Financial education wasn’t a required subject when most of us were in school, and even today, most schools lack structured programs that teach children about family economics and financial literacy. As a result, many children grow up into adults who don’t know how to manage their money and run households that live far beyond their means.
When we teach our children about the connection between income and expenses, about the relationship between work and earnings, and about managing a budget, we’re teaching them essential and meaningful life skills.
Every family has different values and perspectives related to money. These attitudes are expressed in how we relate to money at home and how we manage it. In many homes, you’ll hear phrases like: “We don’t talk about money with the children,” “Money doesn’t grow on trees,” “He who pays the piper calls the tune,” “Money isn’t everything in life,” and more, demonstrating how money and the ways we use it are expressed differently in every home.
Even when these things aren’t said openly, the messages are conveyed to children through your financial behavior. Children observe and learn:
Who makes the financial decisions at home, and what gets discussed with everyone? What counts as an “important” expense and what’s considered wasteful? Does money that children receive as gifts belong to them or to you? Are they allowed to use it as they wish? Do you pay children for household tasks (like babysitting siblings or cleaning their room) or do you expect them to contribute without compensation?
The answers to such questions vary from family to family, and each approach is valid, provided it’s reasoned and consistent. In homes where there’s no clear parental stance and parents tend to live in the moment and simply “go with the flow,” money also “flows,” and children learn this type of financial behavior.
The Connection Between Work and Income
It’s important to teach children that there’s a connection between money and work. Children find it difficult to understand the relationship between the two, and they may even believe that money comes straight from the ATM (or the wall…). Frequent use of credit cards also contributes to the feeling of disconnect between available money and its use.
We need to explain to children that the money available to the family comes from work, from allowances, and from additional income if there is any. According to the child’s age, it’s important to convey the message that the parent goes to work, performs their job, and receives a salary that enables the family’s livelihood.
At age 10, you can also address children’s income sources. At a young age, the main income sources include gifts (birthdays, holidays, etc.), and as they mature, additional sources like work are added. Older children will understand household income sources well when they start earning money themselves from regular work.
The Connection Between Income and Expenses
On the other side of the equation are the expenses: payment for goods and services we want and need, including housing costs, food, electricity and water bills, municipal taxes, education, healthcare, vehicle and maintenance, communication, activities, entertainment, gifts, and more. It’s easy to explain to children that adults have a long list of expenses using examples. It’s worth explaining to children the difference between fixed expenses like housing and taxes, versus variable expenses like electricity, water, food shopping, and entertainment.
Explain to children that we live within our means, and that in order to maintain a balanced budget, monthly expenses need to be lower than income. Explain what it means to live beyond one’s means: when there’s overspending, the family accumulates debt to the bank, which must be repaid and reduces available income.
Priorities
Explain to children that every family’s financial management is different and that each family has different priorities. For one family, it’s especially important to drive a new car; for another, children’s activities are important; and for yet another family, family vacations are what matters most. Each family makes decisions about housing, purchases, and leisure culture, and spends their money accordingly. Talk with your children about what’s important to you and what you enjoy doing. Also discuss things that are less important in your family, and where you don’t typically invest money.
Hidden Expenses
A large portion of money goes to small expenses that we don’t notice at all. Small expenses accumulate into significant amounts, and when we total them up, it’s not always clear to us what we spent the money on.
Here’s an activity you can do with your children:
Each family member will receive a small notebook with the words “Hidden Expenses” on the cover. Ask the children to note in the notebook purchases they didn’t pay attention to before: a drink or popsicle at the convenience store, candy, coffee and pastry on the way to work, pizza you ordered when you didn’t feel like preparing dinner, and so on. Note in the notebook what the expense was, the date, and how much it cost. After several weeks of tracking, sit down and discuss the findings. As a family, you can examine the expenses and see whether they align with family priorities.
How to Manage Financial Matters with Children
Set boundaries: How much money can be spent on entertainment, how many sweets to buy per week, and so on.
Establish a parental stance regarding expenses: Whether they’re acceptable to you educationally and whether they fit your values. Share your considerations with the children and use phrases like “In our opinion, this isn’t appropriate for a child your age,” “We believe money shouldn’t be spent on this matter,” “On this topic we’ve decided to save this month.” There’s no obligation to convince, only to clarify the principles behind the decisions.
Within the established budget, consult and allow children to choose some of their related expenses. For example, where should we spend time together? What gift should we buy for friends? Which clothing item would you like? Providing choice conveys respect and trust (“We trust you”) and strengthens children’s self-confidence (“It means I’m capable”).
Provide them with a budget (according to their age) and allow them to practice budget management, including the opportunity to plan, make mistakes, save, or spend it all in one day.
Discuss at eye level about concepts such as important, worthwhile, cost-effective, taste and personal preference, must have, need, want, and more.
Sometimes You Need to Navigate Challenges
The child educates you financially. The more the child acquires better education in money management, the more likely you’ll find yourself dealing with statements like “Why do you buy such and such for yourself and don’t allow us to,” “You’re a wasteful parent,” “You’re not implementing what you’re teaching us,” and “Why are your priorities like that?” This might cause discomfort and even be perceived as “disrespect” from the child but try to appreciate that the child is capable of examining reality and analyzing another’s financial management. This is a sign that you’ve succeeded in teaching them a thing or two about family economics principles.
Children learn through imitation from a young age and learn patterns by collecting life experiences. Often what influences children isn’t what we say but what we do. If there’s a contradiction between the two, you’ll struggle to convey messages to children clearly.
The child complains that others have (a game, elaborate birthday party, trip abroad). Children often compare themselves to their friends. It’s quite possible that the friend’s parents are in a better financial situation than you, and it’s also possible that their priorities are different. Explain to your children your choices as a family and your priorities, mention the guiding principles, values, and especially your financial capability.
Older children are concerned about your financial situation and want to know how much you earn, how much your house is worth, and whether you’re considered wealthy. Response options to such questions are varied and should fit the family’s character. Some parents will feel comfortable sharing the detailed structure of household income and expenses with older children, while others will feel uncomfortable disclosing the details. The important messages to convey to children are messages of confidence in how the family’s finances are managed.
