Children and Money: How Young is Too Young?

A long-time friend of mine asked me my thoughts about how much financial support he should provide for his college-bound daughter.  To her credit and on her own initiative, she took course work to become a licensed massage therapist, enabling her to earn a good living.  In his case, he is in a financial position to pay for everything, but is this the best strategy or is this an opportunity to teach his daughter responsible money management?

In far too many cases, parents pay for everything and handle all of the children’s finances until they graduate and get a job.  Then the children have to learn many hard lessons about managing money, often leaving them drowning in debt with no financial skills to dig their way out.  Or worse, the parents continue to enable them with financial support after graduation and they never truly learn how to manage their financial lives.  You’ve heard the saying, ‘There’s no such thing as a free lunch.’  Even more on point I would suggest, ‘The free lunch is ALWAYS consumed!’  As long as you continue to throw financial lifelines to your children, they’ll not only continue to grab them, but will come to depend on them, forever tethered to you, financially speaking.

Money responsibility and strategies are not taught in the schools and too often are not taught in the home.  At what age should you begin teaching your child about money?  You can actually start at a very young age.  There have been times where I’ve been in Walmart and have watched very young kids pester their parents: “Buy me this!” Whether it’s a candy bar or toy, often the parent succumbs to the relentless child.  You could use this as a teaching opportunity by giving them $2 and allowing them to spend as they choose.  Before long, you’ll find they are money experts!  As they get older, you can offer them money for around-the-house projects such as helping paint a room or wash the car.  I would discourage you from paying them for basic tasks such as cleaning their room, helping clear the dinner dishes, taking out the garbage or simply helping around the house.  They should learn that certain chores are expected of them as a member of the family.  By the time they’re in high school, they should be ready for taking on more responsibility for managing money including having a checking account where you deposit money and have them pay their basic bills…gas and insurance (if you have provided them a car), clothing, haircuts, basic entertainment.  Be clear that you retain ‘management control’ and insist on being part of the decision-making process.  You want them to get in the habit of making good money decisions and at this stage many are not quite mature enough to be fully on their own.  As they grow into more mature decision-makers, you should exercise less supervision.  Hopefully by the time they finish college and are fully on their own, they’ll be ready to manage their own finances.

If you would like to start your child down the road to becoming financially smart, here are a few suggestions:

  • Take your child to the bank and set up a checking account in your child’s name (with you as custodian if they are a minor).
  • Together, set up a ‘giving, saving, spending’ plan.  If your child has earnings, you’ll need to decide how to divide up your child’s earnings versus your support.  For giving, allocate 10% and let them decide where to make their religious or charitable gifts.  For saving, set up a Roth IRA, if they qualify, or other investment account and have them allocate 10%.  The balance should be enough to cover the basic living expenses that are appropriate for your child to pay.  Examples might include clothing, weekly pocket spending cash, haircuts, and gas money.  For a sample working budget for college or high school students go to the Resource Center at and click on ‘Cash Management for Students’.
  • Give your child some money.  You make monthly deposits into your child’s checking accounts based on the spending plan.  Your child will be responsible for managing the money.  For the first few months, set aside time each month to review with your child how things are going.  Ideally, your child will set up an automated financial management system using or a similar software package.
  • Set up a credit card.  Credit cards are a big part of our money system and it’s a good idea to teach your child how to properly manage them while you’re still there to help.  Visit to review some great credit card offers specifically for college students.  The key to managing credit card charges is to enter all charges into your checkbook register just as you would if writing a check.  Then subtract the balance…since you’ve just spent the money and so that you’ll always know exactly how much money you have remaining.  When it comes time to pay the monthly credit card payment, enter in your checkbook register but don’t subtract the balance since you’ve already done this for each individual charge.
  • Help your child invest.  Work with your child to set up an investment plan.  The easiest way is to set up monthly auto-deposits into a no-load mutual fund or Exchange Traded Fund (ETF).  Charles Schwab’s OneSource™ has a no-fee, no-minimum investment program that is an excellent place to start.  More trouble but also more fun is to help your child pick a handful of stocks that he or she is familiar with such as Microsoft, McDonalds, or Home Depot.  Dividend-paying stocks will teach another important lesson…that these companies not only pay you money quarterly, but also have a history of raising their dividends over time.  Have your child set up the investment account and do the trades and show your child how to follow the investments on their smart phone (oh… they’ll probably show you this one!).
  • Create incentives.  To encourage your child to invest, match their contributions to their long-term investment account (preferably a Roth IRA).  You can offer additional incentives for responsible money management.  For example, offer a quarterly bonus for account reconciliation and sticking to the plan.  By the way, teaching your child to manage money will make you a better money manager.

By helping your children create good money habits now, they will have a huge head start on their financial future….something we all could have used!