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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 RateCity.com.au. 

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