Breaking the Piggy Bank: 7 Tips for Teaching Your Kids How to Manage Money

How can we teach our kids to be financially smart? How can we teach our kids to be financially smart? As I'm getting my only girl ready to start kindergarten this month (gasp!), I'm starting to learn many things that come with this new "big girl" territory. There are back-to-school supplies and clothes to be bought, new morning and night routines to start, less liberty to travel at whim, school projects and fundraisers, new friends in the horizon and the realization that my girl's flight towards more independence also means that she'll have to learn about money in the form of an allowance.

Our talks about money can no longer rely solely on putting mami or papi's leftover coins -- and an occasional dollar here and there -- in the piggy bank. Or me stopping her from nagging about yet another Barbie she must have, to which I respond: "¡Es mucho dinero!" But does she even know what the words "too much money" really mean? And who's supposed to teach her? Me? {Insert cynical laugh}

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How am I supposed to teach her about money when, at my 40 years of age, I'm still coming to terms with the concept of it? I neither have a problem calling myself financially irresponsible or illiterate, nor do I hesitate to blame my parents. Yeah, a cop out, but true.

I was never taught to deal with or manage money, and it wasn't until I was in college that I learned, the hard way, that credit cards really do need to get paid. I never had a savings account of my own or a college fund -- not even a piggy bank, come to think of it! Aside from that, I always associated money with greed and ego, so I somehow would unconsciously run away from it.

I want and need my girl to learn about the value of money: how to spend it, save it, invest it and donate it. But she is only five-years-old, so where to begin?

With an allowance, I'm told. And back-to-school season is the best time to start.

I recently had the chance to join a webinar titled "Moms Talking Money," presented by Woman & Co, a service of Citi, where Linda Descano, President and CEO, told us that kindergarten is actually an ideal time to give kids their first allowance and introduce them to the concept of money. Best practice, according to Descano and other experts, is to give them one dollar per year of age. In this case, my girl will get $5 dollars each week. Some parents decide to do it bi-weekly, and that's fine too.

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However, it's not as easy as just establishing a dollar amount and handing it over to her, I need to teach her how to make the right choices with her money, yet allow her to make those choices -- for better or for worse. I've relied on the trusty inter-webs to dig up some tips and share with you:

#1. An allowance is not a bribe. Try not to make the allowance dependent on kids completing chores they're already expected to do. This can create a bad habit of them only wanting to help because they expect something in return. I also don't believe in making the allowance a basis for a threat of losing it as punishment. I believe an allowance should always be given once established and negotiations be made otherwise. Not all experts agree with this, in fact, Suze Orman thinks it's a really bad idea to give them an allowance if they haven't "earned" it by doing work-pay chores. She even suggests starting at age 4. Apparently this will teach them to not feel entitlement with money.

#2. Let them make their own choices. Before you give your kids their first allowance, make sure you've already talked about money and the choices they can make with it. Your kids can choose to save it for something they really been wanting, or put some of it away and spend the rest, or just donate some. When shopping together for a toy, teach them to weigh out the costs of each toy and which one would be the best choice for the money.

#3. Use cash as much as possible. Yes, I know this is getting harder and harder to do, but for kids -- and even for adults! -- it's very difficult to get a sense of how much money they have if they can't see and feel the coins and bills. Passing a card through is just too abstract for this process.

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#4. Lead by example. I've recently been starting to feel guilty when I take my girl to the store with me and I won't allow her to buy more stuff and then I walk out with a bag load for myself. How is that teaching her to value money and only purchase what she needs? Maybe the solution is to do my shopping without her? Yeah, there we go!

#5. Teach them to think about big purchases before making them. I find that this exercise applies to myself to stop me from making impulse purchases. If your kids sees something they really, really want, ask them to think about it overnight and if they still feel strongly about it the next day, then they can use their money to buy it. A great tip that has worked for my family is to take a picture of the item while at the store with the intention of remembering it later. Not once has my daughter come back the next day to ask about it, at least not yet.

#7. Make it a routine.
Establish a day of the week when they will get their allowance and stick to it. Children of all ages strive on routines and this helps them monitor their money and how/when to spend or save.

- By Ana Flores

For 5 more tips for teaching your kids to save money, visit Babble!

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Ana L. Flores is co-founder of SpanglishBaby, the blog and online community for parents raising bilingual and bicultural kids. She's also co-author of the book, Bilingual is Better, to be published in the fall of 2012.

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