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At the grocery store yesterday, I passed a man and his daughter in the snack aisle. She was maybe ten or eleven, a little overweight, and begging for cookies. He was tall and muscular, a blue-collar type, clearly exasperated with her. “You have no conception of how hard your mother and I work to earn money, do you?” he said. There was desperation in his voice.

This brief encounter has been in my mind ever since. It reminds me of something I read over at the Seeds of Wisdom forum. Jim Anthony shared a story about how he is teaching his six-year-old the value of money. Anthony doesn't like the idea of just giving his son money — he thought it created an “entitlement mentality” — but he doesn't like the idea of tying the allowance to chores, either.

The big problem I see with either of these methods is that most parents don't teach any lessons beyond this and their kids learn that money is for spending on stuff, period. There are no lessons about making money earn more money. There are no lessons about the actual value of money. […] A couple of years ago, I took things in a totally different direction. I decided on no allowance but rather to put my son “in charge” of a set amount of money to be spent on specific things, his two favorite things, McDonalds and video games. I essentially gave him control over part of the household budget. This was money that we were already spending, the only thing that changed was the control of it. He was given $20 a week to spend however he wanted on these two items. The first week, we ate at McDonalds three times in two days. The money was gone. Actually, for the first couple of months, we ate at McDonalds quite a bit until he wanted the new Sonic X game and didn't have any money for it. It didn't take him long to figure out that a video game costs about the same a 5 or 6 trips to McDonalds. It took another couple of months before he was finally able to get his game. Today, he totally understands the value of a $20 bill.

Anthony then helped his son set up a couple of vending machines which provide a small but regular income. From there, his son moved to investing small amounts in stocks of companies with which he was familiar (e.g. Disney, Apple). His son has also started to save.

I'll admit, he's had just a little bit of coaching here and he doesn't understand any of the details behind any of this stuff [remember: the kid is six years old], but he does understand that by thinking and acting differently than everybody else, he can have much more than anybody else.

How and when to communicate money values to children is one of the toughest challenges that parents face. You want to support your children, to shield them from the hardships of life. But without facing the hardships, they won't appreciate the value of money. And what if your own money skills are poor in the first place?

JLP at All Financial Matters writes often about kids and money. He has kids himself, and deals with these issues every day. I asked him to share some of his favorite articles:

Kids & Money

Wise Spending Habits for Kids

Start Saving for Retirement at 16!

An Interview with Steve Rosen of the Kansas City Star — Rosen is one of the only columnists in the US to write specifically about kids and money.

— Rosen is one of the only columnists in the US to write specifically about kids and money. An Interview with Steve Rosen of the Kansas City Star – Part 2

I'm currently reading is Kids and Money: Giving Them the Savvy to Succeed Financially by Jayne A. Pearl. This book does a great job of tackling the subject, providing all sorts of tips, tricks, and guidelines. (Also see this recent reader comment on teaching children to save.)