Children and Money—Financial Responsibility


From birth to adolescence and from college graduation to having children of their own, children will always be linked to money and finances. Besides providing financially for their children, parents must make sure that their children learn about the proper management of money.

So, how do children learn to manage money?

Should they learn at school, from social media, their peers, by mismanaging at first, or should they learn from watching their parents?

The answer is a combination of all the above. Children will learn many of their earning, saving and spending habits from a variety of sources. How can you make a difference in preparing your children or grandchildren to comfortably face the multitude of financial challenges they will encounter as they grow up?

At first glance, money seems like a simple concept and one that would not require a lot of education. However, the simple concept of spending less than you earn and saving is much more complex when you put it into action. Children learn about money very early in life, usually by spending it, then hopefully by earning it! Introducing smart and frugal financial habits at an early age is a great way to help your children prepare for their own financial lives.

If you take a look at all of the financial difficulties that we encounter as a society, it becomes obvious that there is a need for financial education. We all encounter many opportunities to educate our children and grandchildren about financial responsibility. Through financial education and teaching by setting a strong example, you could give your children or grandchildren an advantage in developing sound financial habits that will, hopefully, last a lifetime.

We all know the old saying, “Money can’t buy happiness.” Keep in mind that one of the main purposes of having children and grandchildren is to reward you with a lifetime of happiness. If you help them understand how to manage finances and money, you can help eliminate potential stress, financial burdens, and emotional strain that the misuse of money can bring.

This doesn’t mean that you should insist that your 4-year-old is prepared to manage money on their own; but it’s never too early to share helpful information when it comes to money. Starting early and adding new concepts as children become ready for them will build a strong base that can help them make wonderful financial decisions.

The goal is not to expect that your child will accumulate great financial riches, but rather to provide sound advice and values so that as adults they can avoid potential financial pitfalls and live comfortably and financially stress-free.

Here are several things that you can teach your children or grandchildren about money that can help them:

Educate and empower your children or grandchildren to become regular savers and investors.

Take an active role in teaching children to keep more of the money they earn. Teach them to be thoughtful in what they spend their hard-earned money on. Everyday spending decisions that they make can have a great impact on their financial future, even more than many of the investment decisions they will make in their lifetime. Teaching children how to think about saving money rather than spending it on toys and trendy items can hopefully prepare them for later in life when those decisions are much bigger, about sport cars or expensive vacations. These types of discussions should not be a one-time lecture, but rather consistent and regular dialogue so the lessons learned become part of that child’s personal fabric.

Teach your children the difference between a need and a want.

One of the most difficult concepts for children to understand is the difference between a basic need versus a want. Helping them rationalize and learn the difference will teach them about how to spend and allocate their money so that as they grow into adults they have a healthy relationship with money. It is okay to allow children to give in at times to wants and wishes, but it is important to teach them to distinguish the difference. Many adults struggle with this balance and sink into debt because they cannot distinguish and control their spending habits on frivolous wants, versus frugally spending it on needs. It sometimes seems our society encourages us to spend indiscriminately and buy items that are not necessities. This makes it even more important that you give your children a financial education. Find ways to teach them that they should first look to meet their everyday needs, plan for emergencies, grow their savings, and finally consider spending their money on “want” items.

Introduce the concept of saving versus spending.

It might not be appropriate for you to dictate what your child saves versus spends, but it is certainly helpful for you to teach the concept of earning interest and potential growth on savings. Consider opening an interest bearing account with the money children save at home or possibly offer them a small interest amount on money you save for them. Show them how you calculate that interest and have them watch it grow! Some parents even offer to match what their children save on their own so they feel encouraged and are rewarded for saving their money.

Use your own regular shopping trips as opportunities to teach your children or grandchildren about the value of money.

For many children, going to the supermarket is one of their earliest and most frequent spending experiences. Groceries and household items are an important use of our earnings and spending smarter at the grocery stores can help the family better allocate finances to different areas. When possible, use coupons and look for sales as ways to show children strategies that help them reduce the recurring but necessary spending. Make it fun and have them search out coupons on items that you regularly use. Another learning tool is to show them how to compare unit prices and values. Try to train them to constantly look for ways to save and avoid being wasteful. One strategy is to plan your supermarket trip and purchases by making a list in advance and then teach your children not to impulse buy.

Alert children to the dangers of borrowing money and paying interest.

Unfortunately, parents and grandparents don’t usually charge interest on large or small loans to their children and grandchildren. Therefore, children or grandchildren never learn how expensive it is to borrow money! It is never too early to teach children that paying for something over a long period of time with a 12-18% interest rate means that although the buyer may pay less up-front or per month, they pay far more for the purchase over the time of the loan.

Think about establishing regular family discussions about finances.

This can be especially helpful for pre-adolescents and teenagers. It can provide the time to discuss topics like cash, checks, and credit cards. You can talk about wise spending habits and the proper use of credit, a problem that plagues many people later in life who have not learned this lesson. It is helpful as well to discuss what is happening both nationally and locally in the economy and how it can affect or change your thought process about economizing.

Review your allowances and expectations.

Many experts differ on whether or not allowances should be tied to household chores. Some say children will learn more about personal responsibility if they are not paid for helping out at home. Others feel it teaches a valuable lesson about working and earning. One way to solve this issue is to let your children know that good grades and regular help around the house is expected as a price of family life. You may want to consider paying your children for chores outside of the daily duties, such as washing the family car or working in the garden.


There is no assurance that any child will accumulate sufficient financial knowledge. A good goal is simply to provide guidance and help your children or grandchildren learn the basics of personal finance before reaching adulthood. It is never too early or late to sit down and discuss finances with your loved ones. Financial responsibility is a necessary, life-long skill.