My son, Danny, is 16 now, but I can still vividly remember a particular shopping trip with him when he was 7. We were in the electronics aisle at a discount department store. I had my back to him for a few moments while I tried to figure out which camera battery I needed. When I turned around, I saw Danny plopping a 12-inch television into our shopping cart.

“I’m going to buy this,” he announced.

“We don’t have the money for that,” I quickly replied, and then picked up the TV to put it back on the shelf.

Immediately Danny hollered, “But Mommy, I have the money!” Then he opened his billfold to show me his wad of handmade $1, $5, and $10 bills.

Earlier that day, Danny, who has always been quite an artist, had used some of the currency in my wallet as models to very meticulously draw copies of the bills on white construction paper. He colored his bills with green and black pencils and cut them out. They looked like the real thing. I had assumed he was going to use his homemade currency to “play store” with his younger brother. But on this shopping trip, I realized that was not the case at all. Danny thought the way you “made” money was literally by drawing your own.

The whole thing really took me by surprise. I would have never thought Danny had those kinds of misconceptions about money. It made me realize it was time to have some talks with him about money—how it is earned, how to use it wisely, and why it is important that we be good stewards of what God has given us.

What about you? Do you talk to your kids about money matters? We’re told in Deuteronomy 6:6-7, “These words, which I am commanding you today, shall be on your heart. You shall teach them diligently to your sons and shall talk of them when you sit in your house and when you walk by the way and when you lie down and when you rise up” (New American Standard Version). The Bible has a lot to say regarding how we should be using our money. It also tells us to “Train up a child in the way he should go, and when he is old, he will not depart from it” (Proverbs 22:6). It follows then, that we should be passing these financial principles onto our children, and teaching them at least the basics of personal money management.

The current worldwide economic downturn adds even more urgency to doing so. “Kids know we’re facing tough times, but they don’t always understand how we got there,” states Karen Varcoe, Ph.D., Consumer Economics Specialist with the University of California Cooperative Extension. She believes the vast majority of parents are not talking with their children about money management. Instead, kids are getting their “lesson” in personal finances by simply watching their parents.

Varcoe continues, “What they’re seeing is most everything being purchased with a credit card or check. They don’t see cash very often. This can give them the false impression that the family has an endless supply of money. And indeed, when we use credit cards instead of cash, we generally spend more than we should.” This kind of overspending not only sets the wrong example for kids, she says, but was certainly one of the root causes of the present global economic crisis. It’s also the reason why so many people found themselves in dire financial predicaments the past couple of years when the U.S. economy nose-dived.

“You need to be telling your kids how to save money and spend it wisely, and why it’s important not to misuse credit, so that their future financial stability isn’t in serious risk as is the case with so many people today,” urges Varcoe.

This teaching can begin as early as age three or four, or whenever your child begins asking about money. Lessons can be very basic for preschoolers, perhaps only explaining that you have to work hard for your money and that it doesn’t “grow on trees.” As your children grow and mature, you can gradually get into more in-depth instruction.

What if your kids are teens and you’ve never talked with them about money management before? “It’s never too late to have these kinds of conversations,” Varcoe says, “but the sooner you do the better.” Here are some suggestions to get you started:

Give your children an income to manage

Children cannot learn money management unless you give them some money of their own to manage. One of the best ways to do this is by giving an allowance. “If your children are spending your money, they’re not going to think twice about spending it. But if they’re spending their own money, they’re going to make much better purchasing decisions,” says Erica Sandberg, a San Francisco-based family money management consultant.

She suggests you pay the allowance out at fixed and regular intervals, such as on a weekly or bi-weekly basis. Make it a large enough amount that your children can afford a couple inexpensive items at the dollar store, but not so much that they’re able to buy a new video game without saving up for it. A general rule of thumb is to give $1 per year of age.

How old should your child be when you start giving an allowance? While preschoolers can start to be educated about what money is, children are not developmentally ready to learn how to manage it until they reach age 6 or 7, according to money coach Janet Bodnar, author of Raising Money Smart Kids (Kaplan, 2005). She believes that is the best age to institute an allowance. “Not only are children more mature, but they’re also learning about money in school,” she says. “So they’ll know that a $1 bill equals four quarters, and that their $3 allowance will buy a small tub of popcorn, for example.”

