Teaching Your Children About Money Lesson #1: Money is not Free

By Mike

During the summer of 2009, my son William  turned 4 years old. I remember that at that age, I didn’t know much about money. You basically only care about what gear you will play with for the next 20 minutes. As both my wife and I love to spend time outside during summer, we use to take a lot of walks outside with our two kids. While Amy was still in a stroller, William was able to get on his bike and go much faster. One day when we were about to leave the house, my son turned at me and said:

–         Daddy, I would like to have some chips on our way back home.

–         All right, but who is going to pay for those chips, William? I replied. The cashier will ask you for money.

William thought for a few seconds and then looks at me with a piece of play money:

–         I can pay with this, he smiles, so proud.

–         But William, this is not real money, the cashier won’t accept it. What are you going to do to get your chips?

–         I will give them Amy’s (his little sister) necklace, pointing at his sister with even a bigger smile.

I started laughing and explained to him that the cashier will only real accept money and that he won’t be able to trade his sister’s necklace (unless it was a real one!). My son looked at me, thinking about his next answer and smiled back and said:

–         I know who is going to pay! You will pay with your credit card so you don’t need to give the cashier money.

This is when I realized that my son understood 3 rules about money (not necessarily the ones I wished he would learn first!):

#1 You need money to pay for goods and services (okay, the first rule is good to know)

#2 If you don’t have money, you can trade something in exchange, barter (if you will) (while this doesn’t really work all the time, the most important part about this rule is that you should trade something that you own first, not your sister’s asset!)

#3 If you can’t pay, get financing. This is where I have decided to start educating my son about money. If he realizes that you can use a credit card at the age of 4, I can imagine in which kind of debt pit he will dig himself into! The very first lesson I am trying to teach my son is the following:

Money is not free. It doesn’t magically appear overnight.

Once you have found the topics you want to explain to your son, you have already made a great step into his financial education. However, teaching money lessons to a child is not that obvious. Since he won’t realize how hard things are during the upcoming years until he reaches the age of 12 and starts thinking about earning more money, I needed to find another way to show him that money is not free and that you can’t just spend it when you have it in your pocket.

I started this first financial lesson by asking him questions such as:

–         Do you like your bedroom? Your toys? What you eat for supper? And your pool during summer time?

–         Do you think everybody has what you have?

–         Do you know why your friends at the daycare have different things than you?

Because we cannot have everything we want. We need to pay for everything we have. This is why your friends don’t have the same toys you do. This is why some of them have more toys and some other have less. It is not because their parents love them more or less than we do, it is because they all have a different amount of money to spend on toys.

–         Do you know how you get money to buy things, to do activities or buy what you will eat for supper?

–         Do you miss Daddy when he leaves the house before you wake and only gets home at night in time for supper?

–         Do you know why he leaves the house for so long everyday?

If you like your bedroom and all you have, Daddy has to work to earn money. This is why he leaves the house so early in the morning. It is not because he doesn’t want to play with you, it is because he needs to work really hard to pay for what we have.

So he can understand a little bit more the concept of working, I tell him that his job is to go to the daycare during the day and to listen to his mother and I when we are together. It is not always fun to go to daycare (and even less interesting to listen to his parents!) but he needs to do it because it is his job, his responsibility.

Another trick to teach your child the importance of money:

For the past 2 years, we have given 2 toys to our community center just before Christmas. We ask our children to go in their playroom and select 2 toys they want to give. We also ask that they give something that is fully functional and in good shape ;-)

At first, they were somewhat surprised and didn’t really want to say good bye to Timine their teddy bear. However, we told them that not every child is fortunate enough to receive Christmas gifts because their parents don’t have enough money. We emphasize the fact that money is hard to earn and sometimes, even when we work really hard, we don’t have enough to pay for everything.

The other key point we are trying to teach them about money is to realize that they have a lot of toys, they do a lot of activities and they only eat good food. We want them to appreciate what they have and realize that not everybody enjoys the same blessings. We must be thankful for what we have and share with others.

Since we have started talking about money with our oldest child, he has started saying that he is thankful for what he has or that he really appreciated when we went bowling during the Holidays.

What about you?

Being a financial planner, teaching people about money doesn’t seem so complicated for me. However, when it comes down to my children, I find it a little bit more complex. I would be curious to hear yours tips or any money lessons you give to your children?

Author: Mike.

11 Responses (including trackbacks) to “Teaching Your Children About Money Lesson #1: Money is not Free”

  1. Damsel Says:

    My husband and I have really started working on this with our five year old son. He seems to understand (or, at least no longer throws a fit), when I explain to him that we aren’t spending money on a certain something he wants. We’ve told him repeatedly about how Daddy works hard for the money to pay for things, and how God tells us to do the right thing with the money and spend it/save it wisely.

    He has a piggy bank that tallies up his money as he puts it in. Just yesterday, we were at Best Buy, and he saw a Wii game that he wanted. He was able to calculate the difference between what was in his bank and the cost of the game. My husband and I have decided to pay him for extra chores around the house so that he can earn the money to purchase it himself. When we told him about it, he was really excited to be able to use his own money!

