Developing Good Financial Habits for Your Family

Show Me The Money (Then Show Me How to Use It)

By Lydia Rueger

They're going to find out sooner or later, so they might as well learn it from you instead of on the street…

Girl with Piggy BankThings cost money. And money has to be earned. Enough said? Well, not really. But the good news is, they’ll probably listen: According to a poll by Northwestern Mutual Foundation’s, seven out of ten teens say parents influence the way they save and spend money more than celebrities, TV shows, teachers and friends. Dr. Vaneesha Boney, assistant professor of finance at Daniels College of Business at the University of Denver, finds that when discussing career and financial aspirations with her students, they frequently cite one or both parents as their main motivation and source of guidance.

The bad news? Financial worries are the leading cause of chronic stress in America, according to a study by the American Psychological Association. What’s more, one of the fastest ways people develop unmanageable debt is from credit cards accumulated while they were young, according to Cheryl Swanson, financial consultant for AXA Advisors in Denver. In a culture where kids are bombarded with stuff to buy, as well as the technology to buy it easily, helping them develop good financial habits now will allow them to grow into responsible individuals in all areas of life.

Start Young

Once children have learned the value of coins and paper money—around kindergarten or 1st grade—starting an allowance is a great way to begin teaching them about finances. Richard Martinez, president and CEO of Young Americans Center for Financial Education in Denver, says that the “sweet spot” for teaching kids is between the ages of 5-14, when they are most eager to learn and develop money habits. (For more on allowance management, see the sidebar, right).

Another key to starting young is empowering kids to control their own fi nances. The Young Americans Center includes a real bank only for ages 21 and younger to open savings and checking accounts, apply for loans and more. Martinez says it’s amazing how quickly they catch on and can do their own banking.

Swanson at AXA Advisors, who is also a mom of a 12- and 9-year-old, has seen the results of starting young firsthand: "My kids know how to evaluate items in the store based on quantity, volume, brand and often, per unit pricing. My son especially likes to barter certain big home chores like vacuuming or shoveling for funds to buy something he wants. It pleases me to see his creativity and clear connection between work and money at such a young age. My daughter is a good saver for longer term goals already, which I attribute to all those early money discussions."

Talk Honestly and Be Positive

If you did not have good financial role models and have made money mistakes yourself, admitting these mistakes to your kids can help make talking about money more comfortable. Tell your kids how this made you feel and what you learned. Also, teach them about the family’s current financial situation. Be honest if you cannot afford to buy something or go somewhere. Explain how much money comes into the household and how much goes out. If you are not comfortable sharing the actual dollar amounts, Swanson suggests using percentages.

What doesn’t work, experts agree, is lecturing without allowing real-life money experiences. Avoid comments we’ve all heard like “money doesn’t grow on trees,” and “do you think you deserve that”—these only create negative attitudes about money without possible solutions.

If talking about money still seems difficult, seek out online resources or a financial consultant. At, parents can find money management talking points for middle school, high school and college students.

Create Teachable Moments

Once you’re talking, it’s time to put money lessons into practice. Here are a few fun suggestions from the experts, to suit a variety of ages:

• Send your kids to a candy store with one dollar, and tell them to come out with as much candy as they can. They’ll quickly learn which items offer the most bang for their buck.

• Have your kids count their coins to make dollars, then ask parents or other family members for a trade.

• Let your kids pay store clerks themselves for small items, using cash and change.

• Allow students to take a bigger role in school fundraising drives by handling the collections and counting of money as well as the selling.

• Organize a mall scavenger hunt. Compile a list of items to find, divide the group into teams with cameras and take photos of items on the list. The team to spend the least “money” with the items they photograph is the winner. Try a similar game at home by having kids print or cut out list items from newspaper flyers and online coupons.

• Seek out community-sponsored financial education activities and organizations, including those offered through Junior Achievement and the JumpStart Coalition.

Consider Personality

As with other child-rearing issues, it is important to remember there is no one-size-fits-all formula when it comes to teaching your kids about money. You might have a saver, a hoarder or a spendthrift in your home, or perhaps one of each. Determine your child’s money personality by watching how they handle their allowance, or how they shop. What motivates one may not motivate the other, but as you continue to prioritize money management in the home, you’ll see their financial strengths develop.

Allowance Management

Financial experts are often asked “how much allowance should my kid receive?” but many are hesitant to throw out numbers. It’s less about the amount and more about the learning opportunities allowance can teach. Here are a few guidelines:

Make sure you can afford it. “Allowance should be determined out of the parents’ discretionary income,” says Lori Mackey, financial speaker, trainer and founder of Parents should set the example of living within their means first. If there is not extra money for allowance, think of ways your kids could make money outside the home.

Divide it up. Employ a rule of spending 70 percent, saving 20 percent and donating 10 percent to a charity for each allowance given. Pay them enough to implement the system. Of the 20 percent savings, consider saving 10 for a long-term goal and investing the other 10 percent. For younger children, look for a piggy bank with divided sections, available at and at Young Americans bank.

Decide what the kids will pay for. Mackey suggests fi rst determining how much you spend on each child per month. Then, ask yourself if you are willing to let your children earn that amount of money themselves. If it’s an unreasonable amount, cut back. To compromise, decide what extras you will expect your child to cover with their allowance and which you buy. Be clear what is expected of them, and in turn, make them aware of what you are already spending.

Set goals. Starting even a small college fund that your child adds to sends the message that college is a goal you hope he will pursue, according to Raising Financially Fit Kids by Joline Godfrey. If your child desires an expensive toy, camp, extracurricular activity or pet, talk about when they will reach their goal. When it comes to investing, look at the things they are interested in and consider investing in that company, such as Disney. When it comes to donating, if you tithe to a church or religious organization, talk with your kids about why this is a priority and how it helps others. Your child may wish to donate similarly, but if not, seek out charities that suit their interests, like animal shelters or Christmas gift drives where children buy presents for kids their age.

Use it to teach responsibility. Whether your kids are responsible for set chores to get an allowance, or if you offer individual amounts for specific tasks, allowance can be a motivator for kids to learn what needs to be done in a household. “Allowance teaches work ethic, and employers are going to hire people with a good work ethic,”she says. Mackey likes to use allowance as a motivator to break bad habits and create good ones— from brushing teeth to reading for school. “In life, there are rewards for hard work. I like to reward my kids for a job well done that will benefi t their future.”

Lydia Rueger, an Avarda, Colorado mom of two, was taught to save for college from the day she was born. She's excited to teach her kids the same.

Forst published in Colorado Parent Magazine, April 2011.