You can give allowances with “no strings attached” or, if you are concerned about your children developing an “entitlement mentality,” you can make the allowances conditional—meaning kids get their allowances that week if they have made their beds everyday, kept their room clean, or done other routine chores.

You may also want to give your children opportunities to earn additional money by doing household tasks other than their “regular” chores—such as moving the lawn, raking leaves, shoveling snow, washing the car, weeding the garden, cleaning out the basement, washing windows, etc. This will teach your children to link having money with work. Chances are, they’re going to be extra careful how they spend that money, because they know how hard they worked to earn it.

Show them how to budget

Once your children have a regular income, you can begin to teach them to live on a budget. Ideally, set aside some time when you can sit down with your kids and have a focused discussion about budgeting without any interruptions. Start out by explaining that a budget is a plan for how you are going to use your money. Help your kids understand that budgeting is not just sound advice from secular financial advisors, but that the Bible actually points to the necessity of budgeting. You could turn to Proverbs 16:9; 21:5; 24:3-4; 27:23-24 and Luke 14:28-30 for some good overview scriptures.

Talk with your children about why it’s important to live within your means, tithe, and save a regular portion of your income, and the downside of overspending, borrowing and getting into debt. Read Leviticus 27:30 and Malachi 3:8-10 to your children to show them that tithing is a biblical principle. Use 1 Corinthians 16:2 and Proverbs 21:20, 30:24-25 as a starting point for talking about why we need to save some of our income. Proverbs 22:7, 26-27 should be read when discussing the problems of getting into debt. When you go over these verses with your children, explain what they mean in everyday terms and how these principles can be applied to our lives today.

If you have a budget yourself (and hopefully you do!), show it to your kids, whether it’s on your computer or in a ledger book. Help them see what you have in terms of monthly income, what bills need to be paid each month, and what will be left over for discretionary spending. This will give your children a more concrete understanding of what it means to budget.

After you’ve taught some of the basics about budgeting, help them devise their own budgets. First, come up with a figure for how much “income” they normally have each month through allowances or earned money from household or part-time jobs. Then, help them figure out what percentages of their income should go to various categories— tithes, charitable donations and gifts, spending money, short-term savings, long-term or college savings, etc.

Other than tithes, the percentages for other budgetary categories are variable. Savings should definitely be a high priority though. Shirley Anderson-Porisch, a financial advisor with the University of Minnesota Extension, encourages kids to save at least fifty-percent of their money. That could be divvied up between short- and long-term savings. “When children save their money, they learn the discipline of self-control and delayed gratification—vital lessons in today’s economic climate,” says Anderson-Porisch.

If you have young children, what works well is to give them a jar for each of their budgetary categories. That is a system that Eva Miller has adopted for her 8- and 10-year-old children. When they get their allowance, they distribute their money into each of the jars, according to the designated percentages. “Once they put money in their tithe or college savings jars, that’s where the money stays—until it reaches $20 and then the tithes will go to our church and the college money will be deposited into their savings accounts at the bank,” she related. “They also have jars for short-term savings, and they’ll use that to save up for things like a new game, and ‘fun money,’ which is what they use for everyday expenses like buying a candy bar at the grocery store.”

If you have preteens or teens, you can set up their budgets on the computer or get them their own ledger book. Have them record their expenditures each month, and keep a running total of how much they’ve spent in each budgetary category. This will help them see on an ongoing basis if they are spending too much.

Use everyday opportunities to teach your children about money

Life brings countless opportunities to teach our children about money. Take, for instance, my story mentioned in the introduction. That situation was the perfect segue into a discussion with my son about money. While we were still at the store that day, I took Danny aside and spent a few minutes explaining to him how my husband and I got our money and that we didn’t have an unlimited supply, along with what it meant to counterfeit money.

You will probably have plenty of your own “teachable moments” that you can turn into money management lessons. If your child notices you paying your restaurant bill with a credit card, that is the ideal time to explain how credit cards work—that it is in effect, a loan, and you need to pay it back within a month to avoid interest charges. When your credit card statement arrives in the mail, show it to your kids. Let them see how interest is computed and compiled, and explain why it’s important to not rack up large credit card balances.

