What and how to teach your child about Money

When should I start to talk to my child about the concept of money? The answer should be: always, whenever the topic comes up. Do not wait for a good moment. Instead, whenever you go shopping and your child is with you, when you play pretend “market” at home, when you go to work, when your child asks to buy something – use this opportunity. It is never too early. Money should feel like a normality, and we should have a confident, positive vibe about it, with an angle on abundance and being in control. Early experiences affect the development of brain architecture, which provides the foundation for all future learning, behavior, and health. This will, step by step, develop children's financial intelligence and financial literacy in the future.

How does one tell a child about the concept of money?

There are dozens of ways, what is consistent throughout them is to avoid talking about money in an edifying way. Pretend, instead, to be David Attenborough: with a calm but excited tone of explaining the structure of the universe, or the way a little bug is emerging from its home in a tree trunk to explore its surroundings on a bright but chilly spring morning. Avoid the likes of ?Listen carefully, you must use money wisely! You should know the value of money!“ Nobody, and especially children, will find it easy to resist the natural fight of flight reflex when a concept is presented in such a way… Make it rather into a format of a fascinating history of a wonderful world.

Here is my suggestion, but you can be as creative as you please, and develop your own story, whatever tickles your fancy:

1.????Start with a familiar scene setting: many many years ago money did not exist. During those times some people hunted, others crafted the arrows to arm the hunters, others made clothes to dress the rest, and plates to eat the food together. And so, people exchanged their produce with each other.

2.????Time passed, and everyone accepted that exchanging was not very convenient, often not very fair and sometimes plain impossible to execute. It was often hard to agree. Fans of Disney’s Beauty and the Beast can quote the feature’s prologue lines to add relevant examples and a romantic flavour: [Once upon a time in a faraway land, a young prince lived in a shining castle. Although he had everything his heart desired, the prince was spoiled, selfish and unkind. But then, one winter's night, an old beggar woman came to the castle and offered him a single rose in return for shelter from the bitter cold].

3.????And so a very creative person came up with a concept of ?money“– a common item that could be exchanged for all goods and services. People made sure the items of money were easy to carry with them everywhere, to enable their exchanges whenever they saw something they needed or liked.

4.????Money helped to make the exchange fair as it became an equivalent of people’s efforts costs – whatever they produced. Something that was easy to “make” - like bread - needed less money to exchange for than something unique like a rare stone, a bicycle or a house. ?

There are a few cartoons on YouTube you can watch if you find it difficult to tell a story yourself, in all languages. Shop or Market play pretend with your child is also fun to explain this in action. In Germany, Bundesbank is even offering a free play set of Euro coins and banknotes you can order here.

History comes first, but even earlier than that enters the groundwork on several other topics, which are important behaviours and cultural carriers of sustainability and confidence.

1.????Discussing why it is bad to deceive others. A good angle to pick-up here, without the need to be too philosophical, is that the person who lies does not feel good. When you lie, you make yourself feed bad, regardless of the effects on others. Moreover, when you lie, other people can notice it. You can point your child’s attention when watching a cartoon or a movie: a character told a lie and they start to behave differently: seem more irritable, their eyes are running around, the laugh is somewhat hysterical. Teach your child to spot lies. It is apparently an important component of financial literacy.

2.????Importance of contributing to the greater good and doing your best to add value. In contrast to lying, doing good, being kind, helping others makes us feel great. And it does not matter whether that is pro bono or we get paid for it. You can ask your child to reflect on their own feelings: do they feel better when they helped someone, or when someone helped them instead. Pay it forward (rated 12, but do cover this topic much earlier) is a great movie to watch on this topic.

3.????Gratitude. Being thankful and showing appreciation is one of the golden qualities leading to healthy ambition, better relationships, and higher results at school. In positive psychology research, gratitude is strongly and consistently associated with greater happiness. Gratitude helps people of all ages and walks of life feel more positive emotions, relish good experiences, improve their health, and deal with adversity. But, it is important not to force your child to say the obligatory ?Thank you“ as this will make them more polite than grateful. Feeling of gratitude cannot be forced, especially through the storyline of guilt, or comparing to those who have less than them. What helps instead is positive thinking. Noticing good things that happen, no matter how big or small those are. Sharing positive things in your family circle at dinner, or writing in a diary will have a great effect. You can practice finding good qualities in negative characters in cartoons you watch. And finally, another movie recommendation for this item: Pollyanna (rated 0).

