5 Valuable Money Lessons for Kids

By Kimberly Fusaro

To most children, real-life money is just as abstract as the pretty pastel bills that come with their board games: They know Mom and Dad control the cash, but they're not really sure who's funding the bank. So how can you teach kids the value of a buck? Smart spending habits are best learned when they're taught early and reinforced often, our experts say. You can't expect your kid to be cash-savvy if the first time he manages his own finances is when he's on his own at college. Below, four experts weigh in on the best ways to help your kids land on solid financial ground-and stay there.

Lesson 1: There's a Responsible Way to Spend and Save
You wouldn't hand your child a two-wheeler and let her figure it out on her own, right? When it comes to money, she needs some guidance as well. For every dollar that lands in her hands, insist she follow the 10/10/10/70 rule, suggests Lori Mackey, founder of Prosperity4Kids Inc, a company that aims to teach children to be financially prudent. Here's how it works: 10¢ is set aside for the charity of her choice. The next 10¢ goes into savings. The final dime is designated for investing and 70¢ is earmarked for discretionary spending.

Lesson 2: There's a Difference Between a Want and a Need
Every time your child asks for something, help him weigh whether it's a want or a need, says Sharon Lechter, CPA, a member of the American Institute of Certified Public Accountants' National CPA Financial Literacy Commission. Does he actually need new shoes, for example, or does he just want the trendy pair his best friend just got? Explain that while sometimes there is room for wants in the budget, needs-like food and electricity-must be covered first. If a want isn't feasible right now, ask what he'd like to do to earn it over time.

Lesson 3: We All Make Money Mistakes
You know that must-have toy is a waste of money, but your child may feel like owning it is a matter of life or death. If she must have it and has the cash to buy it herself, let her splurge, even if it pains you. "Rome wasn't built in a day and neither are financial futures," says Mackey. She'll likely realize her mistake when she comes up short for the next hot toy. Resist the urge to say, "I told you so!" and be happy that she learned her lesson with a $20 toy rather than a $20,000 car.

Lesson 4: Credit Cards Aren't "Free Money"
The college-age child who secures his first credit card on his own will likely go hog-wild. Help him grasp the reality of monthly payments and interest rates before he leaves the nest, urges Lauren Foster, CPA, CITP, a member of the National CPA Financial Literacy Commission. If you give him a card attached to your personal account, you can lay strict ground rules, keep tabs on what he's spending and review the bill with him every month to ensure he's making timely payments.

Lesson 5: Big-Ticket Items Are Bought with Savings
If your child sees you slap down a credit card to buy a big-screen TV, don't be surprised if she's doing the same thing in 10 years. When you and your husband are saving for a major purchase, involve her in the process. Talk about the price tag on the item you're buying and show her how you're saving, whether you're collecting change in a jar or having money siphoned off your paycheck. When she wants to buy something big on her own, help her set up a savings account, suggests Mackey McNeill, CPA, PFS, a member of the National CPA Financial Literacy Commission. McNeill is partial to the free online accounts offered by ING Direct, which will let her see how close she is to her goal while also watching her interest grow. As an extra incentive, offer to match her monthly savings.

All photos by Shutterstock.

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