Eric Tyson


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If you're looking for a silver lining to the economic slowdown, it's the perfect impetus for your kids to learn smart personal finance habits. So if you're feeling guilty because you can't buy your child that video game system he desperately wants or send him to that trendy summer camp, don't. In fact, now is the perfect time to teach your kids some valuable financial lessons.

Kids are surprisingly aware of what's going on in the world. And if they don't know that times are a little bit tough and Mom and Dad are having to watch their spending, it's time to tell them. Sheltering kids from financial realities does them no favors.

Indeed, the opposite is true. A good grasp of personal finance is one of the most valuable life skills a person can have. And while previous generations may have been raised with the constant admonishment that "money doesn't grow on trees!," too many of today's parents neglect that lesson. It's time to change that, and the economic slowdown we're in now provides a great incentive for doing so. Ready to get started? Try these helpful hints:

  • Realize that kids learn what they live. It may sound like common sense, but you are your kids' most influential teacher. When you ring up a barge-load of credit card debt, take out exorbitant mortgages or car loans, and fail to save anything, that's what your kids come to see as normal. If you are modeling unhealthy financial habits, you can't realistically expect your kids to "do as I say, not as I do."

  • De-program them. Kids are constantly bombarded with information about what things cost, whether it's the fancy sports car they like or the wardrobe of their favorite athlete or actor, not to mention the 40,000 commercials that the American Academy of Pediatrics estimates the average American child sees each year. What they aren't bombarded with is knowledge on how to manage money effectively. And while schools are increasingly incorporating money issues into the existing curriculum, the broader concepts of personal financial management still aren't taught. Frightening though it may be, some schools rely on free "educational" materials from the likes of VISA and MasterCard!

  • An allowance is a great teaching tool. A well-implemented allowance program can mimic many money matters that adults face every day throughout their lives. From recognizing the need to earn the green stuff to learning how to responsibly and intelligently spend, save, and invest their allowance, children can gain a solid financial footing from a young age.

  • Start them saving and investing early. It's never too early to start saving, and the sooner you can instill the importance of saving money into your kids the better. After they start earning an allowance, have your kids save a significant portion (up to half) of their allowance money toward longer-term goals, such as college (just be careful about putting money in children's names as doing so can harm college financial aid awards). As they accumulate more significant savings over time, you can introduce the concept of investing.

  • Reduce their exposure to ads. The primary path to reduced exposure to ads is to cut down on TV time. When kids are in front of the tube, have them watch prerecorded material. And for older kids, if you use digital video recorders (DVRs), such as TIVO, you can easily zap ads. But when an ad does sneak under the radar and set the kids to begging, address it. Invest the necessary time to teach and explain to your kids that the point of advertising is to motivate consumers to buy the product by making it sound more wonderful or necessary than it really is.

  • Teach them how to shop wisely. Family shopping trips, whether for groceries or something else, are likely to be your kids' first encounter with spending. They'll see you make decisions based on what the family needs, maybe see the occasional coupon used, and will observe how you pay. These trips are a great time to teach them lessons about money.

  • Introduce the right and wrong ways to use credit and debit cards. Those plastic cards in your wallet offer a convenient way to conduct purchases in stores, by phone, and over the Internet. Unfortunately, credit cards offer temptation for over spending and carrying debt from month to month. Teach your kids the difference between a credit and debit card, explaining that debit cards are connected to your checking account and thus prevent you from over spending as you can on a credit card.

  • Encourage older kids to get a job. An allowance doesn't have to be the only way for your kids to earn money. Your child's initial exposure to the work-for-pay world can start with something as simple as a lemonade stand. Depending on age, he or she might do yard work for neighbors or offer babysitting services. And the fact that we're in a recession makes it all the more appropriate for older kids to "help out" by getting a part-time job, especially to fund unnecessary purchases like DVDs or cool clothing.

Besides the learning opportunities it presents, there's another positive to the economic downturn. It forces families to be more thoughtful about how they spend their time and this often leads to the stunning realization that money really doesn't buy happiness.

Often, the pricey toys we buy and the lavish vacations we take are simply distractions from the people we love. They send the message that it's necessary to spend a lot of money in order to have a good time. It's not, of course. The best things in life (friends, family, quiet evenings at home just being together) really are free. Sometimes it's good to be reminded of that.


Eric Tyson, MBA, is one of the nation's best-selling personal finance book authors and the author of Personal Finance For Dummies (Wiley). He is also the author of Investing For Dummies and co-author of Home Buying For Dummies and Real Estate Investing For Dummies , among other titles. Eric is a former columnist and award-winning journalist for the San Francisco Examiner. His most recent book is Let's Get Real About Money!: Profit from the Habits of the Best Personal Finance Managers is available in bookstores nationwide and from all major online booksellers. For more information, please visit ftpress.com.

Take the Next Step:

  • It's time to stop feeling guilty for the things that you can't give your kids. Now is the time to focus on what you can give them. Use the current economic slowdown to teach your kids some valuable financial lessons. After all, a good grasp of personal finance is one of the most valuable life skills a person can have.
  • Take control of your finances. Subscribe to our weekly "Surviving Tough Times" newsletter. This free html newsletter will provide ways to survive in this challenging economy. Each issue features nine articles to help you stretch your dollar!

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