Teaching Children About Money

by Jason Dean 

fnbodMy wife and I brought our first (and only) child into the world on August 26, 2006. Long before that, we had discussed and planned how we would raise our children. My wife, for example, had been subscribing to Parents magazine for the previous nine years, and we had both entered college as Child Development majors. I, of course, went on to study Finance, and this article examines where these majors converge.

I did not have the best financial upbringing. My parents were perennially in debt — each of them even filed for bankruptcy while I was a kid — and they didn’t talk about money much. They also modeled questionable ethical behavior when it came to money matters, which I could tell, even at a wrong age, was wrong.

But my parents did do something right — they didn’t micromanage my money. Whenever my friends got gift money or earned allowances, they were typically required to put some in a savings account or, worse yet, give it to charity. I, on the other hand, was allowed to do whatever I wanted with my cash, and I think it taught my financial responsibility at a young age.

With this in mind, my wife and I had always planned to raise our daughter in a similar fashion, but to an even greater degree. We want to teach her about money at a very early age, and by the time she’s in middle school (or late elementary, even) we want her to be making most, if not all, of her financial decisions on her own — with our guidance of course. Why give a child $5 a week and supplement that with gifts and “entitlements”? It’s far better to give them $25 a week and let them make their own decisions, I think. It teaches them responsibility and to appreciate the consequences of their decisions.

Recently, I read a review at The Simple Dollar of the book, The First National Bank of Dad. Simple Dollar’s review is very thorough, so you should check it out, but here’s one point I thought was particularly compelling:

When I was a kid, the idea of putting money in the bank was incredibly boring. The biggest reason was that the rate of return was slower than molasses – a year seemed like forever to me then and thus waiting a year for $100 to earn $2 more was unbearable – why not just spend the money now? This made me not want to save – it made me annoyed by it because my parents would make me save anyway. I had a similar feeling about my piggy bank.

So how can you make it so that children want to save? You have to speed up the compounding to the point where they can see the benefit. Owen opened up “The First National Bank of Dad” for his children and invited them to deposit their money. He would pay them a rate of return of 5% a month – enough for them to grasp the idea. If they gave him $20 and let him hold it for a month, it would earn $1. They could also withdraw at any time. Owen managed all of this in Quicken.

If my parents had offered me that, I would have jumped all over it, and Owen’s kids certainly did. On allowance day, they’d usually hand it right back – depositing it in the Bank of Dad – and he’d give them monthly statements on their money.

The First National Bank of Dad is on my Amazon wish list, and I’ll be sure to give a full review myself when I read it.

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6 Responses to “Teaching Children About Money”

  1. Nadine Aroyo on October 1st, 2007 2:46 am

    We are very interested in hearing more about your efforts to bring financial literacy to children, and help them be aware and secure their futures.

    We are OINK! the Business Newspaper for Kids, primarily aimed at 7 to 12 year olds. OINK! is pink, like the Financial Times, full of money matters for kids and is distributed FREE each month upon request to schools, libraries, children’s hospitals and sports clubs across the United Kingdom.

    Over the past four years we have built a steady reputation of bringing information about money and commerce to kids in a fun, creative and highly stylised way. The newspaper’s content is cutting edge, ground breaking and often thought provoking, and has won recognition from the National Literacy Trust and the Schools Library Association as an important literacy and learning tool.

    Amongst our many supporters, we are pleased to include the Bank of England, the London Stock Exchange, the Financial Times, ICICI Bank, Capital Disney, FUN radio, SEGA, Hamleys, SONY, Bandai.

    We have recently introduced the Piggybank® Fantasy Stock Exchange™ which provides kids with a fantastic opportunity to learn all about stocks and shares and play the stock market absolutely free.

    Below please find a link to our websites.

  2. Patrick on October 9th, 2007 5:43 pm

    The interest idea is a great idea! I don’t have children yet, but I also want to teach them a lot of things. Money smarts is one of them. I may just have to read this book.

  3. manicmama » Blog Archive » The Carnival of Family Life on October 14th, 2007 6:13 pm

    [...] presents Teaching Children About Money posted at Smart Money Daily, saying, “My wife and I had always planned to teach our daughter [...]

  4. Welcome to Carnival of Personal Finance #122 at Mighty Bargain Hunter on October 15th, 2007 8:18 am

    [...] Money Daily submitted, he did: Money is something you teach to your kid. Then Thrifty Penny is budgeting cleaner; A fat tax imposed makes you leaner and [...]

  5. Advanced Personal Finance » Blog Archive » The Carnival of Personal Finance 122 is up on October 15th, 2007 1:54 pm

    [...] Dean at Smart Money Daily has a short post on teaching kids about money.  I really like the idea of a ‘bank of dad.’  My wife and I briefly talked about how [...]

  6. Jhon Bordar on February 6th, 2008 9:38 pm

    the idea is wonderful and we are looking to do the best with our daughter as well.
    here’s a website i learned about on kiplinger’s
    they’ve been well reviewed. my kids love the materials

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