4.????Encourage your child to differentiate between a “Need to have” (food, shoes, transportation) and a “Nice to have” (latest model of a mobile phone, 5th Barbie, extravagant pudding). While it is important to teach the difference between these, we should not diminish the importance of ?nice to have“ thing: it is not wrong to want them, aspiration and ambition is great. Just the priorities in acquiring these things vary. Nice to have things can be delayed and planned for. To teach this, you can play a game, e.g. drawing various items on cards and asking the child to sort them into two stacks, while explaining why they did what they did.

5.????Attitude to toys. Do you know that having too many toys can negatively impact child’s development (ability to concentrate, creativity, resilience). Studies show that after the age of five is it best to limit the number of toys available at one moment of time for the child to engage with to a range of 5-10. This helps the child to concentrate better, be more creative and value the toys he or she picked. This could be done on weekly rotation basis, when the toys are swapped week after a week from the ?toy storage“ at the back of your house. This helps to start to grasp the concept of conscious consumption already at a young age: ?how much do I really need“. As no child really needs 20 cars or 15 dolls. Very often parents buy toys rather for themselves, to compensate for what they did not get as children, rather than what their children really need right now. Find another way top lease your inner child ;).

6.????Teach your child to exchange. This can also be done through a party! Invite guests and ask them to bring things that they don’t need (toys, games, books, clothes) but are in still good shape. Throughout the party facilitate an exchange: children will get something new without any money changing hands. This contributes to sustainable consumption.

What to do when your child asks for something very pricey?

Another bit of research shows that parents are mostly guided by the “my child wants it” principle when they purchase something. Start by discussing whether this is a ?need to have“ or a ?nice to have“ item first. Regardless of an outcome of that question, and whether you can easily afford it or not, ask your child to consider options on how they can get the item they want. You can set the goal and then support your child in finding ways: saving, making some cash by helping others or running the likes of a lemonade stand, asking for money as presents for an upcoming birthday or other significant celebration. Be creative and teach your child to identify such opportunities. And be kind to your child’s needs, don’t be mean to them for wanting – wanting things is good.

Money and homework.

Never give your child money for good marks or studying. Knowledge is the most precious currency in the world, and the biggest asset anyone can acquire. Same applies to sports, winning in competitions, etc. Such things are valuable on their own. When you start paying for good marks, your child will think that it is the parent who needs them, and not the child herself. The child should want to do these things out of interest and passion. This will later ?translate into their work occupation.

Same concept applies to picking up household chores: by sharing these children add their own value into your family’s household. They feel better, when these tasks are not imposed on them, but fully given as accountability without ?micromanagement“ – think Total Responsibility Transfer. Trust them to do this independently. For example, your child can be accountable for taking out the paper rubbish, or checking the post box – pick something age appropriate with a decent level of effort required. Make sure that you do not interfere and ensure to fully support them taking up this accountability on their side. This will make your child feel like a valuable member of your family at every age. And never pay your child for those chores which you yourself do for free. If you, however, pay for garden work, but your child wants to make some extra money, you can allow your them to do this and pay them accordingly. However, in this case you need to make sure it is age appropriate and that you accept the work with a similar standard and attention to detail of delivery as you would have done if you hired an external person.

What if you REALLY feel you want to incentivise your child for doing something well and making you happy: tidying up his room exceptionally quickly and with a smile, a day without fighting in a multi-sibling household ?. Instead of a new toy you could give her or him a Parent Coupon (only sometimes, to avoid it being taken for granted). This could be a coupon for reading an extra story before bed, 15 minutes extra gadget time, pancakes with Marple syrup for breakfast during the week, watching a movie of their choice together, and so on...

Pocket money

Congratulations, your child turned five! From now on, real pocket money is supposed to be a must: it is the only way to learn how to manage their funds, and in time, following several rounds of insignificant mistakes, become naturally good at managing their assets. It helps children realise how much things cost and what they really need or want to have. Finally, it brings down the risk of stealing.