If your children are with you when you withdraw money from an ATM or write a check at a store, that’s the perfect situation to explain how checking accounts work. If your children are with you on trips to the supermarket, talk about your purchases as you shop and what makes something a “good buy.” When you’re watching television with your kids and a commercial makes an outrageous claim, use that moment to talk about how to evaluate advertising.

If you get “too good to be true” offers in the mail, that’s the time to talk with your children about scams and that you “don’t get something for nothing.” These kinds of “teachable moments” are effective, because they are real life examples. Your children can see for themselves how a financial principle you are trying to teach them can be applied in everyday life. That makes your lesson seem much more pertinent.

Learn to say “No” to your child’s wants

Kids are usually quite adept at begging and pleading with their parents for toys, electronic gadgets, designer clothes or other nonessential items. When they do, it’s not always easy to tell them “No.” Most parents don’t want to be the bad guy, nor do they want to “deprive” their kids of things others have. Still, Sandberg says, “You shouldn’t cave into your kids’ every whim—even if you can afford to buy them what they want, but especially if you can’t.”

Learning that you don’t get to fulfill all your wants is one of life’s important lessons. “Children need to experience some disappointments, because that’s part of life,” says Michael Gutter, Ph.D., family financial management specialist at the University of Florida. He suggests you explain to your child that there are things you would like to buy too but can’t afford. “That way he knows he’s not singled out; he’s not the only one not getting what he wants.”

Even if you can afford to buy these kinds of items for your children, you should still be very selective about how many of their requests you grant. “If you overindulge your children, they’re not going to know what it’s like to have to work hard and save up for things they want,” Sandberg says.

One way to respond to pleas for nonessential purchases is to tell your child she cannot have the item now, but could request to have it as a gift for her birthday, graduation, or other special occasion. Or, if you have preteens or teens, they are old enough to pay for a lot of their wants themselves—either by saving money from their allowance, or doing extra household chores to earn the money.

If it’s a matter of your teen wanting to spend more for a “need” than you think is reasonable (e.g., he wants the $100 skateboard shoes when you’ve only budgeted for a $50 pair of sneakers), you could tell him you’re willing to pay the amount you had earmarked in your budget, but require him to come up with the difference. “This will help curb feelings of entitlement,” Gutter says, “and make your teen personally-responsible for achieving his desires.”

Watch your own example

It was mentioned in the introduction, but is worth repeating: Your children learn a lot about money just by observing you. They watch what you do at the supermarket, department store, bank, mall, etc., and tend to mimic your financial attitudes, values and behaviors. Depending on what you’re doing, they could be learning some very good or not-so-good lessons.

Luke 6:40 declares, “Everyone, after he has been fully trained, will be like his teacher” (NASB). If you shop to entertain yourself or make a lot of impulse purchases, your kids are probably going to see that as normal behavior and do the same. On the other hand, if you always go to the grocery store with a shopping list, or only buy “big ticket” items after you’ve saved up for them, your kids are likely to adopt those practices.

You need to model good monetary habits. “If you set the wrong example, any talks you’ve had with your children about money management will fall on deaf ears,” says Anderson-Porisch. Your children aren’t going to be careful with their money if you’re careless with yours—even if you tell them to do otherwise.

That’s not to say that talking with your children about personal finances isn’t important. As has been stated throughout this article, it most certainly is. Your children need instruction and guidance from you about how to budget, save and shop wisely. But it’s your example—you showing them that you’re carefully managing your own money—that helps them see that these steps are more than just an academic exercise and that they really do matter.

Clearly, you may need to change some of your own spending habits so that you are modeling the right behaviors. But with today’s economy as uncertain as it is, that’s something you should be doing anyway. Now is the time to cut out unnecessary purchases, pay off credit card debt, and build up your savings—for the sake of your family’s financial well being.

The fact that your children are watching your example makes these steps even more vital. They’re learning lifelong money habits from you—both in terms of what you say and do. They’re looking to you to show them how they should manage their own household finances someday. The Bible instructs, “Let your way of life be without the love of money, and be content with such things as you have, for He has said, ‘Not at all will I leave you, not at all will I forsake you, never!’” (Hebrews 13:5, Modern King James Version).

It’s up to us, as parents, to make sure our children are developing good money habits.

Further reading

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