How To Raise A Financially Responsible Child Thumbnail

The amount of personal debt in society today is staggering; the number of people struggling to keep their heads above water is alarming. Children imitate what they observe and will follow the example set by their parents in financial matters. It is vital that parents learn how to raise a financially responsible child.

Society has become obsessed with possessions and instant gratification. Our grandparents used to save for what they wanted, our parents learned that credit could help fill in financial gaps while the current generation of young people is amassing personal debt at an alarming rate.

Understanding Money

Education in money and finances can start at an early age. Research has found that three year-olds have a basic understanding of money while toddlers have a good grasp of getting what they want. This is when financial education needs to start, before poor habits can become established.

Toddlers can be taught that they can’t have everything they want. They can learn that they have to wait for some things. While a toddler may not have an understanding of money, they can learn that there isn’t always money to buy everything they see in the store.

Pre-school aged children can learn more about money through play. Games can focus on recognizing different coins and develop an understanding of the different values. By the time they start school, most children are able to understand the concept of value and different prices of various goods.

Allowances and Pocket Money

Five year-olds are old enough to learn how to manage a small allowance. This can be freely given or earned in exchange for helping in the household or for good behavior. They should be encouraged to save a set part of their allowance and given guidance about what to spend the balance on. Children learn by doing and so they should be allowed to make mistakes – if they buy a large bag of candy, there won’t be money to buy anything else.

Also at this age, children can learn and understand the concept of needs and wants; that needs take priority and wants may have to wait. In fact, for small children, their wants will usually change frequently. Have the child write a ‘wants’ list to show them how often their wants may change. This is an early lesson in delayed gratification.

Setting Goals

Teach young children to set financial goals. The amount they save from their allowance can grow into enough to buy a special toy, for example. Encourage them to do small jobs to earn extra money to make their savings grow faster. Allow them to experience the delight of a goal achieved and a purchase made.


As children approach the pre-teen years, this principle of saving and guided spending can be developed further. Pay their allowance monthly instead of weekly and teach them how to follow a budget to make sure their money lasts for the month. Show them how to record their spending so they can see where their money goes.

Debit and Credit

Teenagers need to understand how credit and interest on purchases works and how much they could end up paying for an item bought on credit. Teach them responsible spending by arranging a debit card to be linked to their bank account. They cannot over-spend their savings but have the experience of shopping without cash.

Get The Children Involved

Involve your children in the household budgeting from an early age. While they don’t need to be confused with the detail, they can learn about income and bills that need to be paid by a certain date. Let them have a say on how family money is spent on things like holidays and entertainment.

Leading by example is the best way to raise a financially responsible child. By teaching your child how to handle money responsibly, you are setting them up for a successful future that won’t be plagued by money worries.

Readers, what do you think about the financial responsibility of kids nowadays?  Is it up to the parents or the teachers to teach about personal finances?  Why don’t more schools teach personal finances?