1.????Gift your child 3 items that could act as money banks, any small boxes, purses, jars will work. Tag them: “Save”, “Spend”, “Do good”.

2.????Take a few deep breaths and accept the fact that your child WILL start by spending the first money on things that you will consider complete and utter nonsense ?. Do not judge. It is an important period.

3.????Praise your child with growing up so much that you feel they are ready to start getting their own pocket money.

4.????Explain that from now on the same day every week for the next year you will give them money in the same amount – this is very important to teach discipline.

5.????Highlight that this is not a salary, as salary is paid for certain efforts. This is pocket money so that the child could learn how to handle money and could also buy themselves what they personally want, whatever it is. Children usually are very happy to hear this news.

6.????It is essential that regardless of your child’s behaviour, you never stop to give the pocket money in the agreed way. Otherwise, it will become financial abuse, which are never normal.

7.????Finally: until about 12-14 the pocket money should only come in cash, not bank cards or virtual wallets. For the proper learning experience your child really needs to be able to “touch” the money, to feel their weight in coins, to see the banknotes and how they stack up in their wallet. This is an important image for their future considerations and attitudes. This will also help them learn to count much faster than other methods.

Okay then, but how much?

Every family should decide for themselves based on their overall budget. It not should be an amount for which you might begin to reproach your child for, when they spend it on things that seem pointless to you. It could, follow a certain rule: e.g. €0.5 euro for every year of life. Meaning that at five your child will get €2.5 per week, which will increase as thy get older. Please adjust according to your situation but be consistent

Now let’s go over the 3 money banks:

“Save”: is for the short-term wants of your child, the things they want but for which they could wait to afford something special. Savings always comes first, before any other spending. You could recommend putting 20% for this purpose. Your child could print a picture of something they are dreaming about and attach to this box, and when the goal is reached you could make a little celebration and encourage your child further by adding a few % on top to recognise the effort. This is not far away from reality as your also get % in your banks savings account.

“Do Good”: is for charity, doing good is where the real power of money lies. Again, positioning is key. Do not pick a line saying that some people are poorer, have difficult lives and need help. Rather say that your child now has so much that they can easily share and bring happiness to other people. We want to be doing good from a position of abundance and making our world better place, and not from a position of compliance. Charity should be regular, not when something extreme (like a flood or a war) happen, so that it becomes a norm. Doing good and help come not only from monetary support but also from our deeds, help, donating items, time and attention. And of course, that charity begins at home ?. You could recommend putting 10% of the pocket money into the Do Good money bank.

“Spend” is what your child will have after saving for their dream and putting money aside for helping others. Do not give instructions on what they should be spending it, you might only want to suggest that food (and sweets) is something you will buy yourself.

In order to help your child to make better decisions you can suggest a “3-day rule”: if they think they want to buy something they could wait 3 days and buy it only if they still think they need it after that time.

The % are only as an example, maybe your child would want to save much more… The order is more important: save first, do good, and then enjoy spending.

What happens next?

Well, with very high probability your child will start spending on the things you don’t very much approve of. And it might drive you crazy… So, prepare! For instance, your child was saving for weeks to buy a new Lego, but when the moment came, she followed an impulse and bought random unplanned things. Clearly this was followed by tears and bidding to you, the parents, to get add the difference to the amount missing for the Lego. This is an important moment to stay strong and not to “save” your child. They will not remember this lesson if you do not let them deal with the consequences of the decisions they make. I know it sounds tough, but it really is the “marshmallow-test” kind of training. Even though you wouldn’t help your child with money – you can always help with knowledge and discuss how this happened and avoid it in future.

Talking about the money-related knowledge, what concept should you teach at what age.

3 to 5 years old. Teach the history, theory, where money comes from. Explain why parents go to work (see below). Play “Market”, “Need to have” vs “Nice to have”. Show what doing good means on your own example.

