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Teaching Your Child About Money Management

Piggybank on It

Matching or contributing to a child's purchase doesn't undermine her savings discipline. On the contrary, it serves as added incentive for her to stick with her savings plan.

Spending It Now

Whatever isn't set aside for saving can be used toward other things, such as buying magazines or going to the video arcade. If your child decides that he's going to spend his money, he needs to make informed shopping decisions. He shouldn't rush out to buy that CD on a Tuesday if there's going to be a sale on CDs the following day. Tips on spending wisely are discussed in Savvy Shopping Strategies for Kids.

Kids may not readily see the need to become a good shopper, so it's up to you to explain that finding bargains is a way for your child to stretch her spending dollars. Instead of buying one sweater, a particular sale may allow her to buy two for the same price as one. She's getting more for her money in this instance.

Your child also might not be familiar with certain money terms. However, developing an understanding these terms is important for him to become a wise spender. Here are some things you may need to explain to younger kids:

Financial Building Blocks

Ogden Nash wrote: “O money, money, money, I am not necessarily one of those who think thee holy, but I often stop to wonder how thou canst go out so fast when thou comest in so slowly.”

Watch Your Step

Testing for a bargain of an item that you want to purchase can be tricky. Do the math. My daughter once added up the components in the Burger King kid's meal and found that the burger, fries, and soda purchased separately were cheaper than the one-price meal. She wasn't interested in the toy included with the meal, so the separate purchases were the true bargain for her.

  • Bargains. Just because something is on sale doesn't mean it's a bargain; it's only a good deal if it's something that needs to be bought (something allocated in his budget). And it's only a good deal if it really represents a cost savings when compared with a similar purchase that's not labeled a “bargain.”
  • Brand names. Kids are bombarded with ads on TV and even at school. They can recognize that the golden arches mean McDonalds and that the swoosh means Nike. Brand names are used by companies to capture consumer loyalty, and it's fine for your child to want to buy a quality item that also is a brand-name item. But it's not always a brand name that is the best buy. Store-brand socks purchased at Kmart, for instance, may be of equal quality to those with the Footlocker label on the side. Prove it to your child by buying a pair of each socks and then seeing how well they wear over time.
  • Expensive. Young kids have no idea what things cost. They may know that $50 is more than $25, but what does $50 really mean? One way you can show your child what the value of that money means is to compare it with another item of equal cost. For example, if he wants to buy Next Generation, a monthly magazine on video games that costs $5.99, explain that the same money can buy a ticket to the movies (except in cities where ticket prices have soared).

How can you get your child to become a bargain-hunter? Get her involved in the hunt! If your teenage daughter is looking for a new pair of shoes, try several different approaches on how to comparison-shop. Use your local newspaper as a reference material to search for advertised sales (typically Wednesdays' ads are heavy in sales). Or, make a shopping trip a learning experience by accompanying her to the stores. Point out prices and note how they compare to prices in other stores for similar shoes. Or, use alternative shopping places to find bargains. Teenage girls love to shop in thrift shops to find retro clothes and other bargains. Likewise, kids of all ages may enjoy garage sales and flea markets for the many bargains they can offer.

You can teach your elementary school child the power of bargain-hunting by making a game of it. Challenge your 10-year-old to put together a weekly grocery list for the family using a set dollar amount. For example, say that you allot $100 for weekly groceries for purposes of this game. See what your child puts on the shopping list. Remind him that he must include not only Oreos and Coca Cola, but also milk, orange juice, and lettuce. Be sure to discuss when it's advisable to substitute store brands for brand labels as a way of saving money without sacrificing flavor, quality, and so on. Also critique his list—the good and the bad—by pointing out what bargains he has found or what he has left off the list that should have been included.

Variations on this game include these:

  • Give your child the menus for the day, and tell him how much he has to spend for your family's food (for example $20 or $25). Then let him look through local newspapers to find the best prices for the items on the menus.
  • Give your child the dollar amount he can spend on meals for the day. Let him put together the menus for that day, based on the bargains he finds in the newspapers.


More on: Money and Kids

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Excerpted from The Complete Idiot's Guide to Money-Smart Kids © 1999 by Barbara Weltman. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit Amazon's web site or call 1-800-253-6476.


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