Teaching Fiscal Responsibility To Children


Creating boundaries when they are young and allowing more freedom as they get older, produces children who are savvy about how and why they are spending their money.

Starting in kindergarten, and even before, children are learning about money; what coins and dollar bills look like, how much they are worth, and the symbols that differentiate them from each other. However, it is more likely that children are watching their parents use credit or debit cards to make purchases and do not actually see the transfer of money during transactions. Also, today many adults are struggling with money management and have incurred personal debt. Which then leads to the question, “How do we teach children about the value of money and responsible decision making?”

1. Earning As Learning

Start with a special place where your child can put their money; a money bank, jar, or wallet is sufficient. Talk about where money comes from and ways that you earn money. Usually money is earned through a service provided or product sold which is important for children to understand. Discuss how money not only buys items but experiences where they will not come home with a tangible object, such as time at a trampoline park.

Be creative with ways that your child can earn some money. Household chores that are expected without incentive should not be used as part of their earnings, however chores above the expectations can include an earning potential. For example, paying out $5 to help vacuum the car or clean the bathroom can help your child learn that if the work is complete in an acceptable, age-appropriate manner, they will be recognized. Teenagers can earn money mowing lawn, babysitting, or by performing other handy work, either for you or for others in your neighborhood. It might be difficult to begin teaching about money when your child has little money to actually manage, so this allows them to start of earning in small amounts.

2. Set Up A Savings System

Part of financial responsibility is spending within your budget and creating a savings or “incidental” fund for those moments when you need the extra money. Some money banks have separate sections that are labeled “save,” “share,” and “spend” to assist children in understanding how money can be separated. This will allow your child to keep track of their earnings and learn that not all of their earnings may be spent immediately.

You can pass this skill on to your children by having them set aside a certain amount of each dollar they earn, or are gifted into a save or share bank. This allows them to consider what they might want to buy right now (candy or soda from the story), are saving up for (video game), and how they can give back to the community (donate to a food bank or Toys for Tots).

Your children are also learning restraint, not spending all of their money at one time, or in one place, as soon as they have that cash in their hands. You and your child can set a financial goal before spending their money, teaching patience and earning money with extra work to reach a set goal.

Introduce your children to a bank by opening up a savings account in their name. Around the age of 10 to 12, children begin to grasp the concept of putting money in the bank for long term savings.

Modeling this for older children when you receive your pay each month by separating your money into accounts for savings, expenses, and giving shows them in real time with real money how this system works.

3. Matching Rewards

While evaluating the goal with your child and to create an extra incentive, you can offer to match or contribute financial rewards when your child reaches a certain goal. For example, once they have saved up $100 you will give them a $10 bonus reward; of which they need to distribute among their save, spend, share accounts. This might also be an incentive to restrain from spending once having $50 or $75 and hold on to earn that extra bonus.

4. Planning How To Spend

Children don’t automatically understand how much items cost on a day to day basis. When they see something on a commercial, or in a store that they want, they want it right then and expect that you have the money to pay for it. Children do not understand the other day to day expenses that take priority over their coveted toy.

So, how do you teach a child how to spend their money? Have children tag along at the grocery store with a set budget to stick to or look for similar products and compare prices. They can estimate what it would cost to buy  ingredients for a meal and then shop for them within a budget.

Show them the value of looking up the costs of what they want, watching for sales, and looking for coupons. Show older kids how to research larger items based on quality and reviews of the products with Consumer Reports or the retailer’s website before making a decision to buy the particular product.

Creating a budget based on ongoing payments or expenses can also be helpful when thinking about adding a new pet to the family, buying a toy that uses batteries, or maintenance of a car.

5. Mistakes Are A Part Of The Learning Process

Have you ever made a purchase that you look back on and wish you had made a different decision? Children are going to buy things that they later want to take back, or change their mind after it is opened. The financial risk is not that great for younger children who might go back and forth over which Transformer or Barbie to buy. However, with technology and entertainment costing increasingly more money, teenagers will be making mistakes that are going to be worth far more than 20 dollars. It is at this point that, as a parent, you need to decide how much of a mistake you are okay with your child making; pricey phone contracts, cars, or designer jeans.

There will be times your child’s purchase will be defective or not work properly. This is an important lesson in keeping a receipt until you are sure that you will not be returning this item. Have your child along when the item is returned and assist them in talking with the customer representative about what is not working and what the options are in returning the product.

6. Communication

Above all else, the most important thing about teaching financial responsibility to children is being able to communicate with them and having clear conversations regarding money. Creating boundaries when they are young and allowing more freedom as they get older, produces children who are savvy about how and why they are spending their money. They will understand the value of looking long term at saving for the future. Hopefully, having an open conversation will also allow them to talk about mistakes they have made and how to avoid them in the future.•


Jennifer Woodworth is a licensed clinical psychologist in private practice in Vista, CA. She has worked in the mental health field for seven years. Her husband is retired from the Marine Corps and she has three children ages six, eight, and ten.

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