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## Personal Finance for Parents: How I Taught My Children about Money

How do your children handle money? How do they earn, save, and spend it? How do you feel about their behaviors around money? As a parent, teaching personal finance to my children has been challenging. I’ve read books, watched videos, and tried a variety of approaches. Here are a few things I’ve learned.

When teaching young children about math and money, you turn everyday moments into math experiences. The following are some exercises that helped me to impress upon my children how math and money are ever present and easily accessible.

Mathematical concepts are available in everyday experiences. When my children were toddlers, our first experience with everyday math was in an elevator. I asked my oldest, “We’re on the first floor and we’re going up to the fourth floor, how many floors will we pass to get there?   We counted the floors together and talked about how we passed two floors to get to the fourth floor, but we traveled four floors to get from the first floor to the fourth floor. This exercise helped my children understand addition and subtraction.

Another experience involved grocery shopping. When my children were a bit older, I took them to the grocery store, gave them one calculator, a list of ten items, a pen, and a budget of fifteen dollars. I explained the rules of grocery shopping: the youngest would stay in the cart with the calculator while the oldest would identify the items and put them in the cart. The catch was this: they had to get as much as possible with the money they had and spending less than the fifteen dollars they were given. I demonstrated with the first item on their list: one can of black beans. I picked one 15-ounce can at \$1.19 and another can of the same size at \$0.89. I showed my youngest how to calculate the difference between the prices using the keys on the calculator and we talked about choice: which should they choose? They chose the less expensive black beans and we high-fived their choice. We talked about how their choice helped spend less than the fifteen dollars they were allowed and saved our family thirty cents. The oldest put the \$0.89 can of beans in the cart, put a checkmark on the list and wrote in the price while the youngest used the calculator to subtract the \$0.89 from the \$15.00 budget. We used one shopping cart and while I shopped for other items, the two of them worked together to get the ten items on their list. They shared the total with me, which was under \$15.00. I told them that they could spend the difference on a treat, and they were delighted. The first time we approached shopping this way, we spent more time than usual in the grocery store, but grocery shopping became an experience we enjoyed.

These exercises worked for me when my children were younger. But as they got older, I needed to get creative. Aiming to reinforce positive behavior, I chose to provide monetary incentives to reward behaviors I wanted to see repeated. First, I identified the positive behaviors I wanted to reward (i.e., making up his/her bed without being told), then I chose the incentive (i.e., a quarter). I used an app to track the credits. The app made it easy for me and my children because it was simply an addition and subtraction tool: no bank accounts were ever connected. I created accounts for each of my children, added credits for money earned and subtracted debits for money spent. How did that work? When my daughter wanted to buy a pack of gum, she would ask me how much was in her account. I’d log into the app and show her. If she had enough money to buy the gum, I’d pay for the gum with my cash money then subtract the amount spent from her account.

Building trust with money is critical. To that end, I created three key rules around the accounts for my children. Here are the rules:

Rule #1: Your account is private. What is in your account belongs to you and it is no one’s business how much money is in it. Only you and I know how much is in your account.

Rule #2: What is in your account belongs to you.   As your parent, I will never borrow money from you or take money out of your account without your permission (i.e., when you purchase something, I will have your permission to debit your account because it is money you are spending).

Rule #3: Every month, half of your money will be put into your investment account (an UTMA, or Uniform Transfer to Minors Act account) which I opened for you at a brokerage firm, and you will choose your investments based on products or services you purchase.  I will manage the account for your benefit, but I will never withdraw it for my benefit (see rule two).

I have used this system since my youngest was two years old. Now they are nearly teenagers, I recognize their money confidence: they understand how to spend, save, and invest it. They are also eager to earn money and proactively ask me what they can do to earn more. Most importantly, my children trust me with their money because of Rule #2.

What are some of the positive behaviors, skills, or habits you’d like your children to choose? What can you incentivize?  Turning math into fun experiences offers rewards for parents and children: you are enhancing your child’s financial literacy and reinforcing positive behaviors or habits to empower them as they move into adulthood. How can you turn math (and money) into an experience today? Check out some resources that teach children how to learn saving and spending like https://www.guardiansavings.org and choose a system that may work for you and your family.

Wendolyn Forbes is a CERTIFIED FINANCIAL PLANNER™ with Wealth Transition Finance, A Member of Advisory Services Network, LLC, where she offers financial planning and investment management services for either a one-time or on-going cost. Wendolyn is a fee-only financial planner and member of the National Association of Personal Financial Advisors (NAPFA). For more information about Wendolyn’s financial services practice, please visit her website at www.wtf-asn.com.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP® (with flame design) in the US, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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