← The Pediatrician Next Door - Simple Advice on Parenting and Family Health
The Pediatrician Next Door - Simple Advice on Parenting and Family Health
Teaching Kids About Money: What Kids Need to Learn (and When)
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Welcome back friends. And if you are new here, this is the place that I answer the questions that you forgot to ask your pediatrician or or didn't even know that you should ask. And today's question is one that almost every parent has. But we don't talk about it nearly enough. And very few parents ever ask me about this. So let me start with this. Does this sound familiar? You're standing in line at a store and you're watching your toddler completely melt down over a toy that they Must have. Or maybe you've gotten a text from your teenager casually asking you for money. Do you worry and think, God, I'm raising a kid who is going to feel entitled about money? Or on the other side, do you think, am I raising a kid who's going to feel anxious, guilty or stressed about their spending? I mean, we talk about picky eating, we talk about sleep, but we rarely think about money as a developmental milestone. How do kids learn this? When are they ready to understand it? Why do some kids grow up feeling impulsive and overwhelmed when it comes to money? How do you raise a child that is financially calm and thoughtful about their finances? So today that is what we're going to figure out. How do kids learn about money and what's the best way to teach them? I'm Dr. Wendy Hunter and I'm the pediatrician next door. I'm that doctor friend you call for practical advice about your kids health. I mix the science of medicine with the reality of parenting. How do kids understand money? I mean, the first thing that most parents think about is giving them an allowance to teach them. When should you start an allowance? Well, it does depend on their age. So I'm going to start by talking about the different ages. Because if we try to teach something before a child's brain is ready to understand it, it's not going to work. It's just going to be frustrating for them. And for you. I also want to add one thing that we tend to treat money like it's a math skill. And yeah, partially it is because, you know, like most of us learned how to count coins in our elementary school classroom. But it's not entirely a math skill. It's also a developmental skill. And just like learning to talk or learning to pee on the potty, it unfolds in stages. I mean, kids don't wake up one day and talk in a sentence or suddenly throw off their diaper and declare they are now going to use the potty forever. Actually, I do knew a kid who did that, but that's not typical. So let me start with toddlers. I know this is obvious, but it's really important. Toddlers do not understand money at all. They don't understand that it even exists. And if they do, they might think it appears at the store. I mean, they really, truly have magical thinking at this stage. They don't understand that things cost different amounts and they definitely don't understand why you can't just take something from the store the moment that they want it. I mean, they can take and Use almost anything they get at home, for the most part. So why is the store different? From a brain development standpoint, toddlers live in a world of immediacy. Their prefrontal cortex, the part of their brain that's responsible for planning and impulse control and delayed gratification. It's just not really working much at all. What toddlers can understand is your words and your rules. So this is where you start laying the groundwork. You can start by using simple, consistent phrases like, we are not buying that today. We can put that on your birthday list because you're building the language of limits. And this is also where trust starts to form. One of the most famous ways we've studied this, like how kids handle waiting, is the Stanford Marshmallow Experiment. Have you heard of it? This is a good one. Keep this in your repertoire. Researchers sat young children in a room and gave them a choice. You can eat one marshmallow now, or if you wait a little bit, you can have two. And what the researchers found was that some kids could wait and some kids couldn't. And at first, they interpreted this as a personality trait, like, some kids are good at self control and some aren't. But when researchers went back and repeated the study with a few changes, they realized something totally different was going on. Kids were more likely to wait if they believed the adult, when the environment was predictable, when their promises were kept before. And in one version of the study, kids were told they could wait for better art supplies. And in some cases, the researchers came back with the art supplies. And in other cases, they didn't. And the kids who had already experienced the adult not following through when they were given the marshmallow test again, they ate the marshmallow almost immediately. Because from their perspective and experience, waiting didn't make any sense. It wasn't going to pay off. So what this tells us is really important. Delayed gratification is not just about a child's willpower. It's also about their trust. It's about whether a child's brain believes, if I wait, something better is coming. And this connects directly to how we talk about money with our kids. When we say things like, we're not buying that today, we'll save for it, or you can get that later. If we follow through, we teach their brain that waiting is safe. But if later never comes, or the rules change, or sometimes we give in and sometimes we don't, that unpredictability makes it much harder for a child to delay their gratification. So once your child really believes that Waiting