Many conversations in your family probably involve money matters. They may often be aggravating back-and-forths with pleading, misunderstandings, and even the occasional tears with your kid about why you can't drop everything and run to the store to get a Frozen toy or a set of Legos.
By the time kids reach second grade, they aren't just eager consumers, they're also curious about how much toys, games, movies -- even cars -- cost. Yet most 7- and 8-year-olds' idea of fiscal resourcefulness is to ask (or beg!) you for money. It shouldn't be that way, experts say, because constantly doling out dollars encourages them to be impulse spenders and poor money managers. Instead, follow this valuable advice.Start an Allowance
The best way to teach the value of money is to give your kid some of his own, so initiate a weekly allowance. Just how much is a personal matter, based on your financial circumstances and the going rate where you live. One approach: "Start with an amount that's equivalent to half your child's age; for example, $3.50 for a 7-year-old, $4 for an 8-year-old," suggests Janet Bodnar, author of Raising Money Smart Kids. Many experts believe that an allowance shouldn't be contingent upon meeting his routine expectations such as unloading the dishwasher.
"It's important to teach children that doing chores is an expectation for everyone in the family," says Mary Gresham, Ph.D., a financial psychologist in Atlanta. If you want to give your child the opportunity to earn extra money -- by raking leaves or washing the car -- consider making it a separate transaction."
Don't just hand out cash. Help your child set goals for her money. Does she have her eye on an iPod touch or tickets to a Taylor Swift concert? Get out the calculator and explore various saving scenarios together. Some kids are naturally thrifty and will want to sock away every penny, while others are the spendy type. Both styles have virtues and consequences, so allow her to experience her chosen approach. Giving your child her own money will also encourage independence. In keeping with that spirit, try to take an advisory role. "An allowance should have relatively few strings attached to it," says Lawrence Balter, Ph.D., a child psychologist in New York City.
Even if you think she's frittering away her money on scented pencils or ice cream -- flavored lip balm, offer your advice and reasons for thinking that's not a good idea, but then let it go. Buyer's remorse can be a useful lesson. But you should set some limits. If something is against your rules or beliefs, don't accept the "it's my money" retort. Things like ATVs (too dangerous) and a hard-to-care-for pet (too much responsibility) are examples of perfectly acceptable places to draw the line. Similarly, if you don't allow unlimited candy or soda, having an allowance shouldn't give your kid carte blanche to fill up on them.Show Him the Bill
Your child is watching how you and your partner handle money-related issues. Whether you make big-ticket impulse purchases or debate, discuss, and comparison shop before you buy anything, the way you deal with your finances affects his attitude about money. "If you want your kids to save and invest, they need to see you do it," says Elisabeth Donati, CEO of Creative Wealth International, a financial-literacy company that provides resources to families.
e mindful, however, that many financial transactions these days are abstract. Whether you're swiping a debit card or making online payments, you need to point out how things work so that your child understands the cold-hard-cash connections. For example, when you charge something tell him that you're spending real dollars. Follow up by letting him look at relevant parts of your monthly statement so he can see the charges for movie tickets you bought, for example, or the last big trip to the supermarket. The more familiar he becomes with what's going on behind the scenes, the less vague the entire process will be.
No one really wants to be asked, "How much did our house cost?" or "How much do you make?" over dinner by a 7-year-old. Don't feel compelled to name your salary, but try not to shut down the conversation either. "Kids lack a frame of reference, so if your answer is $30,000 or $130,000, neither would be meaningful," says Bodnar. Instead, offer a more general statement of reassurance, such as "We have money to live comfortably and buy the things we need for every day" or "We earn plenty to get by as long as we are careful about our spending."
Originally published in the July 2014 issue of Parents magazine.