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Teaching children about money
Back in our own childhood days, we can all probably recall a time when our
parents denied us a certain toy or a favorite treat while we were shopping. It
may have been a very upsetting experience- after all, mommies and daddies have
an unlimited supply of that green paper, right? They could always write one of
those 'checks' or give the nice lady at the check-out a little plastic card. That
was our perception of home finances at that particular age- Mommy or Daddy simply
pulled out a magic piece of paper and we had a new toy or a pair of shoes.
As adults, we understand all too well the lack of magic behind a checking account
and credit card. But to small children, you may still appear to be a combination
of Santa Claus and a magic Genie who can make money appear out of thin air. How
do you explain the realities of home finances to small children? Here are some
ideas on explaining money issues to young children.
1. Checks are not the same as money. This is a very tricky situation to explain
to a very young child with little experience with the adult world. If your child
becomes upset because you won't write a 'magic check' when cash is tight, explain
to them that Mommy would get in a lot of trouble if she wrote something that wasn't
true. Children understand crime and punishment very well, so compare it to telling
a lie or cheating. They may not understand what a bounced check or an overdraft
is, but they will probably understand the problems with doing something that is
untrue.
Another way to explain checks to a child is to take them with you on your next
trip to the bank. Show them the check your boss gives you for going to work, then
give it to the cashier. Explain to your child that it may look like a lot of money
right now, but you have to pay for things with that money. If you receive some
cash, show your child how much money something will cost, such as an electric
bill or groceries. They might begin to understand that a check and a stack of
money do the same thing. Never be afraid to explain to your child that you cannot
write a check whenever you want to. A child may eventually make the connection.
2. Credit cards are not magic. Credit cards may seem miraculous to a young child,
because parents tend to use them to buy much bigger items or an entire set of
back-to-school clothes. Children will have a difficult time understanding credit
limits, because the reality for them is a closetful of new clothes or an expensive
video game system. Parents should be aware of how many credit card purchases they
make in front of impressionable children. Children need to understand that a credit
card is not always the best way to pay for something, and is not unlimited. One
way to take the magic out of credit cards is to pay cash or write a check for
as many purchases as possible, at least in front of the children. Save credit
cards for large purchases and for private shopping trips. If this is impractical,
at least explain to your child that it might seem like Mommy can buy everything
with her little card, but she has to pay the people back for everything she buys.
Show your child a billing statement and point out how much money Mommy will pay
those people back each month for the clothes she bought.
3. From piggy banks to savings accounts. Piggy banks may be a child's first real
introduction to the financial world, so use them as examples of other banking
practices. Explain to your child that Mommy and Daddy save their own extra money
in a different kind of 'piggy bank'. Whenever you have some extra money, you go
to the bank and give it to the teller, who then puts it in your own banking account.
It's the same thing that your child does when he or she puts a dime in their bank.
You might explain that sometimes the bank is very full and sometimes it's almost
empty. When the child's piggy bank is full, they can go to the store and buy a
treat or go to the movies. That's the same reason Mommy and Daddy can take the
whole family out to a nice restaurant to eat or go to a favorite amusement park.
When the piggy bank is almost empty, however, you have to wait until you have
it filled up again before you can spend more money. That's just like Mommy and
Daddy's own bank account sometimes, so we just have to wait for the bank to get
more money in it.
4. Allowances and salaries go hand in hand. If your child receives an allowance,
you may be able to explain paychecks and salaries easily. Show your child what
your paycheck looks like. Don't worry about explaining deductions right away-
that is a different discussion altogether. This is the same as what we pay you
as an allowance. Daddy gets an allowance, too. If you work hard and do all your
chores at home, sometimes we give you a little more money. That's just like Daddy
when he comes home a little later or goes to work on Saturday. He gets a little
more money for working harder. Children can usually grasp the idea of working
for an allowance if you do structure the payments like a regular job. Be consistent
with the payment schedule, and have some incentives built into the system, such
as bonuses for certain jobs or extra pay for doing a really good job on a chore.
Young children may have a difficult time understanding why Mommy doesn't come
home until late or why Daddy has to work on the weekend, so
explain the idea of hard work means more money through a real-world allowance
example.
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