Helping your children understand the value of money goes a long way in establishing a lifelong pattern of good money management. There are many lessons for your children to learn, and what and how you teach your children about money can affect them throughout their lives.

It's not enough to merely give your pre-schoolers an allowance. This is the time to start teaching them about money. Consider the following first lessons for younger children:

• Money should be respected:
  • Don't discard pennies or throw dollar bills around if you want your children to understand the value of money. Remember that children observe everything, so even if you don't specifically talk with them about money, they'll learn by watching you.
• Adults earn money by working:
  • Younger children may not understand where money comes from. When parents use an Automatic Teller Machine (ATM), it's not uncommon for their children to think money is available to anyone who goes to the machine. It may be helpful to explain the money is available because you've worked hard for it.
• Show your children how you shop for groceries:
  • If you're like most parents, you probably take your children with you when you go to the grocery store. This is a great time to explain things such as using coupons, planning your purchases around sale items, and shopping with a list. When you read the price labels on the shelves, talk with your children about how you decide which item has the best value. When you pay with cash, count your change together.

One of the most important money lessons to teach your children is about saving. Your allowance plan may already include savings, so your children know this is important. There are numerous ways to reinforce this, including:

• Open a savings account:
  • Take your children to the bank and open a savings account together. Explain how interest is calculated and review bank statements to show how their money is growing.
• Give allowance money in smaller bills:
  • Giving a $10 bill, for example, might make it difficult for your children to save. Consider giving your children a $5 bill and five $1 bills. This will make it easier for them to save a portion of their allowance.
• Match part of their savings:
  • To encourage savings, you might consider matching all or part of the amount your children save. For example, you could match dollar-for-dollar or $.50 for each dollar they save.

As your children get older, it's likely their desire to spend money will increase. This is a crucial time to ensure they have a strong understanding of money and how to use it. These are the final years where you can have an impact before they go off to college and out of your watchful gaze:

• Encourage part-time work:
  • When your children are old enough, working can be a great way to learn about the real world. Common first jobs are babysitting for neighbors and picking up mail for friends who are out of town. As they get a little older, they might look for work in grocery or music stores. Look at their paycheck together and explain how income tax works. Keep in mind, earning money on their own reinforces the value of money and the lessons you've taught them.
• Teach your children about credit:
  • While your children aren't likely to get a credit card at this time, it's important for them to have the information to evaluate this option. It's common for teenagers to receive offers from credit card companies in the mail. If you haven't spent the time to teach them about credit, they may begin to use credit in a way that could be detrimental for them now and in the future. For a detailed discussion about credit, read our related articles listed in the Additional Resources section.
• Continue to encourage savings:
  • Your children's needs and desires may have increased, but it's vital for them to continue the practice of saving. Reinforce the notion of saving by showing them how much their savings have grown since it began.

This article has reviewed information on teaching your children about money. To learn more about giving your children an allowance, budgeting, and income tax withholding, read our related articles listed in the Library.