will pay off. We can graduate from marshmallows to Money after age 5, until about age 7, kids enter what we call the concrete operational stage. Instead of just trying not to eat the marshmallow, they start to understand that they could save it, trade it, or spend it on something better. They start to understand that money is something you exchange for goods. And this is a really fun stage for teaching money. Kids learn really well at this age by doing so. This is where having things like three jars like save, spend and give jars, or letting them physically hand money to a cashier, that can become really powerful. There's also research showing that when kids have early hands on experiences with money, they build stronger financial habits later. Not because they understand investing, but because they can see, I can choose what to do with this. So this stage is basically about agency, helping them see that their choices have outcomes and that they have some control over what happens next. It's the shift from money just appears to I can decide what to do with this. And that's the foundation for responsibility and future self control. So if you're thinking about starting a small allowance at this stage, that's probably okay. Allowance at this age is not about a reward, it's about practicing with money. It's like giving your child a bike with training wheels. So as kids move into that 8 to 11 age range, their brains are becoming much more logical. They understand that things have different values and that choices have trade offs. And this is where you can start introducing one of the most important financial concepts. It's that you can't have everything. It's not about punishment, it's just reality. As you know, this is also the age where kids are motivated by goals. So instead of saying you can't buy that, you start to shift to let's figure out how you could save for it. Now you're building planning skills and they gain a sense of accomplishment. This is a great age to let kids make small mistakes. If they spend all their money on something and then regret it, that is fine. That is learning in a low stakes environment. As you well know, as you get older, everything matters a lot more if you blow all your money on something. So what's the next stage? It's early adolescence and that's age 12 to 14. When kids move beyond just handling money to really thinking about money. This is when they ask you more complex questions. They think about, is this worth it? What does this thing I want to buy say about me compared to my friends? And this is where money stops being concrete and starts Becoming psychological. That means they can also understand budgeting and basic investing concepts. So now you can really start to teach them some real stuff. However, their brains are also wired to seek out exciting new things and take risks. And they are easily swayed by a quick reward, which means impulse spending. They want what their friends have, and they don't think about the consequences. So this is a great age to talk about advertising and how it influences our choices, social pressure. Talk about comparison and the difference between wanting something and needing it. The most powerful thing you can do at this age is for you to think out loud. Say things like, ugh, I think I'm, I'm going to choose not to buy this right now because I'm saving for something else. That kind of modeling builds what we call metacognition, and that is thinking about your thinking. And that is a lifelong financial skill. Now get ready for the teenage years. That's age 15 to 18. It's time to really prepare your kids for independence. I'm talking about bank accounts and more responsibility. Their prefrontal cortex is still not fully developed, so they can understand risk, but they don't really feel it all the time. Which is why teens are the perfect age for what I call guided autonomy. And this might look like managing a monthly budget together, giving them a debit card, and they have to be responsible for certain expenses. This is the stage where mistakes get a little more expensive. And we want those mistakes to happen while we're still there to help them course correct. So those are the stages and what kids are thinking next. I'm going to give you some real tips, specific things you can do at each each age. That's next. There's one important component I want to share about teaching kids about money before we move on. Obviously, they have to learn about interest and loans and debt, but there's an emotional side we haven't really talked about about. I went to a lecture from a behavioral financial advisor recently. She has special training to understand how psychological biases impact our decisions about money. It was fascinating. She pointed out that many divorces are actually over money issues. And that's not something anyone ever really talks about. So I know it's really helpful if you're on the same page as your partner when it comes to money. So this is part of it all, and teaching your kids about money is part of it all. Money carries a lot of emotion, and we teach our kids our feelings, whether those feelings are shame or scarcity, control, generosity, even identity. In terms of money, our kids are picking up on all of it. They see how you react when a bill comes. They hear the tone of your voice when you say something is too expensive. I mean, they notice when we tip, whether we give to charity, whether we stress about money. If you grew up with not a lot, your child may feel that anxiety even if your situation is completely different right now. But we can also help them to understand that money is something to think about and not something to fear. If we take everything we just talked about the brain development, the emotional side