How to teach your kids the value of money

How to teach your kids the value of money

As a kid growing up in a small town in Jerusalem, I was able to go to the grocery store, pick up candies (or groceries my mother sent me to buy) and “sign” for them.

Once a month, when I went with my parents to the store they would pay for everything I signed for. I remember that I always got very confused when they paid with a cheque and not cash. Cash I understood as I had a weekly allowance of 2 dollars I saved vigorously. However, I could never understand why the store manager agree to receive a piece of paper my parents took out of their pocket and scribble some numbers on, instead of valuable cash. Therefore, whenever I wanted something my parents said they cannot afford I simply replayed “if you don’t have the money for it give them a check, what’s the problem?”

My cheque story stands as an example of the difficulty kids have in learning what money is. Money is an abstract concept to kids and it’s only as they develop that they are first able to comprehend what they can see, feel and touch. It is only around the age of 12 that kids develop the cognitive ability to grasp more abstract concepts that are beyond the physical world- such as money.

For that reason, kids find it much easier to understand money in the form of notes and coins. They have 5 dollars, they buy a candy for 2 dollars, they give their 5 dollars away and receive 3 in return. Now they have less money but they have a lollu. 

Unfortunately, money today is far more confusing than the example above. If I was straggling with the concept of cheques, think about kids today. Paypass, click to pay, ePay, are only a few examples of how we pay today. All of which are very abstract.

The problem with kids that see goods being exchange in a “magical” process is that money losses value. Kids value what they can see, feel and above all- understand. Kids growing up in a world where they walk into the mall with mum and that nice toy that they want just went into their hands after mum did a magic trick, will never appreciate the work and the process that took place to generate the money mum used to buy the gift.

So how can we educate our kids to understand, value and use money smartly?

No credit/debit cards

Kids should not have or be allowed to use cards. When you send your kids to buy something give him cash. Whenever your kid is spending money he should be able to feel, see and touch the money he or she spends.


Give your kids a fixed allowance. It does not matter if it is 3 dollars or 20 dollars a week. An allowance by itself allows your kid to get expose to money in its physical form. Your kid can save, spend it and subsequently appreciate money. If your kid wants a candy or a toy and they save for a while and buy it with their own money- they will grow to appreciate what they buy (and get) much more.

Dollar for a dollar

As your kids grow older he or she might want things that are above their allowance. A good way to approach it is to tell your kid that for every dollar they will save towards what they want to buy- you will add a dollar. This will make the target achievable while adding a strong motivation to save.

Experiences NOT goods!

Finally, the most important tip that I can give is to reward your kids with experiences not goods. When you are away on a business trip, or simply been very busy at work, you can’t help it but feeling guilty. You know your kid misses you as you miss him or her. Many of us address this situation by giving our kids a gift the second we are back. This is a mistake. When you are away (physically or emotionally) your kid misses you. Whenever you are back to show love and attention to your kid- your kid is thrilled. When you associate this feeling with a physical object you are essentially conditioning your kids’ emotions. Doing that in a repetitive manner create an emotional state within your kid where physical objects (i.e. gifts) create a sensation of happiness and content.

Whenever I am away for a business trip I never buy my son presents. However, the second I am back I will give him an experience. This could be a weekend hike, a trip to the beach, water park experience, zoo, etc. As a result, he or she learns to associate feelings of excitement and content with life experiences rather than goods. Unlike goods, experiences can never be obtained with money. That way money is never the key for happiness.

Dr Liron Nehmadi is a father and a doctor of philosophy. He also works at 

Did you find this helpful? Why not share this article?



Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy


Learn more about savings accounts

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.