One of the most important things you can do for your child is to teach him or her about money. A good financial foundation now can lead to better success with money later.

Recently, Citi publicized the results of a survey of U.S. adults and the way they teach their kids about money. The results are interesting, and offer insight into how parents are preparing their children for the future.

Are You Teaching Your Child About Money?

Parent-Child Financial Education Activities

According to the survey, close to 90 percent of parents are already teaching their kids about money. This is encouraging, although about 70 percent of the respondents say that their kids say they learn about money by watching them, while only 59 percent actually talk to their kids about money.

While kids do watch what you do, the reality is that many of our money activities aren’t glaringly obvious, so just relying on your kids’ observational skills might not be the best approach to teaching your children about solid financial principles. Here are three of the top activities that respondents say they participate in with their children:

  • Going to the bank
  • Discussing financial circumstances and what parents can afford
  • Setting up bank accounts for children

These are good starts, but if this is the bulk of “financial education” for children, it’s no wonder that many parents worry about whether or not their children will really be able to handle finances in the future.

Going to the bank amounts to “running errands” without proper context. If you aren’t talking about the process as you go, it doesn’t really help. Neither does opening a bank account for your child. Unless your child is actively involved, it isn’t going to do much for him or her. I like to include my son in his efforts to set money aside, trying to make it fun and relevant for him.

I also talk about what we spend our money on in terms of priorities and choices. Always talking about how you “can’t afford” something sets up scarcity issues for many children, and brings in negativity. Instead, make it a point to talk about financial choices, and how you buy what’s important, and that sometimes you need to decide what’s most important. I think that approach provides a basis for a more positive relationship with money.

What About Allowance?

One of the tools that many parents use to teach their children about money is the allowance. The Citi survey reveals some interesting information about how we pay allowances. Here are some of the interesting facts related to allowances, from the Citi survey:

Many parents start late: I found it interesting that the average age for starting is 8.5 years old. To me, that seems a bit late. We started paying my son an allowance shortly after he was out of the toddler stage. Decide on an allowance that is appropriate for your child’s age and your expectations for him or her. I think starting earlier is better, since it sets the stage.

Now that my son has plenty of practice at managing his money (including saving for long-term and short-term goals), we are ready to move on to more advanced savings strategies, including opening an IRA and letting him learn from some of his mistakes.

The earlier you start, the more your child will learn.

Most parents tie allowance to something: According to the Citi survey, 69 percent of parents tie the allowance to chores, and 21 percent tie it to good behavior. You need to decide what works best for you.

We don’t tie allowance to my son’s chores. We provide him with a small amount, designed to help him learn to manage his money, and we’ve made it clear that he won’t be getting an allowance as he gets to the point where he earns more. We don’t like the idea of teaching him that he gets paid for doing things that everyone does as part of the family. His dad doesn’t get paid for doing laundry, and I don’t get paid for vacuuming the floor. We do these things because we belong to a household. My son doesn’t get paid for unloading the dishwasher.

On the other hand, the allowance is modest so that he is encouraged to find other ways to earn money. I pay him for filing and other tasks related to my home business (money that can go to the Roth IRA), and he can earn ribbon money with his 4-H projects. This is our main focus — helping him learn to make his own money, while still participating in family activities that you aren’t financially compensated for.

In the end, what you teach your children is up to you. How do you teach your kids about money?



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.