Teaching Kids About Money

baby-and-money.jpgOne of the many challenging questions for parents is how to teach kids about money. Right now, with so many news stories shouting that “the financial sky is falling,” it’s even more of a challenge. How can we teach kids to be careful about money without scaring them to death? How do we help them learn the value of thrift without instilling money scripts that will turn them into fearful misers?

Trust me, if I had the definitive answer to this question, I would write another book and it would become an overnight best seller. In the meantime, here are a few suggestions that might help you come up with your own answers.

1. Use an allowance as a starting point. As a kid, I didn’t get an allowance and had to work for all my spending money. While there are some good points to that, I believe it also provided some of the foundation for a few of my money scripts, like “You’ve got to work hard for money.” However, children who get everything they need through generous allowances could develop beliefs that they don’t need to work because the money will always be there.

My wife and I have tried to balance these extremes with our kids. They start getting an allowance at age five. This gradually increases until age 10, when the amount is frozen. This slowly motivates them to understand they need to work if they want to earn more. We offer them optional chores they can do for pay if they want to earn extra money.teen-working.jpg

As kids become teenagers and their needs and wants increase, they also become old enough for part-time jobs and can gradually become responsible for more and more of their own expenses. My kids haven’t reached this age yet; in a few years I’ll let you know how well this works.

2. Don’t use allowances as a punishment tool. We rarely punish the kids by taking away an allowance. In my view, this would be appropriate for a money-related offense, such as stealing money from a parent’s wallet or deliberately breaking something that needs repaired or replaced. For non-money lapses, it seems more appropriate to apply non-money consequences.

3. Let the kids spend their money however they wish—at least on anything that’s legal. This was hard for me. It was tough in the early days watching them blow every weekly allowance and end up with nothing to show for it. Slowly, though, they are learning the benefits of saving over instant gratification. They both have turned into savers.

4. Establish clear expectations. Who pays for birthday gifts when they go to friends’ parties? Do teenagers with part-time jobs need to buy their own clothes, pay for car insurance, or save a percentage for college? Discuss these questions with the kids and come to a clear agreement about who pays for what.

5. When it’s gone, it’s gone. I think one reason my kids have begun to learn to save is that we are consistent about not giving them extra money. If they blow their entire allowance the day after they get it, they’re broke for the rest of the week. We don’t slip them an extra five bucks “just this once.” Saying no to kids’ pleas isn’t easy, but it is one of the most important money lessons we can teach them.

manage-money.jpgAs parents, it’s important to remember that kids learn more from what we do than what we say. The best thing we can do to teach our kids to manage money well is to learn to manage it wisely ourselves.

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6 Responses to Teaching Kids About Money

  1. Rich Colman April 28, 2009 at 11:22 am #

    Hi Rick:

    Your post beg’s the question…Your daughter, London is a teenager at what age will she be working for wages in lieu of allowance and chores around the house to reflect her increased desires and needs? When she reaches that age will you march her out onto the streets of Rapid City?

    Your friend


  2. Rick Kagawa April 28, 2009 at 1:23 pm #


    One of the most interesting things that we did with our kids was to have them participate in how much money they got every month. When they were in the 6th grade, we would sit with them and budget their week on an average. Maybe one dvd rental a week, lunch would cost this much and how much spending money they would get. All these expendtures were agreed upon in the beginning of the school year. They would get their money monthly in their checking account. They had their own ATM cards for cash.

    They spent their money as they saw fit. For a while, my son would have nothing left except lunch money by the end of the second week. Sometimes not even that. We always told them that there would always be foor in the fridge if they ran out of money and they could bring their lunch. Soon he became much better and would start saving for large purchases. At 21 and 23 this exercise has served them well. They are very good with money.

    We continued this program through high school and still use a modified program with them in college.

  3. Bobbie Munroe April 29, 2009 at 11:28 am #

    I love this post as one of the biggest threats to my clients’ financial futures is their adult children. The only answer is to start teaching the kids how to deal with money beginning as young as possible. Your message on consistency is paramount to success. If the rules are broken and you step in to make it “right” you will always be doing so. I love the Gallo’s book “The Financially Intelligent Parent.” For more info go to

  4. Karyn Hodgens May 4, 2009 at 12:49 pm #

    Hi Rick,

    I agree with all of your tips. And I especially like freezing their allowance at an age when they can earn extra money through a part-time job or extra chores.

    I teach money management to elementary and middle school kids and am always amazed at the creative things they do to earn extra money if we support them in their endeavors. One of my third graders just started her own pet-sitting business and already has two clients. Others collect recycling, tutor, house clean, make greeting cards…

    If kids are going to learn how to effectively manage money, they are going to need money to manage. It all begins with an allowance and the responsibility that comes with it.

  5. Don James May 6, 2009 at 3:05 am #

    Hi Rick,

    Great tips…especially about establishing clear expectations. That is the one area I wish we had done better with.

    We started weekly allowances at age 6. We provided each of our children with 3 containers…one for weekly spending however they choose…one for saving for that CD or toy they wanted…and one for accumulating money that was eventually deposited in their savings account. One third of each week’s allowance went into each container.

    When my daughter was 12 she expressed frustration over the fact that she was too young to work. She saw her 15 year-old brother earning a nice income mowing lawns and doing yard work. My wife and I wanted to capitalize on that desire, so we hired her to work for us. We taught her how to prepare checks for our household bills and reconcile our checking account. A few months later I taught her how to enter the information into our accounting software and generate monthly budget comparisons. (One month as she was finishing up the monthly report she commented “Mom, did you know you spent $400 on clothes last month!”…I couldn’t hide my smile.)

    I attribute the respect for money she has developed partly to the experience of working with our monthly household finances. For example, she recently went shopping for prom dresses with her friends who were spending $300-500 for a dress. She found a perfect one on sale for $129.

  6. Michel Kropff August 30, 2012 at 2:50 am #

    I enjoy just having a break from studying and visiting your blog. I just wish you posted more frequently.