When to teach kids about money?

This was originally published on Monday, August 3, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q:  My wife and I have a 2-year-old daughter and have different opinions about whether or not our daughter is too young to start learning about money. Do you think you could give us some advice on when it is appropriate to teach kids about money?

A:  I want to congratulate you on at least talking about teaching her the value of money. Of course when and how is different in every household along with the maturity level of the child. I believe that teaching kids to be financially aware at an early age will set them up to develop good financial skills as an adult. Setting a good foundation early is the key.

Personal finances have changed a lot in the past 10 years.  Most people rarely carry money anymore and the use of “invisible” money is much more present. Children see parents at a store using credit or debit cards, banking and shopping online, and getting money from a machine. This can be quite confusing since they never see an exchange of money and may get the idea that money must come easy. My daughter once said, “Daddy, just get money from the machine; it always has money.”

Teach kids with real-life situations.  You use money every day, so there are many opportunities to teach where money comes from and how it should be spent.

ATM – Kids see you put your card in and money magically appears. Explain that when you go to work you are paid. The money you are paid goes to the bank, which safely holds your money. When you need your money you take it from your bank account which means you have less money to spend.

At the store – This may be the best place to have your children understand how money really works. Usually when we shop we are faced with different prices for the same item. Explain why you make the decisions you do when picking out an item. Does it cost less? Do you get more in the container? Although she may not be ready to know which costs more, just opening up the discussion is a good way to get the lessons started.

Don’t be afraid to say “no” when out shopping with her. As she gets older, share with her that it costs money to buy things and you can’t always get what you want.

Paying bills – If you pay your utilities at a bank or at the agency take your child with you. Let them see that you have to pay for the power they use to watch television or the water needed to take a shower. Help her understand that paying these bills must be done before paying for a new toy.

Receiving money – At your daughter’s age she might not be ready to start doing chores around the house. She may get your change after a transaction or from family. Help her start identifying the different coins. A fun way is to set up a play store and have her shop for different items. By exchanging money for goods, your child will start to understand how commerce works. As she gets older, add coupons and sales.

Start teaching her the difference between needs and wants and that you have to have money to purchase items or services. Just as you would teach her about good manners or being safe, teach her at an early age to foster skills that will help her be financially smart.  That is a lesson that is never too early to start.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

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