How to Show Your Kids That Money Doesn’t Grow on Trees

You know you need to bring up the subject. It’s important, but you’re not sure what to say. You start to sweat. Your palms get clammy. You feel your pulse tick up a notch. As you walk toward your child’s room, knots form in your stomach.

You knock on the door, open it, and say,
“Honey, I want to talk with about . . .”

No, I’m not referring to that talk. That’s for somebody else’s blog!

I’m referring to the importance of teaching your kids about money.

I know, compared to the other talk, money is a breeze, right? Not to a majority of parents. A recent survey found that 72% of parents are at least somewhat reluctant to talk to their kids about money. The reason? Most parents don’t want their kids to worry about financial stuff.

In a different survey, a majority of parents said they’re doing a good job teaching their teens about money, but less than half of their teens say they’ve worked with their parents on budgeting and saving money. Houston, we have a problem.

Show and Tell With Money

I don’t want you to be afraid to talk with your child about money. I want you to make it part of everyday conversation. Your kids need to see you budget, save, spend and give. You’re setting the example that they will follow, so make it a good one. Here are some ideas to get you started.

1. Pay your kids a commission, not an allowance. They need to learn that nobody hands out money for no reason. From a young age, assign work for them to do each week. When they complete the job to your satisfaction, pay them the amount you promised. As your kids grow older, give them more tasks in exchange for a higher commission.

2. Show your kids how money works. Take them to the bank and open an account in their name. Explain that part of the money goes to saving, part goes to spending, and part goes to giving. As a general rule, if your child earns $5, I’d recommend having them put $2 in savings, $2 in spending, and $1 in giving. That’s just a guideline, though. Change it up if you want.

3. Set goals for spending and saving. Talk about items your child would like to purchase, like a new tablet or pair of shoes. Set short-term goals (new shirt) and long-term goals (new gaming system), and chart your kids’ progress. Show them how their bank account goes up and down based on what they spend and save.

4. Take them comparison shopping. When shopping, kids just grab the item they want without comparing it to similar items. Take your kids to the grocery store or a clothing store and show them how an item—say, cake frosting or a pair of jeans—can cost different amounts depending on the brand. Then, when they want to buy that new pair of jeans with their money, you can reinforce comparison shopping by talking about opportunity cost.

5. Explain opportunity cost. When your child wants to purchase something, talk about what they are giving up buy that item. For example, your son wants to buy a basketball and a video game but doesn’t have enough to buy both. If he buys the video game, the basketball is the opportunity cost.

6. Include kids in family budget meetings. As your children begin to understand money, show them how you create a monthly budget. Lay out your expenses, savings and retirement goals. Then let them watch as you plan out your spending. Over several months, they’ll see how budgeting and spending work because they’ve seen it in action.

Here’s the great news: As you talk about money, you’re strengthening your relationship with your child. The time you spend together lays the groundwork for future money conversations, like paying for college or saving for big items (like a car). You’ve also built a good foundation to talk about other things—even that other discussion!