Teach kids important lessons about money

Updated: Oct 14, 2020

Parents want their kids to be financially smart, but It can be taboo to talk about money. Money is a delicate topic for most adults, so it can be difficult broaching the discussion with kids. However, it’s absolutely crucial to teach them a smarter way to handle money.

“Money doesn’t buy you happiness, but lack of money certainly buys you misery” said Daniel Kahneman. This has always been my favorite quote about money because most of us spend all of our lives trying to earn better salaries and higher statuses; but how can we ensure that money won't ever be lacking (in our lives)? Mostly importantly, how does our behavior towards money impact our children and how can we teach them the value of money, so that they end up being financially responsible adults?

One way to instill the importance of financial responsibility is by giving pocket money to kids. In the UK, 300 parents were asked to fill out a questionnaire on their attitude and behavior concerning giving pocket money to children. Professor and psychologist Dr. Furnham shows that 88.4% of them were in favor of allowing pocket money and parents want to start around 6 years old (Furnham, 2001). By handling money, the children will get a chance to learn how to save for the future and spend moderately.

Teaching kids about money can start as early as when they ask for toys. Given that parents want their children to succeed financially, they must teach their children that money is finite resource, where it comes from, and the difference between cash and credit. Researchers observed children’s behavior (from groups ages 6, 8 and 10) towards money (Abramovitch, Freedman, & Pliner, 1991). Kids were given $4 in cash or credit and were told that what they did not spend could be taken home with them. Interestingly, children who did not get pocket money at home spent more in the case of credit than in the case of cash, but those who received pocket money at home spent equally in both cash and credit groups. Introducing the dangers of credit early would be worthwhile to avoid large debt.

Having money issues within the household can trouble children’s well-being, which in turn will propagate to their future children. The first reason that low income affects households is that parents are unable to facilitate a good learning environment. It can be difficult to furnish things such as books, educational toys, a quiet space for studying, a healthy diet, and so on if the household is under financial duress. The second reason that low income is that low financial resources can cause emotional stress for the parents. Cooper and Steward analyzed results from 34 studies, and 29 of them confirmed a significant link between low household income and poorer physical health, lower behavioral and emotional development, lower cognitive development and school achievement for children (Cooper & Stewart, 2017). Household income certainly plays a role in children’s well-being as earning a low income tends to yield worse outcomes in children, who will likely accept this environment and remain poor.

Here’s my top tips on how you can help your child be successful and financially responsible:

Set a good example to show financial security

Parents work and hope for their children to follow a successful and financially stable path. However, parents first need to show their children how to be financially secure by being a good role model. Being financially secure refers to the peace of mind from knowing that you have planned ahead and aren’t worried about your normal life expenditure if something bad happens. Usually, it means that you’ve set up an emergency fund in case you lose your job and have started investing so you can prepare for retirement and do not have to be anyone’s financial burden later.

To show that you’re financially secure, you need to BE comfortable with how you manage your money, especially in front of your kids. Do you complain about overspending? Do you worry about your next paycheck? Also, it's important to be aware of your relationship with money. Were you taught that money didn’t grow on trees or that money is the source of all evil? you could transmit negative messages to kids as a result of your own education and bias.

Spending and giving

When you go shopping, avoid impulse buys even as gifts for the family. It’s okay to spend money on things that will enhance your quality of life but ask yourself whether it’s something that will contribute to the hoarding pile in the household. Research shows that the child’s age or background did not have an impact on spending, but girls spent more than boys (Abramovitch et al., 1991). It’s important to live with the essentials and to be aware of the items being used versus the ones that would bring temporary happiness. If an object no longer serves its purpose, donate it (Kondō, M., & Zeller, 2015).

While you work hard and spend with moderation, make sure to emphasize giving. Giving money is an important source of happiness. Dunn et al. found that people spending their money on others predicted greater happiness than spending it on one’s self (Dunn, Aknin, & Norton, 2008). Be generous and show compassion towards people from low income communities. Raise awareness by bringing kids to volunteering events, such as soup kitchens. Start a donation jar and let the kids pick a social cause they’d like to contribute to.

Don’t think of cost, think of value

When you go shopping with and for the kids (for clothes, food, activities), show them the price tag. Show them the cost of things and explain to them their value. Learning the value of things is somewhat subjective because different personalities value different things. However, as a parent, one can point to the quality, how wanted or popular it is, what the current condition is, or what it represents. Kids will have a better idea later on and gauge how much they’d pay for something if you start this process now. Interestingly, kids who are older, who were given an allowance at home and those who perform better at math guessed more accurate pricing of objects (Abramovitch et al., 1991).

