What do you say when your kids start asking for money? Like most parents, you think they want money to buy stuff. Of course, they do. But if you dig deeper this is an opportunity for you to start teaching them how to manage money.
Asking for money shows interest
We may not think of money management as a skill but it is. It is the skill of making day-to-day decisions. When a young kid shows interest in other activities parents provide lessons, equipment, encourage practice, and celebrate success.
Developing a skill requires repetition, mistakes, more repetition, and more mistakes, all leading to eventual successes. The same is true of learning to manage money.
A Purdue University study found that kids can begin to understand basic money concepts as early as 3 years old. It’s never too early to start with the basics of money — and according to the latest science, ages 3-7 is the prime time for introducing children to money basics.
Money management is a life skill
Kids don’t learn skills by observing or listening to parents or teachers. Watching a baseball game does not make one a skilled baseball player.
Likewise, knowing how to read music does not make a talented pianist. And seeing how to ride a bicycle doesn’t teach a kid how to not fall over.
Most likely, you already encourage your kid to read by buying books and reading to them. You help your child to learn how to ride a bicycle by getting them a tricycle, then a bike with training wheels. You sign them up for sports or music lessons and buy them the equipment they need.
So what can you do when your kid asks for money? Start an allowance system as described in The No-Cash Allowance.
When it comes to learning how to manage money there is no better way than by having money and hands-on practice.Helping your kids learn to manage money is a skill parents are best equipped to do because only you can give them real money to manage.
Kids learn more about money by being in total control of whatever their resources are. No matter how good a parent’s intentions are, kids do not learn if parents tell them what to do.
Can your child learn to read, ride a bike, or play basketball if you just show or tell. Can they learn if you never let them try for themselves?
How to teach children money management.
Use real money
Today’s money is not only cash. Many transactions your kids see don’t use cash at all. Using a consistent allowance system as described in The No-Cash Allowance helps kids learn the concepts of cashless transactions, debit card spending, and tracking gift cards. This is all very “grown-up” and exciting for kids.
Assign real responsibility
A child’s first experience with spending is all about having fun. But to learn to manage money for expenses, parents can provide age-appropiate “bills” to pay. School supplies is an annual expense that kids manage with funds provided by parents.
Give real control
Your child will not learn to read, ride a bicycle or play basketball without repetition and practice, Likewise, your kids will not learn to make better money management decisions without the control to make their own decisions over the years.
Know that mistakes lead to wisdom
Remind yourself that kid-size money mistakes are the best learning experiences, are harmless and don’t show up on a credit report.
Mistakes made as a child are the foundation for the wisdom they will need as adults. Mistakes made later can create long-term financial problems for your adult children.
Kids asking for money is the first step
If you set up a regular, consistent allowance system as explained in The No-Cash Allowance your kids won’t need to ask for money. Why? Because your kids will always know how much, when and why they will receive money.
Kids know that in Monopoly®, they can only get $200 for passing Go. With that money they go forward and make decisions. When kids manage their own money, parents are are wise to step back and let the kids flex their decision-making muscles.
When the decision turns out to be wrong, you gently ask them how they liked the results. Remind them that everyone makes mistakes with money. The key is to learn from the experience.
Encourage money management practice
When your kid starts asking for money be proactive. This is the time to help your children learn money management skills. Create an environment for them to learn by doing. What you do now will help them make better decisions later.
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Read more: Jumpstart kids’ money education in pre-school for success
Lynne Finch helps parents teach their kids about money from their first allowance to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school.