    We’ve discussed giving him an allowance, and will probably start that soon. There will be requirements that he give some, save some (for a long-term purchase, such as the Wii game), and then be able to do what he wants with the rest. I think we’ll give him five one-dollar bills each week, so that he can divide it up easily.

    I just wish my parents had started at 5 years old with me.

  2. IS Says:

    Great article, I really think financial education does not receive nearly the attention that it should both at school and at home. I do not have kids yet but this will give me a few ideas for when those discussions do come around in a few years!

  3. Gina Says:

    Great post Mike! A lot of good stuff to use for my family. My daughter will be 4 at the end of this year.

  4. Angie Says:

    I found a piggy bank with 4 slots, saving, spending, donation, and investment. We gave this to my 7 yr old in Dec for his birthday and I had a few relatives give him money(they asked what to give him). We discussed the 4 slots and what they all meant. He divided his money into the slots and has started. Saving is for something big, spending is for anything, donation is to give to charity, and investment will be put in the bank and be saved for a car or college. He is saving for a Wii, but everytime he wants something I tell him he has the money or he can continue to save for the Wii. Each time he has chosen to keep saving. I am not sure about allowance and earning money, but we are trying a chore chart and he does get .10 for each chore he does. I don’t know if this is the right way to go about it or not. 1st week he made $1.60 and 2nd week he made $2.70. I do know that I am not giving him a bunch of money and my house is staying cleaner and getting him to do things without all the arguing and yelling. Would love to hear other ideas!!

  5. prasti Says:

    i like the questions you ask your son. i’ll be sure to bring some of those up with our 3 y.o. daughter. i think it’s important that kids learn about money, even at an early age.

    i’ve got a 12 y.o. step-son who we constantly struggle with when it comes to managing his money. unless we can deposit it in his savings directly (as in the form of a check) cold hard cash does not last long in his wallet. we’ve tried everything from setting up “long-term” savings goals (to purchase a camera, etc.) to being open with him in regards to our finances and how we manage our money (including being honest about the mistakes we’ve made in the past). but he spends for the sake of spending. even if it’s just a dollar on candy or a couple of dollars on snacks or lunch on a weekend afternoon with his buddies. pretty soon all the money he had is gone because he spent it all on little things here and there.

    i think we might try to give him a monthly lunch money budget (and he has to use it for lunch) to improve his money-managing skills. we don’t feel comfortable yet with giving him a full on allowance given his “spend for the sake of spending” attitude towards money. but maybe the lunch thing might be a good start.

  6. Mike @ Gather Little By Little Says:

    @ Prasti
    Maybe if you make him “work” to earn is allowance, he would spend more carefully?

    Our relationship with money is hard to manage at the beginning… for everyone!

  7. Mike @ Gather Little By Little Says:

    Hey Angie,

    I like your system!
    Maybe you could help him fixing goals such as saving for next summer vacation? Help him determine how much he needs for a specific purchase to keep him focus. If he sees that he is actually able to save the money and buy what he want within a few months (remember, a kids can’t wait years as adult do to buy things ;-) ), I am sure he will be more into it and you can get more chores done ;-)

  8. Amanda van der Gulik Says:


    I agree it’s crucial to start teaching our children about money.

    Since I’m well know for helping parents find ways to teach their children about money the number one question I get is whether or not we should give our kids an allowance as a basis for teaching our children about money.

    Well, my answer is that I personally don’t believe in allowances, I would rather take the time to help my own kids find ways of making their own money. I mean a car that you buy with your own hard earned money always means a lot more to you than one bought by your parents right?

    But I do realize that approach may not work for every parent so I went out and asked other kids and money experts to give me their opinions. They were so very generous in their ideas. I put them all
    into my ebook, “Allowance Secrets: To Give Or Not To Give?” to help parents find the style that works best for them.

    I learned that there are quite a few different ideas that would suit many different types of parents.

    So now, although I still do not personally give my kids an allowance, when I’m asked I tell the parent to simply go with what works for them. The main thing is to teach their kids how to manage their money, whether from allowances or their own hard efforts, so that their money works hard for them and not the other way around.

    I personally recommend using 6 piggy banks:

    1. Grow (one for investing with) 10%
    2. Give (one for charity) 10%
    3. Rain (one for that rainy day) 10%
    4. Learn (one for continued education) 10%
    5. Goal (for a particular goal) 50%
    6. Fun (allow them to have some fun with their money) 10%

    Hope you found that helpful.

    Cheers…Amanda van der Gulik…Excited Life Enthusiast! ;o)

    To get a copy of “Allowance Secrets: To Give Or Not To Give?”
    as a personal gift from me to you and your child,
    just click on my name. Enjoy! ;o)

  9. Mujeeb Says:

    We should respond on what we read on web.

    Normally parents used to say that they Loved thier children very much. I think Our children loves us very much and more than we love them.

    Our time and efforts we made on our children is not as to be given to them.

    We are 100 % responsible for our children health , education , behaviours and everything till our last breath.

    Why Children left parents when they get old. We should love them so much that we can live and die in their presence. Just imagin when a old parents eats food by the hand of his or children. You cannot calculate the happiness.

    I still love my parents and they are living with us. They are the one who help me when I am in daily pressures.

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