How To Teach Children To Manage Money

The “Dollars & Sense” column in the Milwaukee-Wisconsin Journal Sentinel has an interesting list of ideas for how to instill some financial competence in your child. It starts with the basic skill of learning how to delay gratification, then moves on to increasing levels of personal responsibility, so that by the time you’re dealing with a teenager who craves independence, you’re handing out a full year’s allowance in January and tasking him with managing it properly.

One thing the paper suggests is playing with pretend stocks. If you’re curious about trying this out but don’t know how much work might be involved, check out WeSeed.com, a 100% fake stock market simulation that uses data from the real world market, including real companies, so that you can safely learn how the market works in real time.

“How to teach children to be smart with their money” [JSOnline]
WeSeed.com
(Photo: Jeff Kubina)

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  1. big-mike says:

    I know plenty of adults who can very much benefit from this.

  2. Eyebrows McGee (now with double the baby!) says:

    My neighbors encourage their now-12-year-old to invest (part of) his birthday and Christmas money. He does a bunch of research on companies he likes (Disney, Nintendo, whatever), decides if they’re good companies that make good products, his dad helps him work out if the stock price is good, and then he buys his 3 1/2 shares of stock. (And, unbeknownst to him, his parents are in cahoots with their broker to round that out to 100 shares in trust for him.)

    He’s been doing this since he was 8 or so, is very competent at keeping up on his stocks online, gets the relationship between performance and price, and will get a very nice little nest egg when he turns 18 or graduates college.

    I thought this was very smart. Although being able to afford rounding out that 100 shares could be the tricky bit. :)

    • IcePirate_GitEmSteveDave says:

      @Eyebrows McGee (on Twitter: LPetelle): 50’s a round # as well.

      For the longest time(literally years), I told my Dad to invest in like three stocks. I would follow them everyday and point out what they were doing(splits, dividends,etc). He finally got me shares(I didn’t want shares, I wanted HIM to invest, and years before!) for a birthday, and I am the proud owner of Schering Plough, AOL, and Lucent brand toilet papers.

  3. Anonymous says:

    This really works– starting in middle school (or essentially when my mother decided she really didn’t want to go to the mall with me every single weekend) I was given a clothing budget. We sat down, wrote out what I needed and the average cost, and set up one of those check cards for teens (I think mine was called Bux or something). I got autonomy, my mother promised not to criticize my clothes so long as they were school appropriate, and I learned how to budget. I’m the only one of my friends (all in our twenties) who knows how to budget, use credit wisely, and plan for large purchases. I credit my mother entirely.

  4. deadandy says:

    I’ve always done the 4-3-2-1 plan with my kids. Spend 40% of your money, save 30% for long-term goals (like a vacation), save 20% for short-term goals (like a trip to the bookstore) and give 10% to charity.

    However, my youngest daughter (8) has no interest in spending money. She just hoards all of it away. If she finds a quarter, she asks me to put it in her 529 account. How do I teach her money management??

    • vincedia says:

      @deadandy:

      Your day will come. There is not much an 8 y/o needs right now, but soon enough she will want for “things” and then she will get to learn about spending that savings.

      • Yossarian says:

        @vincedia: My soon-to-be 8 year old has been saving for a little over two years and is going to be paying for 1/3 of a new white MacBook this summer, if she doesn’t change her mind. She is super psyched that her delay of gratification is almost over.

    • Outrun1986 says:

      @deadandy: You have a good start here by getting her the account and getting her to save money. This is better, IMO than a kid who spends every penny on the latest fad. You can teach her about spending it when she starts to want things, especially big things that you as the parent don’t feel should just be handed to a kid.

    • Stephanie Young says:

      @deadandy: I was a money hoarder as a kid/teen. As a teen I mostly spent on movies/food but still saved significantly from my job. Now at 25, as some of my friends are buried in debt and student loans, I’ve got a substantial savings account, no credit card debt, and only financed about $3000 on my new car (which I financed to be good for my credit and bought because the other was was totalled in a hit and run). I don’t remember learning a lot of money lessons from my parents, but just watching their example helped me, I think. She’ll probably be fine!

    • supercereal says:

      @ deadandy: Doesn’t sound like any 8 year-olds I know. :)

      It’s definitely not a bad thing if a kid wants to save every penny, but a part of me thinks that kids should not have to worry about their 529 accounts and “financial state.” They should be playing in the dirt, buying ice cream and toys, and acting like kids. At 10, there is plenty of time left to teach them about money management without denying them a careless and worry-free childhood.

      It’s good to save, but not to be obsessive about it to the point where it’s all you can think about. (Not really directed at your specific situation, but just a general comment to all.)

  5. rockergal says:

    hmm my grandparents always taught me to play it safe with money. AKA save it in a savings account… seeing as how people have lost thousands in the stock market, and still are losing money, I get the last laugh.

    • GuidedByLemons says:

      @rockergal: …until get towards retirement and realize inflation has left you with insufficient savings.

