Money and You
Of all the things money can buy, ask yourself what is most important to you. What financial goals do you have for yourself and your family— this year, in five years, and beyond? Using the checklist of priorities below as a starting point, build a list of your top financial priorities. There’s no right or wrong to this exercise — it’s just to help you get a handle on what money means to you, so that you can help your child understand your values.

When you’ve finished your list, you’ll likely see that the items with the highest priority are those about which you have little choice (e.g., the rent or the mortgage). As an adult, you recognize that if there’s not enough money for everything on the list, the high priority items must come first, even if you very much want lower priority items. You’ve learned the difference between what you really need and what you want. Learning the difference between what we choose to spend our money on (e.g., entertainment), as opposed to things we have little choice about, is an important concept for children. While not appropriate for very young children, you can introduce this concept as your child matures.

When to Begin
You can start discussing money when your children are quite small, even as young as three years old. The best time to teach children anything is when they express an interest. So, when a child begins asking you to buy candy or toys, be prepared to begin a discussion about money.

Start by demonstrating that money is used as a trading tool. People trade money for items of value and for services. Show your child how money works by allowing the child to make his or her own purchase. For example, give your child the required amount of money for a toy. Let the child hand the money to the cashier, and after you’ve left the store, talk about how the money bought the item. You might explain that the merchant had what your child wanted — the toy — and that your child had what the merchant wanted — money. You traded money for the toy and both your child and the merchant were happy. It was a fair trade.

Give children clear and consistent information about money, and approach money lessons with openness and honesty. Tell them why they can or cannot have certain items. When you say "no" to a young child’s request to spend money, you can explain, "Mommy and Daddy believe you have enough toy trucks for now." Or, if the family has money available for a new toy, you could involve your child in the decision, at a level your child can understand: "Your toy chest is full. If you gave one of your old toys to a friend or charity, there would be enough room for a new truck." If the request is for multiple items, you might say, "You have a choice to make — you must decide between this toy and that toy."

Once a child understands the basic function of money, you can start explaining the bigger picture. Show an older child how money is used to provide for the whole family. Real-world lessons are better than talk. At the grocery store, pick out a generic and name brand of a product your child recognizes. Show your child how to compare them – the price as well as the contents. Allow your child to choose between them. If the child chooses the generic, allow him or her to make an additional purchase with the money saved. If the child chooses the name brand, explain how that choice leaves less money for other purchases.