What Do Peas and Carrots Have To Do With Money?

Where do peas and carrots come from? It’s a question many young inquiring minds will ask. Do they magically come from a can? And where does the money we use everyday come from? Also seemingly like magic, from the money machine?
 
For children, it must seem like many everyday transactions for goods and services just magically occur on demand and in the quantity and form we want. When you find everyday experiences to teach them abstract concepts about how we get and use our resources, you’ll reap the added benefit of communicating your personal values about limited resources.

One real-life experience is banking. Before you can talk about the benefits of having a safe place to hold money, you need to focus on yourself. Do you have access to a financial institution? You should because it’s a component of your financial life that offers management tools to help you increase savings, control spending, raise your standard of living, and reach your goals.

Begin teaching “banking” concepts through a weekly allowance and a homemade bank system. You and your child decide how the allowance and any gift money will be divided among three categories: everyday spending, longer term savings, and sharing.

Set a savings goal and keep it in mind with a picture. When you discuss the need to put a little aside regularly for the savings goal, you can also talk about the value of waiting for something special over immediate spending on less important things.

The sharing category presents an opportunity to talk about favorite causes and how one’s resources can be used to benefit others.

From the every day spending category, together determine on what items the money can be spent. Outside of those limitations, let the child make the spending decisions and learn the skills of becoming a wise consumer. Some questions to ask before making any purchase are:  why is it important; is it needed; how is it going to be taken care of or stored; is there an alternate way to get it; and is there something similar for less money. Maybe a lesser known brand can substitute as well. There are a lot of interesting points and options that go into making a spending or saving decision, which also relate to a greater appreciation of where money comes from and its value.

You might look into software programs as one of my colleague’s did to teach money management and banking concepts to your kids. Because school-age children are already savvy about using the home computer, tapping into those skills can make the money management more fun. With my colleague’s program, the kids write checks and make deposits into a “family bank account” that tracks their allowance balances.

The child’s savings and any gift money can be held in a custodial passbook savings account or statement savings account, owned by both you and your child. A visit to the bank together to open the account provides an opportunity to talk about where money comes from, about earning interest (even if it’s very small) just for keeping money with the institution, and that the institution is a safe place to keep money and conduct financial business.

When your child is older and earning money from odd jobs around the home or from paid work, it’s time to open a checking account. With that privilege, he or she is old enough to begin the decision-making process about how to spend it too. Teach your child the benefit of balancing their checkbook and reviewing their account through on-line banking.

A money management tool that goes hand in hand with a checking account is a simple budget. Explain that a budget enables you to pay for current expenses and to save for future ones. Start a conversation about why money is being saved. It also gives you an opportunity to talk about setting financial goals throughout life and the value of living within one’s means.

Just as we might take our children to a farm to show them where peas and carrots come from, giving them experiences to develop and apply spending, saving and sharing skills will help them build an appreciation of where money comes from and goes.