Try these time-tested activities during the years children are particularly receptive to learning these lessons.

We all know it is easy to spend. But when we plan and ensure our resources accomplish our goals—that’s empowering. So how, and when, can we teach our children the power and pleasure of good spending habits?

While it’s never too late to teach children the value of money, there is an unusually good window of opportunity to teach them about spending from ages 6 to 14, given their stages of development. 

Here we describe why children are receptive during these years—and how you can help them learn how to spend responsibly.

But first let’s acknowledge the obvious: Our children pay attention to what we are doing. That is why, throughout these years, as you plan vacations and shop with your children for food, clothing and other items, you may want to discuss costs and your thinking behind what you to choose to spend money on—and not.

You and your spouse will naturally want to make sure you generally agree what values you’d like to teach your children vis-à-vis spending. Once the two of you are clear, we suggest creating an open dialogue with your children about money matters. Such conversations are often a parent’s greatest teaching tool. In addition, to put the ideas discussed into practice, we offer here some age-related activities that you may find helpful. 

Of course, these are simply guidelines. Parents will want to be thoughtful about their own child’s readiness and how messages may be shared among siblings.  

Children become more aware of others at about 6 to 8 years old. They start paying careful attention to how the adults in their lives use money—and are just beginning to understand value. They have begun to develop some skills in problem solving and decision making. Therefore, they are capable of taking some first steps on the path to responsibility.

This is a good time to give them a small, weekly allowance and to set up three jars, labeled “Spending,” “Saving” and “Sharing.” Each week, set aside a little time to help the child divide his allowance among the jars. How much goes in each jar depends on your values and priorities. Some families find it works well to put 50% of the total into “Spending,” 25% into “Saving” and the remaining 25% into “Sharing.” 

It helps to discuss with the child the benefit of giving up something now to save for something big she wants and may purchase later. Very importantly: Do not rescue children from the consequences of their choices. If the child depletes the “Spending” jar before next allowance comes, try not to allow her to take or borrow from the other jars. You also do not want to supplement her “Spending” money. However, you may consider allowing the child to earn extra money by doing certain special “above and beyond” tasks in the household or engaging in entrepreneurial activities.

Starting at about age 9, children show the first hints of independence and desire for the acceptance of their peer groups. Now, a little planning and discipline are helpful. Help children during these years to create an allowance contract, manage their first budget and open a bank account.
 

Create an allowance contract:

  • Make a list of expenses—Sit down with your son or daughter and make a list of nonessential expenses you typically cover, such as the cost of video games, online subscriptions, hobby supplies and gifts for their friends’ birthdays. For the older children in this age group, the list might include movies (online or in theaters) and meals out with friends, mobile phone costs such as data plans, or other discretionary purchases. Think this through: There are a lot of gray areas that children will test. If you are like most parents, you want to pay for essential clothes such as socks and underwear, but not for every trendy top or expensive pair of sneakers. Start with a relatively small list. Add to it each year.
  • Write out the agreement—Once the expenses are clearly outlined, write out the year’s contract. Connect a meaningful increase in the child’s allowance as he takes responsibility for covering all or parts of certain expenses. Make additional allowance increases only when the child takes more responsibility for his costs.
  • Pay regularly—It is critical that you continue to pay an allowance on a weekly schedule, because at this age, children still have a limited planning horizon.
     

Help your child create a first budget:   

  • Fixed versus discretionary—Help children understand the difference between fixed expenses, such as the monthly mobile phone bill, and one-off indulgences, such as tickets to the latest movie.
  • Cash flow—Help your child develop her skills at managing cash flow as she works to allocate her weekly allowance toward monthly and other intermittent expenses.
     

Open a bank account:  

Now is the time to transition your children from their “three jars” held at home to actual bank accounts. Deposit accounts introduce the concept of interest. When interest rates are low, consider offering subsidies to make the idea of savings more appealing.

  • UTMA accounts1—In lieu of deposit accounts held in parents’ names, you might open UTMA accounts in the names of your children—as many of our clients do. You’ll be introducing them to the concepts of saving and investing, and perhaps ownership of other types of property. These accounts allow children to hold cash and to own securities, as well as property such as real estate, fine art and patents.
  • Caution—You do need to be careful. UTMAs are custodial accounts that parents control only until the owners reach the age of majority when, suddenly, your children will have unfettered control over their UTMAs’ assets. How much money do you think is appropriate for a 21-year-old to have outright? Some parents cap the amount their children’s UTMAs will hold.

During these years, our children’s brains are tirelessly working at self-discovery. The independence they desire provides many opportunities for you to help increase their understanding of, and comfort with, personal finance.  

Allowance continues to play a major role in educating a child in financial responsibility, but it must evolve in sophistication to keep pace with your maturing child:

  • Update the allowance contract to allow for increased payments based on rising expenses and increased responsibility.
  • Change the payment schedule from weekly to monthly to encourage more long-range planning.

What happens if your child is not meeting savings or spending goals set under an allowance, but still wants money? Rather than lecture on frugality, have a strategy ready to teach about the costs of borrowing money.
 

Consider creating inter-family “loans”:

  • Wait for the opportunity—When a child suggests a bridge loan until the end of the month, introduce the notion of interest paid to you.
  • Describe the broader context—Explain how much a financial institution would charge for a loan or through a credit card, and compare that with borrowing from the family, which could be lower.
  • Be clear and firm—Set up a firm repayment schedule at the same time you agree on an interest rate, and dole out the loan. Also, use this as an opportunity to teach the importance of being creditworthy. If you blow off your repayment obligations, why would anyone lend to you again?

As your children become teenagers and grow into adulthood, conversations about spending become more complicated. That is why it is so important to keep speaking with them about money and your family’s priorities. To help them articulate their financial goals. To check in with them regularly. And to help them make any necessary adjustments so they can be successful in reaching those goals. 

 

1UTMA accounts were created and named after the Uniform Transfers to Minors Act, which is a legal provision that many states adopted to authorize a custodian to hold assets on behalf of a minor until the child reaches the age of majority as defined by that state (typically 18 or 21 years old). When the child reaches the age of majority, he or she typically has full ownership of the assets in the UTMA account.