Updated February 25, 2014

How to Raise Money-Smart Kids

Read more about Kids and Money

Are you guessing that your child will turn into a financial whiz or a spoiled brat? We'll take a wild guess that you're hoping more toward the former. While your kid's lemonade stand business may not blossom into a multi-million dollar enterprise any time soon, such endeavors can lead to valuable lessons about earning and saving, which – and again, we're guessing – you didn't learn too much about when you were growing up.

Your goal at this point is to teach them ways to make wise financial choices, not necessarily create the next Mark Cuban. It’s easy, though, to make some serious mistakes in your role as a money mentor and, in effect, raise money-hungry kids who are more concerned about the quick high they get every time they buy something. Consider the CreditDonkey do’s and don’ts so that you can foster a good financial spirit in your kids.

  • Money-hungry kids have no clue about personal finance.
    Smart-money kids receive valuable money lessons when they’re old enough to handle it.

    Start the monetary education when your kids are young. Children are very receptive to money lessons between the ages of 8 and 12, according to Lewis Mandell, a SUNY-Buffalo professor and researcher in financial education. The sooner you introduce them to planning, budgeting, and entrepreneurship, the faster they’ll absorb that information. It is up to you: They might be learning a good deal of reading, writing, and arithmetic at school, but your children’s education system is not likely teaching them the ABCs of financial planning. So be up-front about money and look for opportunities to talk about your views of it, such as when you pay your bills, when you debate whether to make a purchase, when you put together the household budget, even when you get a raise or consider whether to change jobs. If they don’t hear about the highs and lows of money management, your children will be clueless when they have to start doing it themselves.

  • Money-hungry kids have no cap on their spending.
    Smart-money kids understand the value of the dollar.

    Just like playing an instrument or playing a game, the only way to understand money is to practice. And the only way to practice is an allowance. Stephanie Gallagher, a financial planning author, suggests that you dole out an allowance every week. Let your children do what they want with the money after they take 10 percent out and put it in a savings account. That way, you’ll teach them the value of socking money away as well as how to save for something they really want. If they blow their cash each week, on candy or Rainbow Looms, they’ll soon realize the limits of how far their money can go and that they’ll need patience to save up for something more, like a video game console or a bike. Practice may not make us perfect, but it at least makes us more knowledgeable.

  • Money-hungry kids give in to temptations.
    Smart-money kids know how to budget.

    While learning about banks and interest is important, so too is good old-fashioned self-control. Neale Godfrey, the founder of the Children’s Financial Network, recommends that parents gradually lengthen the time between children’s “paydays” as they get older. When they get to sixth grade, for example, start giving your children their allowance every other week and then just once a month when they enter high school. By increasing the time between these stipends, your child will learn how to budget wisely and get a real-life lesson in cash flow.

  • Money-hungry kids are lazy and expect money to fall from the sky.
    Smart-money kids have entrepreneurial spirit.

    Everyone could benefit from Business 101, even those who are not destined to become CEOs. Nurture your children’s entrepreneurial spirit by exposing them to the ways of business operations. Help them start and manage their own business, whether it’s a lemonade stand, a lawn mowing business, or a company that revolves around a unique idea that your child dreams up – like Cassidy Goldstein, who struck gold when her parents helped her bring her invention, a crayon holder, to market. Coach them on the basics of running their own business, such as coming up with a price list and soliciting customers or vendors. Talk about how you have to spend some money to make some money, but also find a balance between the two. Your children will be better employees years from now – and perhaps even the boss one day.

  • Money-hungry kids are finance illiterates.
    Smart-money kids know at least the basics about finance.

    Even if your children’s school isn’t helpful in your quest to educate your children about money, you don’t have to take on the entire burden yourself. You could send them to a summer camp like Camp Millionaire for a cash-focused course that teaches kids the basics of budgeting, saving and planning. Or you can direct them toward a variety of educational games to play in their spare time. Consider Green $treets: Shmootz Happens!, a smartphone app where players use their money management skills to help endangered animals survive in a fantasy world. By having fun, your child will learn how to set financial goals, how to earn money, and how to make intelligent spending decisions. If you want to introduce your child to stock market investments, a simulation game like EduStock, where kids buy mock portfolios and watch them grow over time, will do the trick. Or turn to tried-and-true board games like Monopoly for a family game night masked as a chance to give them the lowdown on building funds and making investments.

  • Money-hungry kids have no idea about the stock market.
    Smart-money kids have some exposure to the market.

    To help your child learn about making good stock market investments, let them open up their own fund. Stein Roe’s Young Investor Fund, for instance, is geared toward kids and features a low monthly minimum. What’s more, this fund cuts down on the financial lingo so that your child easily understands what’s happening with their fund and why - the prospectus, the statements, the shareholder proxies, and the annual report are all written in elementary school language.

Whatever values you most want to instill in your children, one of the most important – for their future well-being and success – is financial in nature. Give them the knowledge but also step back when you can to give them the freedom to manage their money without your help. You’ll get them enthusiastic about the idea of building up their cash while equipping them with the tools necessary to invest and manage finance in an intelligent way as adults.

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