Helping your Kids Understand the Value of Money and the Importance of Saving
“I need ______, Mom.” Insert whatever the item du jour is in the blank.
“No, you don’t need it, you want it.” I reply.
“Same thing. Whatever.”
“Oh no, they are not the same thing. Not at all.”
I wonder, have I failed my kids somehow?
Our kids are inundated with the message that the acquisition of material possessions equals happiness. Raising them to understand the value of money and understand the importance of saving money are daunting tasks. I mean, why save money when you can just buy your happiness right now!
I think that there are ways to try and counteract our culture, to give our kids the tools to successfully manage their money and become financially literate.  So I have compiled some tips that I use with my own children to help them understand the value of money.
1) Model the behavior that you want to see in them.
Studies have shown that our children do as we do, rather than as we say. They follow our lead and copy our behaviors, from things like how we react when we are angry, the way we treat people, smoking, drinking, and even the way we spend.
Try to counteract the messages they get about money by modeling a positive and healthy attitude toward money. Become conscious of your own money pitfalls. Suddenly you will become aware of how many times you say the word “need” : I need a new pair of shoes. I need a new outfit for that party Friday night. I need new curtains, a new car, a Starbuck’s coffee. We say need a lot. We don’t really need any of these things, we want them. Be conscious of your language and correct yourself in front of your children should you slip. When I have caught myself saying this, I backtrack and say, “Actually, I don’t need that. I want it. And sometimes when you really want something it feels like a need.”
2) Show them the money.
As early as possible let them in on your budget. This doesn’t mean pull out a spreadsheet and divulge every last detail. But elementary and even middle-school aged children have no idea how much things cost, or what bills need to be paid monthly. Show them the bills. When my kids saw the electric bill it encouraged them to be more vigilant about turning off the lights.
My 10 year old son was with me recently when I bought gas for my car. He commented on how much it cost, but then said it wasn’t so bad because it would last a long time. How long did he think that $50 worth of gas would last?  About a month or so. When I told him that it would likely only last a couple days, he was shocked.
3) Let them see you make decisions about how you are spending, or not spending, your money.
My oldest teenagers hate the minivan I drive. They think that it is old and ugly. I agree with them; it is both of those things. They would tell me all the time about nicer cars that they saw their friends’ parents driving and how I should get one, too. I realized they had no concept of how much a car cost or how much a monthly payment would be on a loan. I had them go online and each find a car they thought we “needed.” Once they did that and found a price I showed them an online calculator that figured out monthly payments spread out over 5 years. The first time they did this they were shocked and thought they had plugged the numbers in wrong or that the decimal point was missing. I assured them that no, they had done it correctly.
After doing it a few times and plugging in smaller and smaller numbers I saw them understanding for the first time the actual cost of things as well as the cost of interest. Finally one of them asked how much my monthly payment was for the minivan. I told them that I don’t have one, it is paid off completely.  I asked them if they thought the minivan looked better now, knowing this. And yes, they did.
Through this exercise with the kids I also came to realization about myself. I wasn’t being entirely honest by dismissing the prodding to buy a new car by saying that I didn’t want one. I try to be more honest now. Yes, those other cars are lovely. Yes, I would love all the nice things in the world. But the nice things come with a price that may or may not be worth it to individual people. And those nice things will not make me any happier nor will they change my daily life. So now when my children ask I confidently answer, “Yes, I do want a new car. But the one we have right now suits all our needs perfectly.”
4) Let them live their own money mistakes.
For younger kids it might be that they have spent all their allowance buying ice cream from the ice cream truck and now they have no money saved to spend at the carnival. Too bad! So sad!  However, I know all too well how difficult it is to step back when the lure to save the children from themselves is so strong.
My 17 yr old son has a part-time job. From this job he is supposed to pay for his own gas.  This was agreed upon at the very beginning. The first time he ran out of money for gas because he had spent it on something else, most likely junk food since he is a teenage boy, I bailed him out. I was clear that this would be the one and only time. You would think that he would learn his lesson from this, but no. I think in his mind there was now a back-up, a way out. So it wasn’t any real surprise that it happened again. He had taken his earnings and bought a pair of sneakers with no regard to the cost of gas he was going to need in his car that week. This time he took the bus until the next weekend when he got paid.
We talked about making better plans to manage money. About saving money for the short and long term. About delaying gratification. He lamented the fact that he has to waste money he worked so hard for on dumb things, like gas for his car. I will admit that I laughed. Nobody likes paying bills.
5) Give them some control.
Allowance. To give it or not to give it, that is the question all parents struggle with. I give all my kids an allowance that is not
tied to any chores. It isn’t a huge amount of money, it is based on their age. One dollar for every year old that they are. They
certainly have the ability to earn extra money by doing random chores should they want to earn money for something more quickly. With this money they are expected to buy things like movie tickets, ice cream or candy at concession stands, random outings with friends that come up. All of their basic needs are still covered by me.
But the thing I do differently than many of the people I know is that I don’t hand them cash. Cash gets lost and spent quickly. Many adults also have this problem of burning through cash with no recollection of what they spent it on. Instead my children get a “bank” statement which keeps track of their money. If they want cash for something I will get it for them and debit it from their account. I very rarely veto a withdrawal and when I do it usually is because I object to the item being purchased, not the spending of the money. Giving them control of their own money early on makes them aware of how they spend it and the value of money. And not usually having immediate access to the cash helps them to think through their purchases a bit.
6) Set financial goals.
Talk to your kids and show them how to save money. Not saving it to buy something later, but actually saving it for the future, for a rainy day, for something you cannot yet foresee. That is what saving money is about. This is a tough one, even adults have trouble with this, as evidenced by the average American having $20,000 of credit card debt.
The goals children have will be much shorter-sighted than those we have as adults, but encourage them to keep their eye on the prize when they are tempted to just spend their money frivolously.
Explain to them how interest accrues on savings accounts and investment portfolios. The younger they start saving money the more they will have at the end simply because they have time on their side. If a 12 year old invests $1,000 in a ROTH account by the time he is 65 years old it will be worth $150,000. That’s with doing nothing else to that money. I wish someone had explained that to me when I was 12, or even 22.
7) Credit cards can be tools of the devil.
Never has it been easier to live above your means or to buy things without giving any real thought to paying for them. I don’t think that most people understand the concept of compound interest. I don’t think that people understand that most of the things they think they absolutely need right now and charge on their credit card are going to be gone long before they finish paying for them (unless they pay their credit card balance on a timely basis). There is a huge price to be paid for immediate gratification.
Make sure your kids understand the difference between a credit card and a debit card. It sounds obvious enough, but our kids just see us pull out cards and swipe them. And then we get things. They don’t see actual money change hands. My parents used to joke when I was a kid about the money tree growing in our backyard. Our kids think that there are endless swipes on a plastic card.
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The goal is to make your children financially literate. The younger they learn the important money lessons, the better it will be for them in the long run. It is better to learn your lesson by taking a bus for a week than by defaulting on your mortgage. The kids need to see us living and believing the same principles, that money doesn’t buy happiness. Acquiring stuff doesn’t mean you are a better person.
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