Children and Money: Building Financial Capability

By Barbara O’Neill, Ph.D., CFP®, AFC® [email protected]

Personal Finance Managers (PFMs) do not only help service members with their finances, they consider everyone in a military family. Many parents have questions about children and money. Should children be given an allowance? Should they have to work for it? How do children learn about managing money?

Children learn about money from those around them. They watch their parents spend money and learn from them. They watch their siblings and friends and are influenced by them. They watch advertising and are encouraged to buy this or that. Parents, however, are generally a child’s greatest financial influence.

Below are ten ideas for PFMs to share with the military families that they assist:

1. Be Inclusive– Help children understand and learn money management skills by including them in appropriate discussions about family money matters, such as the cost of a vacation or new television.
2. Be a Role Model– Demonstrate and discuss good money management skills by practicing budgeting, prompt repayment of bills, the wise use of credit, and comparison shopping to make big spending decisions.
3. Let Children Make Mistakes– Allow children to learn from their mistakes. This may be buying something that is cheaply made and breaks easily. Remember that experience, both positive and negative, is a great teacher.
4. Teach Scarcity– Give children experiences where there is not enough money to buy everything they want. This will teach the concept of scarcity and how to make spending choices and live with the consequences.
5. Provide Allowances– Coach children and provide guidelines to manage an allowance, which should cover their needs (for example, school lunches), plus some money for personal use, savings, and sharing or charitable donations. Increase the amount as children grow older and their needs change and do not tie allowances to completion of chores, which should be done, regardless of payment, as a “citizen of the household.”
6. Provide a Match– Consider matching a child’s savings, like an employer matches worker 401(k) plan deposits. For example, provide 50 cents for every dollar saved as an incentive for ongoing savings. The 52-Week Money Challenge for Youth is a useful framework for encouraging children to start small and save.
7. Teach Consequences– Develop a response for times when a child runs out of money before the next allowance payment. One option is to let him or her learn from past mistakes, do without, and wait. Another option is to loan the needed money with an agreement on a repayment schedule and, perhaps, interest.
8. Encourage Paid Employment– Support older children who want to earn their own money. One caution, however, is that paid employment should not consume all of a child’s time. Research shows that 15 hours of paid employment per week, or less, is best for most high school students during the school year.
9. Provide Experiential Learning– Identify real-world financial tasks that allow children to “learn by doing,” such as preparing a bank deposit slip, or “learn by watching,” like withdrawing money from an ATM.
10. Support Financial Education– Encourage children to take a personal finance course, if available, and/or participate in a learning activity through scouting, a 4-H club, or a school organization such as FCCLA. Get involved, as a parent advocate, in the financial education advocacy campaigns of two national non-profit organizations (Next Generation Personal Finance and the Jump$tart Coalition for Personal Financial Literacy).

For additional information about teaching children about money, visit the Consumer Financial Protection Bureau (CFPB) website Money as You Grow.

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