of money, the next question is, what should you do as a parent? Let's start with toddlers. At this age, you're not teaching money, you're teaching limits and predictability. One simple thing you can do is create a store script and stick to it. So before you walk into, say, Target, you say, we are here to buy toothpaste and paper towels. We're not buying toys today. And then you follow through every single time. And sometimes maybe a toy is on the list. That consistency is what builds trust in the idea of not now. A second idea is to use a waiting list, something like a birthday or holiday list. It needs to be visible, something you write down. When your toddler wants something, you take a picture of it, put it on your list or write it down together. Now you're showing them that wanting something doesn't mean getting it immediately. It means holding onto it for maybe later. Then we move into ages 5 to 7. Here kids can start to understand that money is something they can use and make choices about. This is where you can introduce a simple three part system I talked about that Save, spend and give jars. Give them a small regular amount of money and let them physically move it into the different jars. That act of sorting builds understanding in a way that talking never will. And kids this age love to sort things and make categories. I don't know why. Another thing you can do is let them pay for something themselves. Hand them the cash, let them give it to the cashier and then let them feel that moment of exchange. That's where the concept clicks. Money leaves your hand. Something comes back around age 8 to 11. We're getting a little older here. Kids are ready for longer term thinking. One powerful project here is saving for a specific goal. Instead of buying something for them, you sit down together and map it out. How much does it cost? Take time to price, compare, shop around, look at how much they have and how long it's going to take. Then you track the progress visually. Make a chart on the fridge. You're building planning and patience at the Same time. Another project at this age is to let them experience small mistakes. If they spend all their money on something and then want something else later, don't rescue them. You walk through it with them. Because that feeling of regret in a safe environment is one of the best teachers they'll ever have. Now on to early adolescence. So say age 12 to 14. The goal here shifts toward awareness and reflection. This is a great time to start a simple budget for discretionary spending. Give them a set amount for things like snacks, outings, gifts for their friends, or small purchases. And let them manage it not perfectly, just on their own enough to learn. And then start talking about advertising and influence. Watch commercials together or scroll through social media together and ask what are they trying to get you to feel right now? You help them to see that way that money decisions are often emotional. They're not just logical. Okay, now with teens, we are preparing them for real life. And one concrete step here is to give them responsibility for a certain category of spending. Maybe it's clothing, maybe it's gas or entertainment with a fixed monthly amount. And if they run out, they run out. And that's where real world decision making starts to take shape. My husband and I went a little extreme here. We gave our kids an annual allowance and yeah, their money got real tight a month before their birthday. This is also when you can get them a debit card and track their spending together. You can sit down once a month and look at where their money went. And not to judge it, but to build awareness and ask them, was that purchase worth it? That becomes a really powerful question at this stage. We're not trying to teach kids how to be perfect with money. We're to trying. We're giving them practice over and over again and making choices and feeling the outcome, making mistakes and adjusting. And before I go, I want to tell you this great little story. Last year a parent told me their six year old had been saving up. They were so proud. Saving for weeks to buy something at one of the big box stores. This kid was proud, organized, had all the cash in an envelope. They get to the store and the kid picks out the item he wanted. He marches up to the register and hands over the money. And then he looks at the cashier and he says, okay, now can I have my money back too? Because in his mind he had done the saving, he had done the waiting part, so clearly he had earned the toy. I don't know. We try our best and sometimes the reality of life with kids just smacks us in the face. And humbles us. Just at that moment, we think we've done the very best job ever. And I guess, isn't that what makes this fun? If this episode made you think about money a little different or gave you one idea you want to try with your kids, please share it with another parent. These are the kinds of conversations we don't have enough of. And I also would love to hear from you what has worked in your family, what hasn't worked, what surprised you about the way your kids think about money? You can reach me through my website or send me a message. I read every single one because there really are a lot of parenting mysteries out there left to solve. For more from the Pediatrician Next Door, find me on the web@ pediatriciannextdoorpodcast.com if you've got a question about the weird things kids do, send an email to hellopediatriciannextdoorpodcast.com for a chance to hear your voice on the show. I'm Dr. Wendy Hunter and I'm the Pediatrician Next Door. This show is produced by Red Rock Music. Make sure to subscribe and leave a review where it wherever it is you're listening. I'll be back next time with more.