Girl laying on floor surrounded by money
Can you indulge your kids and still teach them to be responsible about money?

Whether you've got a toddler or a teen, teaching kids how to spend and save money is one of the most important jobs you'll face as a parent. The lessons you impart now can have a huge impact on how hard your child works, whether or not they get into debt and how well they can budget and plan for the future.

If recent surveys are any indication, kids can use the help. Few kids age 12 to 21 understand even basic financial terms, according to Phoenix Student Fiscal Fitness Survey. Only 12 percent could define the word budget.

But kids certainly know what they want when it comes to money—they want more. Our consumer-driven society teaches them that material things will make them happy. As adults, we know that's not true, and it's our jobs to make sure our kids understand that. Of course, a little overindulgence is perfectly natural, especially among this generation of super-involved parents. If your kid routinely wants the next great toy, video game player or trendy pair of shoes, and then grows tired of whatever it is they just bought within a few days, that's a sign you're erring on the side of spoiling them.

What can you do to help your kids avoid this fate? These two easier-said-than-done rules of parenting can be the keys to success.

First, set clear and consistent limits. When Dan Kindlon, a professor of psychology at Harvard University, surveyed nearly 1,100 parents and 700 teens, he found that kids who had consistent limits set for them on everything from swearing to playing violent video games were less likely to lapse into drug use and depression than teens without such restraints. These boundaries were far more important than the amount of money a family had.

Second, teach your children to make good choices. Along with these basics, you'll want to give your kids a solid grounding in good money management throughout their childhood. You and your Money Group can use this guide to help you do just that.

Start when your child is as young as 2 years old ("Do you want to wear the red T-shirt or the blue one?") and continue throughout their childhood, says parenting expert Elizabeth Crary. Be sure to add more choices as soon as they can handle them (usually age 4). And no matter what, once your kids make a decision, they have to live with it. They'll soon learn that there isn't always one clear, right choice, but that in many cases, there may be a choice that's better than the others.
How can you make sure your kids grow up to know the value of a buck, work hard, pay their bills, helps others and not be taken in by cons? Use these questions in your next Money Group to make sure you're sending your kids the right messages about money.
  1. What's your money personality? Your spouse's? (Jean's take: Your attitudes toward money will naturally rub off on your kids. Be sure to recognize any hang-ups you might have that you don't want to pass along. I didn't want my kids to inherit my penchant for impulse buys, for example, so now I make sure when I'm shopping for clothes—for them or for me—that we try our best to stick to a list of exactly what we need or exactly what we set out to buy.)

  2. Do you and your spouse fight about money? If so, what kind of message do you think that sends to your kids? (Jean's take: A fight is different than a disagreement. It's just as bad for your kids if they believe you're pushing your feelings under the rug and ceding to your spouse's every wish. They need to know they have a voice and it should be heard!)

  3. What were your parents like with you about money? (Jean's take: The way you grew up can have a big effect on how you relate to your kids about money. If your folks counted every dime and made you crazy, you may easily compensate by overindulging your kids every time they want a new toy or DVD that, frankly, they probably don't need.)

  4. If your child throws a fit in the toy store or at the candy counter, what do you do? (Jean's take: It's so tempting to say yes to stop the tantrum, but that's such a bad idea. If you repeatedly give in, your kids won't learn there are limits to both the things they can have and the extent of your bank account.)

  5. If your child forgets his sneakers at school on Friday, do you rush out to buy another pair so he or she will have them for the weekend? (Jean's take: Teaching kids consequences is an important part of a financial education. If Mom doesn't open her wallet every time Junior gets in a jam, he'll learn the basics he needs to manage money responsibly.)

  6. What does your child do with their allowance? Or the money they earn from odd jobs like babysitting or cutting lawns? Is he or she spending it all at once on junk or saving for a bigger, more important purchase? What do you think about their spending decisions?

  7. When your child gets a birthday check from their grandparents or an extra $10 from a favorite aunt, what does he or she usually want to do with it? What do you suggest?

