Teaching Kids to Be Money-Smart

By Bob Masterson

“Teaching kids to be money-smart” doesn’t happen overnight. Skills and behavior have to be nurtured over time. The skill lies in learning the value of saving, giving, and spending conscientiously and understanding the difference between wants and needs. The behavior comes from the habits formed in doing these things over time and learning from mistakes.

The earlier you start your child on this journey, the better. Children quickly grasp the concept behind spending money, and soon their appetite for “things” can be insatiable. How can we best instill in our children the value of money and living within one’s means?

An allowance is a great means to teach children how to manage money, develop budgeting skills, and encourage independence. By giving your children an allowance, along with the associated responsibility to pay for items and activities they want to enjoy, you can successfully help them to learn that money is a limited resource and to realize the benefits of budgeting it wisely.

How much allowance should you give? As a general rule, allowance should be tied to the expenses you expect your child to cover. It should also designate amounts for saving and giving. In our house, we begin giving an allowance of 50 cents a week when a child turns 6. Ten percent of a child’s allowance goes towards charity, 30 percent toward college, and 20 percent toward long-term savings. Each child is given freedom to determine what she or he will do with the remaining 40 percent of his or her allowance. Our children are responsible for purchasing “extras” for themselves, purchasing gifts for others, and funding personal entertainment expenses.

For example, our son recently downloaded a video game that he purchased with his spending money. This was an impulse purchase, and my wife questioned him about the wisdom of making this purchase, knowing he had no spending money left. That weekend his friends invited him to see a movie he had been waiting to see, but he was forced to decline the invitation because he had no spending money available. Now that was a teachable moment!

Teaching our children to think through their decisions before proceeding helps them to understand a fact of life: “If I buy this, then I won’t have enough money to do that.” Making wise spending decisions can be difficult, and it’s our job as parents to help our children learn how to be good stewards. We would rather our children learn by making small money mistakes now than by making larger money mistakes later. Our children enjoy the responsibility of managing their own money and have learned—sometimes the hard way—to make adjustments to their finances as priorities or unexpected events occur. The practice of wise stewardship is a skill that will continue to pay dividends when they are out on their own.

So how do you help your child learn how to budget? Identifying specific goals and working toward achieving those goals is an easy and intuitive way to begin. Whether it’s a long-term savings goal, such as college tuition, a vacation, or the purchase of a car, or a short-term goal such as the purchase of a video game or a donation to charity, establishing a goal is the first step toward accomplishing that goal. Amazingly, 97% of the population doesn’t take time to set goals.1 As Benjamin Mays wisely stated: “. . . The tragedy in life doesn’t lie in not reaching your goal. The tragedy lies in having no goal to reach.”

My oldest children were saving up for the purchase of an electronic game, which they wanted by Thanksgiving of last year. They each set a goal equaling a third of the total cost and then calculated how much they needed to save each month if they were to achieve their goal. A visual reminder of their progress helped motivate them even more to achieve that goal. The boys were ecstatic when they not only met their goal but actually reached it two weeks ahead of schedule.

Besides creating goals to save for things they want, our children are responsible for giving to charity and for saving up to buy gifts for family and friends. This means they must prioritize their goals and also must frequently postpone reaching a personal savings goal in order to ensure they reach their charity or gift goal. It’s been amazing to see how they have responded so generously in their giving to others—and without complaint.

The establishment of specific goals, combined with visual reminders of their progress, has helped our children see the bigger picture, prioritize more effectively, and make wise money decisions. You, too, will be amazed by the change you observe in your children when they begin putting these simple skills into practice. Habits form early and become more difficult to change the older we get. Don’t put it off!

Bob Masterson and his wife Mary homeschool their nine children—eight boys and one girl—in Rochester Hills, Michigan. Bob and his good friend Jeff Eusebio co-founded FamilyMint to help their own kids and others become money-smart.FamilyMint.com was designed around the concept of SMART goals—goals that are Specific, Measurable, Achievable, wRitten, and Timely. The FamilyMint website provides a simple and fun tool (for kids aged 6–18) that teaches and reinforces the concepts that help create money-smart kids. For more information and to use FamilyMint with your family, visit FamilyMint.com.


1. http://www.affirmations-for-radical-success.com/personal-goal-setting.html

Copyright 2010. Originally appeared in The Old Schoolhouse® Magazine, Fall 2010. Used with permission. Visit them at Schoolhouse Store, where shipping is always free! (U.S. only)