5-8 years old. Introduce the three money banks and starting to give out pocket money. It’s also a good time to explain how trade works: that in different kind of shops we can find different pricing for the same items. That there are sale periods throughout the year, usually after a large holiday or end of a season. That there are opportunities to buy (and sell) second hand via Ebay, Vestiare, 1stDibs. Wholesale and retail (I spent some time as Account Executive at Diane von Furstenberg and can confirm that the mark-up is ±70%). Prepare your child that there are payment processing and delivery fees, but that consumers are also protected by return policy and insurance. It’s a good age to understand these basics, even when the pocket money comes in cash and purchases are done in brick-and-mortar establishments.

9-13 years old. Regardless what formula and principles you applied to calculating the amount of weekly pocket money before, now is a good time to proactively ask your child how much money they need for their expenses. This is the time when children turn into teens, share less, and have more differentiated interests: some want to read or programme computers games, others want to go to the cinema or karting with friends. For this exercise you could teach them about writing up a spending plan or a budget, on which you could base your pocket money estimates. Of course, in a very age-appropriate way, no need for complicated excel models. You can give your child a nice note book to document what they are spending on, what they dream of having, and ideas on where they could earn money if they want to. This is where early entrepreneurial ideas are born. At this age you could also introduce a 4th money bank (this is the final one, don’t worry) – for long-term savings like education, car, travel.

14+ is the time to introduce a bank card, with a similar account split for the “money banks”, and physical cash should disappear. This will help you ensure the safety of your child, as you will be able to see where the money is going. The world is unfortunately sometimes not a very nice place and parents need to be able to help their children make the right decisions, and learn from their mistakes. Be careful to make sure your child is aware of the fact that you can see their spending, to keep the trust between you.

At this stage you should also explain the concept of investments, and suggest moving the savings accounts into an investment portfolio. You can explain how markets, shares, indices, ETFs and other products work, and where they can get information about the underlying assets to make investments decisions. Of course, it is important to cover risk that is involved but also explain the return and economic growth. Teens often find this topic fascinating and often become better versed than their parents, and discuss their portfolios with each other.

What to do if you notice that your child is stealing from you.

Stealing is too strong a word. Human brain continues developing until our 25th year of life, children find it very hard to control themselves until they are nine, or in some sources 12 years of age. So often even when they know that it is wrong, they cannot help it in certain circumstances. Do not leave money lying around, the temptation might be too high for the little people! Never punish by withdrawing the weekly pocket money, and do check if the amount myou are giving is enough (reasonably).

When stealing does happen, start by giving more undivided attention to your child, spending time together without interruptions, doing whatever the child wants. Psychologists say that this could be a child’s way of trying to get you to notice them and their needs (unrelated to money).

If your child stole from someone else, it is important to teach your child to bear the consequences: to return the item / money and to ask for forgiveness. The child should be doing it themselves, regardless of their age, and not hide behind the parent. You can be close to them and support them, but they should be the one to apologise. Instead of a strict punishment it works better to sit down together and talk to understand why, what led to such behaviour. After this you should agree between yourselves what will happen if such case happens again, action that the child finds fair (a month without gadgets, no travel with class, etc.). And certainly, if the history repeats itself, make sure you enforce this agreement. After a third time however, the only way is to go to therapy, either alone or with your child.

Talking about work.

Every family’s situation is different, but at one stage or another a family member will disappear in order to go to work. This concept of “work” might be quite vague for a child, and it pays (pun intended) to clear it out. In fact this is a change to set your child’s attitude to work for the future: to focus them not purely on cash generation, but on working because it is enjoyable, challenges us to grow, while surrounding us with exciting colleagues and expanding our horizons and get new experiences. And that it is our responsibility to make a choice what kind of experience we get in our jobs.

To upgrade the explanation you could, when venturing together with your child to a café, post office, supermarket, hair salon, or any other business outlet, play the following game: look around for people working in that place and discuss what these people are doing, what qualities and skills they need to be good at their job. Discuss together whether there are other people who were working “behind the scenes” who we cannot see (interior designer of an office space, cook in the kitchen, owner of a shop). Wonder together how much these people are working, how much they could be earning. Here you can teach your child that there are different jobs and ways of working. This makes your children prouder of you. You can use these as conversation starters to understand what your child would enjoy doing and try it out, or learn more about it. And of course, it is a great experience to take your child with you to your place of work.

Disclaimer: all children develop differently and parents should make judgement calls on what is appropriate for their situation.