  8. Your child wants an iPod and you quite simply can't afford it. What strategies do the two of you come up with to help him or her earn the money to buy it themselves?

  9. Knowing your kids, what will be the biggest challenge you'll face when it comes to teaching them about money?

  10. Who might be able to help you teach your kids about money? A trusted grandparent? A close friend of the family? A responsible older cousin?
Teaching kids about money is about more than just making sure they can balance a checkbook when they get older. With credit cards being offered to kids as early as high school, student loan debt on the rise and more adult children living off their parents than ever before, it's crucial to make sure that our children get a solid financial education. Get started on these three tasks and you'll build the foundation you need to raise money-savvy kids.

  1. Start giving your child an allowance. (Or if you're already giving an allowance, review your approach to make sure you're getting the most mileage out of this important tool.)

    Once kids have money of their own, they can begin to learn how to handle it. And you can stop paying for candy bars and DVDs. Many parents start with $1 a week in kindergarten and go up by $1 a year through elementary school. For older kids, one of the best ways to determine how much to give them is to decide what the money is supposed to cover. If you want your teen to pay for school lunches, weekend outings and videos out of their allowance, you should make up a budget with them that includes those expenses and come up with a fair number.

    Most experts recommend parents do not tie allowance to chores. Helping around the house should be your child's responsibility simply because they live in the house, not because they're getting paid to do it. You'll also avoid any arguments if your child decides they'd rather forgo the money than do the chores.

    That said, for special purchases that an allowance simply won't cover, it is a good idea to pay your child for big jobs you might normally pay someone else to do, such as mowing the lawn, cleaning the garage and shoveling the sidewalk.

    And keep in mind, your child's money is theirs to spend as they please. It's fine to insist that they save part of it and give part of it to charity, as many families do, but if your daughter wants to blow her spending money on a really ugly skirt, you've simply got to live with it and let her make her own decisions.

    Debating about how much to give? Figure it out on this allowance calculator!

  1. Get to the bank!
    Many banks still have low-minimum passbook savings accounts that are perfect for kids. Once your child's piggy bank is stuffed, take them to the nearest branch and help them fill out the paperwork to open an account. Then encourage them to deposit birthday money and other windfalls so they can watch their balance grow.

    With older kids, you can extend this lesson into stocks. Start tracking stocks you think your kids will be interested in (Disney, McDonalds, etc.) in the paper each day. You'll be surprised how fast your child picks up the basic concepts of the market. When they're ready, buy a few shares of the stocks they've been following in a custodial account at an online trading firm. Give your child the password so he or she can follow the portfolio regularly and make suggestions for what to buy next and when to sell.

    Find out how quickly your child's savings can add up.

  1. Encourage work.
    All your lessons will really kick in when your children start earning their own money. Additionally, working in high school and college—to the extent that it doesn't interfere with schoolwork—seems to pay off later in life. According to a Roper study, people who worked in high school are more likely to achieve their financial goals and be knowledgeable about money than those who did not.

    How can you encourage your kids to get a job? Give them money only for the bare necessities and insist they earn the rest. Then help them with their job hunt—having them put the word out to friends and family that they are available and checking the local bulletin boards and newspapers for teen-appropriate positions. Be available to help them get where they need to be on time. And don't sabotage their ability to work by requiring them to do certain chores, such as babysitting younger siblings, unless you're prepared to pay them for those hours yourself.

    Learn how to help your children find jobs.
An allowance in itself is the most important tool you can use to teach your kids how to be smart with their money. The big question is how much allowance to dole out while teaching this important lesson.

As I said before, many parents start with $1 a week in kindergarten and go up by $1 a year through elementary school.

However, things get more complicated as your child gets older and wants more. Now is a great time to teach them a lesson in money management! Sit down with your child and fill out this allowance worksheet to come up with an amount that suits you both.

Download Jean's Allowance Worksheet. PDF
Jean Chatzky's Guide to Raising Money-Savvy Kids
Are you raising money-savvy kids? Take the quiz! 
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.


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