Teaching kids to value an object will also reduce waste. Accumulating meaningless stuff isn’t going to increase someone’s happiness. When kids realize that they can buy certain things, but don’t have enough for other things that they value more, they’ll learn the consequence for overspending and eventually they will learn how to budget. Being on a budget and learning patience will teach them how to be content with what they have.

How can kids earn pocket money?

There’s no better way to learn something than to be involved in it. Parents will usually emphasize a linear relationship between the age of the child and the amount of money received (Furnham, 2001), but when it is time to wean teenagers off of their allowance, parents can suggest to them to seek a paid job like babysitting, dog sitting, tutoring, working retail, waitressing, or lifeguarding.

What’s the controversy with rewarding kids for their contributions to chores? The issue with paying kids to do chores is that they’ll start picturing the family as a market rather than a loving unit Contributing to chores, taking care of siblings, helping with dishes make you a better community member. The goal isn’t to turn kids into employees within their family but to supportr each other.

Extra tips for teenagers

Teenagers are mini adults who think they’re ready to take on the world but still want to feel safe under their parents’ guidance. The best way to prepare them for adulthood is to give them more leeway to make mistakes and to share our mistakes as lessons. Give them an allowance to start investing in the stock market on their own. Perhaps, an interest in trading or entrepreneurship will emerge from allowing your teen to experiment with money. If they fail, it still would have been a great lesson on being an investor or having autonomy over their finances and the money wouldn’t have been wasted.

Teenagers may also be tempted to sign up for credit cards. Using credit cards is tempting because they offer great convenience such as, cash back and travel points. However, it’s quite easy to lose track of how much we spend when we use these cards. Teach them how to use credit cards effectively. They can be a very useful tool, but it's important to pay off your balance. Teach teenagers that credit cards are good if used effectively. They can raise your credit score, provide nice bonuses, and such. However, if used ineffectively, credit cards can be dangerous and cause you to accumulate debt and emotional distress. As a parent, you should try to inspire good usage of credit cards, and one mechanism you can do that is by setting a credit limit. It is also important to teach about credit card fraud.

If your kids are mature enough, make an appointment with the bank and open an investment account, perhaps for a trip, a personal goal or a college fund. Teach them the beauty of compound interest since they are still young and can benefit greatly. Inspire them to save via automatic transfers, even if it’s a small amount each month. This could help lower their student debt and they can start building wealth sooner. Before or when they get to college, suggest scholarships to alleviate their tuition. This might be helpful especially on a resume later!


In conclusion, money is an important factor to children’s well-being. Kids from low-income families suffer from lack of supplies and space, which will lower their chances of earning a high income themselves. In order to educate kids to be financially responsible and break the vicious cycle in low income communities, a proper financial education is crucial. Although a lot of parents are shy to talk about money, they need to set an example of financial security before they can give children the responsibility to handle their own money. While parents can give an allowance or pocket money, they can also encourage kids to save money rather than overspending it. Learning the value of an item is a part of financial education. Knowing how much to pay for something can be subjective but also requires logical and analytical thinking. For teenagers, being comfortable and at ease with money is crucial. Learning how to budget can spring new hobbies such as trading. Setting an appointment with a friendly financial advisor can also engage them in managing their own finances. Being aware of the benefits of money management will increase kids’ financial intelligence, which is more likely to yield independence, happiness and peace of mind.


Abramovitch, R., Freedman, J. L., & Pliner, P. (1991). Children and money: getting an allowance, credit versus cash, and knowledge of pricing∗. Journal of Economic Psychology, 12(1), 27–45. https://doi.org/10.1016/0167-4870(91)90042-R

Cooper, K., & Stewart, K. (2017). Does Money Affect Children’ s Outcomes ? An Update, (October 2013).

Dunn, E. W., Aknin, L. B., & Norton, M. I. (2008). Spending Money on Others Promotes Happiness. Science, 319(5870), 1687–1688. https://doi.org/10.1126/science.1150952

Furnham, A. (2001). Parental attitudes to pocket money/allowances for children. Journal of Economic Psychology, 22(3), 397–422. https://doi.org/10.1016/S0167-4870(01)00040-X