How to teach your kids about money

Learning to save and spend wisely is an invaluable lesson.
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  • Updated:30 May 2011

01.Money lessons

father teaching son about money

Teaching your children about money is one of the most important skills you can give them to prepare them for an independent future. Kids who do not learn to earn, save and budget money often end up in financial difficulties as adults.

Here are some tips to help you instil an understanding of the value of money in your kids.

1. Give children control of money

If kids don't have control of money before adulthood, they learn that money will always be provided for them, and that they don't have to be responsible for their spending or their future. And when they finally get control of their own money, they apply those lessons, by spending liberally and not worrying about the future.

Instead, give your kids control of money. Take some money that you already have in your budget, and give them control of it. For example, if you currently spend $200 a month on eating out (to use a random figure), perhaps give your child control over $50 of that. And do the same for clothing and toy spending - don't add to your budget, but allocate portions of your budget to them. Give them complete control over that money.

The result will probably be that they spend too much on frivolous stuff at first. But when they want other things, they'll have to learn to save for them, and cut back on other areas. Eventually, they'll learn how to make decisions, through trial and error. It could take a while, but it's better they learn now than when they're adults.

2. Teach your kids about earning with pocket money

Some kids will receive pocket money to teach them about earning and managing money from a young age. There is no one rule for what age to start giving kids pocket money or how much they should get. It'll depend on how much you can afford to give them and how the money is to be used.

Sometimes, kids get a set amount of pocket money each week. Sometimes the amount of money will vary. You could choose to link the amount of money to your kid's age. For example, if you have a 7-year-old, they could get $7 a week. Most of the time, the amount of pocket money that a child gets would increase as they get older.

Whether kids should have to earn their pocket money is the subject of much debate. You can give kids pocket money without expecting them to do anything in return (something which doesn’t happen in the real world) or you can give kids a set amount of pocket money in return for doing household chores. Make sure the chores suit the age of your kids - like making beds, picking up toys and putting dirty clothes in the laundry. Kids will have to do other chores to earn a little extra pocket money. This can help them learn about the value of money and that it takes time to earn it.

Other parents believe doing chores is part and parcel of being a family and choose to give their kids pocket money for other reasons like getting good marks at school, on their birthdays, or as a special treat.

3. Teach your kids to save for money goals

Once they realise that there's more to money than just spending on whatever their latest impulse is, they'll want to buy something larger than the amount they have on hand. That's when you teach them about savings goals.

"You want to buy an Xbox 360? Well, let's find out how much that costs. Now that's how much you'll need to save. If you take $40 from your monthly budget, you could have that in 5 months. If you take $60 from your monthly budget, you could have it in a little over 3 months. But either way, that will mean cutting back on McDonald's and buying little toys every weekend."

You might also create a chart on the computer, that shows their goal, and little savings milestones along the way. That way they can get excited about watching their savings grow.

4. Teach children that reducing expenses makes goals come faster

This goes hand-in-hand with the above lesson, and if you teach them about savings goals, they'll probably learn this lesson on their own. It's common sense, and kids are smart enough to figure it out: if I want to get to a goal faster, I have to save more - which means spending less on other stuff.

But it's worth reinforcing with a discussion about spending and saving, and by talking to them about the decision they're making every time they spend money.

5. Teach your kids how money can make money

This is the lesson on investing, and it's a lesson many of us can learn. It's one thing to save, where you get perhaps 5% interest. But if your kids are going for short-term goals, they probably won't see much compound interest happening. You'll need them to make a longer-term goal, such as a trip once they finish school, if you have a teenager, or a down payment on a car, or even something a little smaller. Whatever the goal, teach them about how they can put their money in certain investments, and how those investments will grow over time.

That growth is their money earning money for them. It's free money, almost, but the cost is not spending on other stuff in the meantime, and getting into the habit of investing the money. And it'll help them get to their goals faster.

6. Teach your children how to create a budget

It doesn't have to be a complicated budget, but what you really want to teach them is how to plan their spending, instead of having a big wad of cash that keeps getting smaller with every impulse buy.

Something simple, like $30 for savings for a bike, $30 investing for a longer-term goal, $20 for a birthday gift for mum, and $30 for spending. Then teach them how to split the money up and how to keep track of what’s coming in and what’s going out.

More information

See the government’s MoneySmart website which includes a savings goal calculator and budget planner tool.

Sourced with permission from



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