    • supercereal says:

      @rockergal: The stock market is best used as a long term investment avenue. It’s easy to looks at the current losses and dismiss investing as a bad idea, but the fact is that long term gains will cancel out these losses, and in the end investors will have made far more than your savings account.

      You laugh now, but they get the last laugh.

  6. AstraBabble says:

    My sister has an interesting method with her three. they are 10, 11 and 12 and every time they get money, it goes into their savings account. For every month they don’t spend it, she puts $10 each in the accounts.

  7. GuidedByLemons says:

    Wow, I can’t imagine getting an allowance Junior year of High School!

    Mine disappeared around 13 or 14, and I earned money mowing lawns around the neighborhood for a couple years until I was old enough to get an actual job. Of course my parents paid for gas and lawnmower upkeep but that didn’t necessarily connect with me at the time ;)

  8. TEW says:

    deadandy-
    Your 8 year old is smart and I would not push too hard on her to spend her money. My advice would be to get her a high yielding savings account and teach her about the power of compounding interests. BTW she is like me and I am sitting on a large savings account and not worrying about debt. I also plan on having %20 for a house in my area. She sounds smart because she realizes that she has no expenses and can save everything.

  9. pecan 3.14159265 says:

    I think the first and most important thing to do is build trust between a child and parent. If children think their parent will be upset with them for doing anything wrong, they’ll spend a lot more time trying to be careful, rather than learning that sometimes risk equals reward. Children can’t be afraid of failure, but they should be taught to evaluate risk and reward. And trust is important for parents because they need to be able to see their children as young investors. Just because they’re children, doesn’t mean they can’t be trusted to handle some amounts of money smartly.

  10. Hoss says:

    This probably isn’t the best timing to teach a child about financial markets. It may be a very long time until the market starts acting normally. As a point of reference, I was born in the early 1960’s and graduated high school in the late 1970’s. Unless I had “invested” in Berkshire Hathaway, I would of experienced a very discouraging lesson in stocks since there was virtually no charge in the overall market in those 18 years.

  11. TEW says:

    @Hoss-
    This is one of the best times to teach your child about personal finance. You can teach your child about spending within your means so you don’t have credit card debt, not losing your house to foreclosure by not overextending yourself with debt, and the importance of an emergency fund because you never know what will happen so you can be prepared. In the bubble times we forget about the fundamentals while greed takes over.

    • Hoss says:

      @TEW: I certainly agree with that. But I don’t like the aricle’s concept of giving an allowance. Getting some money as a reward for completing a project (nice grades, helping paint a fence, etc) makes sense — giving cash as a ritual does not. We should also teach this generation a sense of community which means to me not saving every penny, but contributing on occasion to charity.

  12. ailema says:

    @TEW: He said ‘financial markets’ not ‘personal finance.’ Right now the only thing playing with fake stocks is going to teach your kid is to fear loosing all their money.

  13. aftercancer says:

    Our kids have divided piggy banks (by design) with sections for spend, save and share. My four year old is saving her share money “to help elephants” and my 8 year old has already sent money to a charity that help buy gifts for kids with disabilities. Of course he uses his spend money for bakugan so I guess he’s a regular kid.

  14. Brian Lee Jackson says:

    I’m currently at a Private University and so I need every penny I can get. I having been using Mint.com to manage my finances and if you haven’t already I highly recommend trying SmartyPig. You can set goals and earn 3.25% interest, more than any bank! Also, I like SmartyPig because with a Savings Account it is too easy to simply transfer the money back to checking when purchasing big ticket items. With SmartyPig it sort of creates that discipline that will keep you from spending it. Also, SmartyPig can be very fun and addicting! I was going to go to a Trace Bundy concert the other day but it canceled and so I immediately took that money that I was going to buy the ticket with and put it into SmartyPig. Also, today I just dumped $400.00 more in there :). SmartyPig also creates a social networking aspect which is crucial in today’s networking world.

  15. glitterpig says:

    That seemed like kind of weird advice. Wait until 8 to start an allowance? My daughter’s 5 and we do the save/spend/share split (25/50/25). Since we started about six months ago, she’s gone from “MONEY BURNING HOLE IN POCKET SPEND SPEND SPEND” to “I want one of the big Webkinz, which will take 10 weeks to save up for, so I’m not going to get this [random piece of plastic crap] today”. (Yes, we help with the math when she asks. Somehow saying “this costs 3 weeks allowance” is much more real to her than saying “this costs $6.”)

    If it’s not her birthday, saving’s the only way she’ll get any toys, so she’s caught on pretty quick. And I’m not saying she’s some kind of financial supergenius – I can’t imagine most kids not being able to figure this stuff out. Better to get all the mistakes out of the way early.

    Also, a lump-sum allowance in high school? WTF? Who gets paid on an annual basis? Better to learn how to budget a bi-weekly salary, including saving up for big-ticket items. Unless, I suppose, you’re super-wealthy and don’t need to worry about that whole “saving” bit of the equation.