NDSU Extension Service - Ramsey County


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For Kids - Where Does Money Come From?

For Kids – Where Does Money Come From?


          Ask a child where money comes from, and the reply may be “Mommy” or “Daddy.”  Teaching kids how to manage money is one of the biggest challenges facing any parent. If you can teach your child the difference between needs and wants, how to budget and how to save, your child will know more than many adults. But if you get it wrong, your child is likely to join the millions of Americans who rack up huge credit card debt and get stung each month by stiff interest payments.

          Allowances, gifts, handouts and earnings are the sources of money for most children.  An allowance gives youngsters a chance to manage money and practice living within a regular income as if they had a job. This experience is most nearly like the adult world they will move into all too quickly.

          Consider starting with a small amount as soon as your child is old enough to understand the connection between money and purchases. Break the weekly allowance into bills and coins that will allow a small child to actually place the money in boxes, piggy banks or envelopes labeled, for example, “school,” “clothes,” “entertainment” and “savings.”

            Be consistent. Set a day to give the allowance as well as the amount. Remind the child of the savings plan and separate out that amount immediately.

           Don’t use the allowance as a lever to discipline. Withholding or reducing a child’s allowance for bad behavior and increasing it for good behavior defeats the purpose of an allowance, which is to teach the basics of money handling.

          Also, don’t link household chores with the allowance. It is reasonable to expect a child, as a member of the family, to carry out tasks around the house consistent with the age of the child. Household jobs can be made fun! Sometimes a weekly, rotating schedule will eliminate the need for constant reminding.

          An allowance is money children can spend however they wish as long as their purchases don’t pose a hazard, are age appropriate, and fit family values. Children need practice making their own decisions – and they also need fun and “goodies” of their own choosing!

           Don’t come to the rescue. If children are ever going to learn how to manage money, they must face the consequences of their own spending mistakes. Even though it may be difficult to watch, try not bail them out if they have overspent.

          For an allowance to work, parents and children must know what expenses it is supposed to cover. You may want to make a list of these expenses. Talk about how to handle overspending and other problems that may arise.

          You’ll know you’ve done a good job in teaching the basics when your child expresses bafflement and dismay at the way some classmates handle their money.

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