Raising money-smart children

  • PublishedJuly 31, 2012

In order to raise money-smart children, you need to be open about your family’s financial situation. Some parents try to shield their children from their financial situation, especially when money is in short supply, but this does more harm than good. It is important for children to know from an early age how their parents make money and how that money is budgeted to ensure family financial needs are met. You should teach children about money from a young age by letting them see how and why you make various financial decisions. Sometimes it also helps to involve them in some of these decisions. If they see the financial challenges you face and how you go about them, they can prepare for them in their own lives when they get older. Here are some useful tips:

Set an example. Model the behaviour you want your children to learn. If you want them to save money, when they start earning their own, set an example of saving. If you don’t want them to become compulsive shoppers, try to curb your own impulse spending. If you want them to respect honest money making, ensure you don’t engage in illegal activities to make money, for example, selling illegal alcohol or stealing.

Be prepared. Expect questions related to money from your children and prepare answers beforehand. Know how you are going to handle specific situations like allowances or pocket money, or when a child throws a tantrum in a supermarket because they want to pick an item you can’t afford. You can’t tell a child who wants a sweet, “sorry, but that’s not in the budget.” They may not understand what a budget means at that age unless you have explained it to them. If you know your child will ask for a sweet when you go out shopping with them, then budget for it. When a child asks you why you don’t have a car like their friend’s parents, answer them honestly be explaining that you have other more important responsibilities like their school fees and other necessities. Don’t tell them “it’s because you are not as rich as their friend’s parents.” This may send the wrong message and also undermine your child’s confidence – after all, who wants to have poor parents?

Be honest. Share your financial successes and failures. If you get a promotion and a pay rise, share this information with your children. If you lose your job, let them know that the family will have to make some financial adjustments. Tell your children what you did right and what you wish you had done differently, for example, how hard you worked to earn the promotion.

If you have lost your job, tell them what your future plans are so they don’t start feeling desperate and insecure. Explain your thought process each step of the way so that your children can understand and support you where you need them.

Make this learning process interactive. Involve your children in frugal activities that teach them self-sufficiency, like growing own vegetables, keeping chickens, baking bread at home, knitting their own sweaters, doing home repairs, and not wasting anything. Teach them to compare prices by having them help at the grocery store. If you are in business, involve your children in whatever you do so they can understand how money is made and it’s value. For example, if you sell vegetables in a kiosk let them come with you occasionally and be involved in helping customers and collecting money. As they grow older, make them financial apprentices. Show them how to pay bills and manage personal accounts, and also let them shop for personal items like clothing, toys or sanitary wear. Teach them that managing a household is a team effort and their involvement is required and appreciated.


It is important for children to ‘own’ some personal money from an early age so that they can learn how to manage their ‘own’ money. The best way to do this is to give them a regular allowance. A regular allowance teaches children how to handle money. When children have their own money to manage, they are better able to learn the value of saving and the difference between ‘wants’ and ‘needs’.

You can give out allowances to your children in different ways, but you need to ask yourself certain questions and get appropriate answers before you decide which way to go. How much should you give? What age do you start to give allowances? Do you stop once your child is old enough to work after school? How often do you give the allowance? Some parents may choose to give their child a big allowance and expect them to buy their own clothes, toys and toiletries. Others give a small allowance but pay for their children’s clothes and other necessities.

Most of these decisions are personal and depend on your financial strength and your child’s ability to handle money. But there is one question that bothers many parents – should one base allowances on a child’s behaviour? There are two schools of thought:

Tie the money to grades, chores, and behaviour. This gives children an incentive to do the right thing, but critics argue that tying an allowance to these actions sends the wrong message. Children should strive for good grades regardless of what (or whether) they are paid for doing so, they argue, and doing chores is simply part of being a family member and is to be expected.

Give the allowance without expecting anything in return. This method helps children learn about money even if they don’t make good grades or do their chores. But critics worry that it creates an entitlement mentality – meaning the children expect something for nothing.

Most families are probably best off with some sort of hybrid approach. Provide a minimal base allowance that is paid without expecting anything in return and then add cash incentives for certain chores and behaviour. Instead of paying for good grades, consider giving something else your child values, for example, allow them to watch TV for a little longer; buy them a laptop, video game, phone or a new dress; take them for music or swimming lessons, or on a holiday. This encourages the behaviour you want without tying it to money.

However you distribute it, use the allowance as a chance to teach children the value of money. Instead of just letting them spend it on whatever they want, consider a system that divides the money for specific goals. You might, for example, use three jars (or envelopes) labeled like this:

Save (30 percent). The cash in this jar is for long-term goals, like buying a bike or a smart phone. Let the child decide on the goal – with your help.

Share (10 percent). This money is for giving to someone else. Your child can decide where it goes – whether it’s a charity, church or just somebody else in need (even a sibling or grandmother) – but the value you want to instill is that to share with others is to help and should be a personal commitment.

Spend (60 percent). There are no restrictions on this money but you must watch to see it’s not spent on drugs, alcohol or other vices. Your child can spend it on books, games, clothes, going to a movie – whatever strikes their fancy, as long as it is within the morals and values you have taught them.

For example, if you pay your child a weekly allowance equal to five shillings per year of their age, you might have your six-year-old who gets Ksh30 per week (or Ksh120 per month) put nine shillings into Save, three shillings into Share and Spend Ksh18 each week. As long as your child follows the rules for each jar, let them make their own choices and mistakes. It’s better for them to learn a lesson now with Ksh100 than later with Ksh10,000.

As you embark on this useful and necessary journey of teaching your children about money, remember, what you don’t teach them now, the world will teach them later. If you don’t teach your children the value of hard work if they want to make a lot of money, they will join their peers in criminal activities to make quick money when they grow up and get into wrong company.

Teaching your children about money is one of the best things you can do to ensure their success in life. Financially aware children become financially aware adults. If you want your children to be money smart when they become adults, this is the time to start teaching them about money.

Remember, what you don’t teach them now, the world will teach them later…

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