How to Teach Your Kids About Saving and Spending

Teaching your kids the value of a dollar will help them in the long run. Here are some tips to get them down the path to financial responsibility.

Here’s an example of how a typical conversation about money goes in my house: my seven-year-old son, Joseph, was recently given $20 by a relative for his birthday. “Wow, I could buy a lot of jelly beans and Yu-Gi-Oh! cards with this!” he said excitedly. “When can I go shopping?” My reaction: “It’s his birthday money. He can do what he wants with it.” My husband, Joe, disagreed: “He just had a party and got lots of presents. That money needs to go in the bank.”

“But it’s his money,” I countered. Joe lowered his voice. “Do you really want to pass your terrible spending habits on to him?” I raised mine. “Do you really want him to be as financially fanatical as you are?”

I don’t know the first thing about saving money. I see nothing wrong with impulse purchases, and I rely on Joe to keep us afloat when it comes to organizing mortgage and bill payments. And while he can keep a spreadsheet and has some savvy investing skills, he hates parting with money, even for necessities. We don’t want to confuse our kids with our bickering, and we want them to have more balanced attitudes than we do, so we turned to the Globe and Mail’s personal finance columnist, Rob Carrick, to help us improve our approach.

Joe and I agree on giving the kids an allowance but not on how we can use it as a teaching tool. Carrick tells me that an allowance is indeed an integral part of financial education, and we should start sooner rather than later. “You can’t learn about money if you don’t have any,” he says.

Carrick suggests kids should be allowed a certain percentage for spending (some families employ a system in which their children can spend a third, save a third and donate a third to charity), and great care should be taken with the money that’s being saved. “I suggest opening a joint bank account with your child as soon as they can read and write,” says Carrick. Spending money can be kept at home in a piggy bank to give children a tactile experience, but what’s in the bank can be used to teach them about the way it adds up when it’s saved. You can use online banking sites to make sure your kids understand that the money exists somewhere and is still being spent when paying for purchases with a debit or credit card.

Good advice. Too often, we see Joseph’s loonies and toonies scattered around his room because he decided to use them as pirate treasure. Our five-year-old daughter, Maia, fills her little purses with coins and small bills, and then leaves them at the park.

Recently, Joseph informed us that he was going to start saving up for the Lego Death Star. It’s the ultimate set. It’s also $500. “No way,” my husband said automatically. “You are never going to be allowed to spend that much money on Lego. It’s just going to end up broken and lost.” I disagreed. If he managed to save up all that money, who were we to control what he spent it on? We were at a stalemate again.

“You have to let kids learn some stuff on their own,” says Carrick. “You can set guidelines and give examples, which may rewire their brains somewhat. You may need to allow your kids to spend some money on useless things in order to figure out that if they spend money on useless things, they won’t be able to save for what they really want.”

Still, there’s a problem: allowing Joseph to spend all he saves doesn’t teach him other important lessons about money, such as donating to charity, and it’s certainly not a balanced approach. We decided to sit down with him and explain that even if he saved all his allowances and asked for money or gift cards for Christmas and on birthdays, it would take about two years to make his Death Star dream come true. He thought about it and decided he wasn’t that interested, and now he’s freely spending half of his allowance and saving half in a bank account. Every month, we take turns choosing a charity to support, and the kids each take some money out of the bank to contribute.

Ultimately, we need to model the right behaviours to teach our children good financial habits, says Carrick. For example, involving your kids in trips to the bank will help them understand that you’re saving for their university education. “You need to show that you’re comfortable and competent with money, and that it’s not a forbidden topic or source of shame,” Carrick says. What this means for Joe and me is first setting aside time to face our own issues-my lack of planning and his anti-spending hang-ups-head on. When we’re able to have rational discussions with each other, then we’ll start including our kids in the conversations, too.

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