How to Teach Kids the Value of Money

Al Jacobs

The article I recently stumbled upon provided some pretty good financial advice to the younger set.  The author, Manisha Thakor, is a Certified Financial Planner (CFP) with a BA from Wellesley College, an MBA from Harvard Business School and over 23 years in the financial services industry.  Among the advice she offered in Three Lessons That Can Change Your Life included the following: “Start saving now . . . and do so until you are 70.”  Another piece of her sage advice is “Don’t expect to live like mom and dad right out of the gate.”  And she added “Know what healthy spending looks like . . . and a young person can avoid so many classic financial mistakes.”  I’m sure you can locate her article online.  Though it’s not extensive, what she says is excellent.  it’s worth reading.

With that said, I’d like to fill in some of the spaces Ms. Thakor didn’t have room to cover.  I’ll admit, up front, that I’m neither an MBA nor a CFP; nither is the care and feeding of juveniles my recognized specialty, though perhaps I can claim pseudo-expertise on the subject – somewhat akin to the late comic Jimmy Durante from his quotation: “I ought to know something about teenagers; I’ve been one all my life.”  Nonetheless, money is my field of expertise, and indoctrination into its proper use by youths of all ages is fundamental if they’re to mature into financially responsible adults.  Apparently the habits developed early in life become indelibly ingrained, and there are few capabilities more important than the wise use of assets.

With that said, I’d like to share a few thoughts based upon situations I’ve witnessed over the years relating to the use and misuse of money.  I’ll preface my comments with the observation that whatever praise or criticism you may direct at the American public school system, one thing must be acknowledged: The handling of personal finances is not a subject to which much attention is devoted.  Whatever the average American knows about monetary matters didn’t come from the classroom.  This is understandable, of course, if only because the typical classroom teacher is equally mystified by the world of money. 

It’s for this reason I’m convinced that a child’s indoctrination into financial matters must be rooted at home.  On this score, the fundamental guidelines that a parent can convey will be by precept and example.  What a developing child witnesses in the behavior of an adult role model will prove far more persuasive than admonitions extolled or lectures delivered.  If sound values are not demonstrated, they will not be learned.  There’s no surer way not to get a lesson across than to operate on the timeless but faulty principle: Do as I say, not as I do!

This means that the parent must regularly practice prudence, and in a way to which the child can relate.  Consider, as an example, an 8-year-old girl witnessing her mother’s selection of cosmetics.  Whether the choice of lipstick is the $25 Chanel selection from Macy’s, the $6.87 Max Factor brand from Osco Drug, or the 99¢ Wet ‘n Wild tube from Target, recognize that the essential ingredients are the same.  The difference is packaging, promotion, and mystique, which is what the cosmetics business is all about.  An explanation of the options to the child at the time of purchase will not soon be forgotten.

The use of plastic is another opportunity to deliver a lesson in rationality.  All children should be cautioned in their formative years that a credit card serves a single purpose: a convenience when neither check nor cash is handy.  They must understand that when the monthly statement arrives, the cash balance is paid in full before the date interest is charged.  And most importantly, if the lesson is truly to sink in and be believed, the parents must live by this rule.  If for any reason credit card use cannot be regulated in this manner, the cards ought to be destroyed and family life fashioned accordingly.

There are other habits that wise parents will adopt and make a part of normal family discussions. These include institution of a systematic savings program, refusal to go into debt for an automobile or incur loans for expenses such as vacations, and avoidance of nonsensical purchases such as whole life insurance policies, variable annuities, timeshare projects, and lottery tickets.   

As to the myriad of financial matters that arise, children deserve to see how sensible decisions are reached as each instance arises. And as they mature to the point where decisions begin to affect them, encourage them to contribute to the discussion.

There is another basic precept to which I subscribe. It ‘s that persons will not relate to circumstances in which they’re uninvolved.

Let me offer an actual case in point.  The daughter of an extremely wealthy man, in her mid-thirties with three children and husband – albeit an indolent one – proved incapable of monitoring her personal checking account. She wrote checks regularly with no knowledge of the account balance.  As they bounced, a bank official phoned her father who periodically made deposits into the account.

Over the years he summoned her to his office where he futilely attempted, time and again, to instruct her on how to balance an account. Although a self-made multimillionaire, he never grasped a basic reality: To his daughter, balancing a checkbook seemed an exercise in the abstract. As all checks cleared, why need she pay attention to the balance?

The significance seems obvious: If a child is to learn about money, he or she must sense some meaningful connection to it.  And what better connection can there be than that accomplishment leads to reward?  It’s my belief, as soon as practicable, earning money becomes an element in family life.  If your 12-year-old son hopes to spend Saturday afternoon at a movie with friends, the source of the admittance might well be the fifteen dollars he earns by washing the family autos or mowing the lawn.

Similarly, if your daughter wants to sport the latest fashion in teen-aged footwear, its purchase may come from the bonus she received for her school grades last semester, perhaps $100 for each “A” and $50 for each “B.”  And above all, whatever payment programs are instituted, responsibility and reward must be fully understood.

Let me add a final comment on the matter of your kids’ personal earnings. Though it’s the parents’ responsibility to advise their offspring on sensible spending and saving, they must not dictate how the youths handle their earnings. The decision on how money earned is to be spent – or horded, if that’s the choice – is that of the recipient.

When mistakes are made, the repercussions are the most valuable part of the learning process.  Managing finances is a lifelong challenge, and the sooner experienced, the better.

Al Jacobs, a professional investor for nearly a half-century, distributes a monthly newsletter in which he shares his financial knowledge and experience. You may view it on




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