What do our Kids Really Understand about Money? 5 Assumptions that Parents Often Make

There’s a family story that my mother loves to tell from years ago when I was a child.  She was fixing dinner one night and heard me crying in my room.  Without stopping what she was doing, she yelled for my older brother to leave me alone.  His response?  “Mom, I’m not even in the same room with her!”  My mother claims that from that point on, she never assumed that she knew what was going on with her kids until she laid her eyes on the situation.  I guess I need to take my mother’s advice and never assume that I know what is going on with my kids.  It is pretty darn good advice, not only for child behaviors, but also for teaching kids about money. 

Kids are exposed to financial events every day from a very young age.  They see us put gas in the car and pay at the pump, buy groceries, pay bills, send $10 to school to help pay for a field trip and pull out loose change to buy a soda.  They can become desensitized to the frequent ebb and flow of money and credit.  But…we can’t assume that they truly understand everything they see. 

What are some common assumptions that parents make regarding what their kids know about money?

1. Money is a finite resource.  We assume that our kids know that there isn’t an endless supply of money.   I used to tell my mom to just “write a check for it.”  A current day version of that would be “just use your credit card.”  Young kids may not understand that money is a limited resource.  For most of us, there is definitely a bottom to the bucket of money! 
2. Money is earned.  We assume that our kids know why we go to work every day.  Our kids see us spend the money but do they really understand that it must be earned first?  When they are very young, they see us go to work, come home and buy the things we need.  They need to understand that “going to work every day” is what provides the money.
3. Big ticket items require budgeting.  We assume that our kids understand the saving, budgeting and comparison shopping that goes into buying a big ticket item.  However, if all your kids see is you deciding to go to the store one day and get a big new TV or a new laptop or a new car, they may not know that you have been saving for this for a year or more.  They need to understand the steps that were taken that ultimately led to the purchase.
4. Money can grow.  We assume our kids understand that investments or interest can increase their money.  However, if your kids are used to putting $5 in the piggy bank and still having $5 a month later, they are not going to learn about growing their money.  They may not know about investments or interest or how these concepts could apply to them.   How do we teach them?  Give them interest on savings (MoneyTrail just added this feature).  Open a bank account with interest.  Let them try their hand at being an entrepreneur by selling cookies & lemonade, babysitting, mowing grass, washing windows….the choices are endless!
5. Credit cards have restrictions and penalties.  We assume that our teens understand how a credit card works and how the credit card company makes its money.  But…where do they learn about credit cards?  Our kids just see us swipe them to pay for things.  They may not understand that you are agreeing to pay for the items at a later point and that you will be hit with late fees and interest fees if you don’t follow through on the agreement.  My daughter got a credit card offer in the mail recently that had 29.9% interest.  We discussed it and promptly shredded the offer.  Can you imagine the debt that could occur is someone got that card without understanding how credit cards work?

We need to all take my mom’s advice --- never assume that you know what is going on with your kids!  We need to talk with our kids about everyday money situations and enable them to be more active in managing their own money.