Teaching Kids About Money

Is your child fascinated by money? Cash in on her interest and take the time to teach her some early financial lessons.

Cents and Sensibility

My daughter, Clara, who's 2 1/2, has spent almost her entire life watching me fork over money-- at restaurants, bookstores, and, of course, wherever diapers are sold. But all those bills and coins didn't interest her until two months ago, when we were playing at the park and an ice-cream truck pulled up. As we joined the line, I realized I'd left my wallet at home. "Sorry, sweetie, I don't have any money," I apologized as I led her away. Clara's eyes grew wide as she mulled the connection.

Since then, she'll rarely embark on an outing without her purse, filled with coins and "paper," as she calls her sole dollar bill. She loves to offer to pay for purchases I make.

I'm hardly the only parent to witness her 2- or 3-year-old's blossoming interest in cash. Often, an event like the ice-cream incident plants the seed; other times, it's an outgrowth of a child's increasing ability to understand the power of this commodity. Treat this newfound fascination as a chance to teach your child lessons about the many things money can -- and can't -- buy.

A Time for Change
A 2- or 3-year-old's interest in money is a sign of healthy curiosity, not greed. "As an infant, your child mainly focused on his body and his immediate surroundings. Now he's studying the things that people around him, especially his parents, do. And one thing adults do is use money," says Pamela Klainer, Ed.D., author of How Much Is Enough?: Harness the Power of Your Money Story -- and Change Your Life.

Money's appeal is also intrinsic -- bills are crisp, coins shiny. "My son, Andrew, has loved playing with coins since around his third birthday," says Beth Bailey, of Wakefield, Rhode Island. "He lines them up and stacks them." (But never let kids handle coins unsupervised; they can be a choking hazard.)

Money also provides fun opportunities for 2- and 3-year-olds to exercise their motor skills. Some children get a kick out of feeding parking meters or helping Mom and Dad slide their credit cards through readers. Adds Bailey: "One of Andrew's favorite things to do is throw pennies into a fountain."

Passing the Buck

A good way to instill a respect for money is to give your child regular opportunities to use and save it. Try buying her a piggy bank with a lock, so she can deposit coins (but not remove them without adult help). Or stuff an old wallet with "dollars" borrowed from a board game or made from scrap paper. Another great plaything: a toy cash register. (Because most are for kids 3 and up, you may have to wait a few months.)

Though it's too soon to provide an allowance -- kids this age can't grasp the worth of money -- if your child begs to buy stickers from a gumball machine or a small toy at the drugstore, make the funds available occasionally, if you can. If you can't, says Janet Bodnar, author of Dollars & Sense for Kids, let him know the ground rules even before you leave home ("We're buying medicine, not toys, today.") Don't make it a financial issue. Saying things like, "You're going to drive us to the poorhouse!" -- even jokingly -- may make him anxious.

On the other hand, it's wise to demonstrate that your pockets aren't bottomless. "If your child plays a couple of songs on the jukebox at the diner and keeps demanding more quarters, say, 'We don't have more right now. Maybe we'll have more the next time we come,'" Klainer advises. You'll be sending the message that money isn't limitless, but there's enough for a reasonable amount of treats.

The Best Things Are Free
Now's also the time to impart nonmaterialistic values. If your little one, say, draws a picture for your birthday, fuss over it just as you would a store-bought present. If her grandparents give her a few dollars, talk about other great things they do for her. Carol and Bob Levey, of Encino, California, keep a container marked "charity" where their 3-year-old, Joshua, can donate a few of the coins Mom and Dad give him. They've realized it's never too soon to demonstrate that one of the best ways to use money is to help others.

Pint-size Panhandlers

Occasionally, a kid's quest for cash can get out of control, as Tammy Rabe, of Indianapolis, discovered. Her husband, Brian, would regularly give their son, Nicklaus, coins. "Soon, Nicklaus assumed that any money he saw was his," she says. Not long ago, Nicklaus, then 3, helped himself to three $20 bills that Tammy had left on a table. "We don't leave money lying around anymore!" she says, laughing.

Tammy is right to have a sense of humor: Penny-pinching 2- and 3-year-olds don't realize they've overstepped their boundaries, says financial planner Pamela Klainer. "You have to set limits," she explains. Let your child know it's not okay to filch money she finds around the house without permission. And if you don't mind when she bums change off you, but you don't want her to take any from, say, the neighbors, tell her so, and make her return the money. "She'll soon learn the rules," Klainer says.

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