My 5-Step Plan to Teach My Kids Real-World Money Skills

teaching about moneyParenting magazines and blogs are full of advice on how to teach your kids about money. It usually goes something like this:

  • Give them an allowance,
  • make them save some of it, and
  • consider matching their savings as an added incentive.

Of course, saving is important. But managing money in the real world is a little more complicated.

For starters, there's no one to force you to save money. Worse, the average college student graduates with more than $4,000 in credit card debt -- in addition to increasingly hefty student loans. That makes it nearly impossible to save. And with no savings, even minor money mistakes can turn into major woes.

I'm Teaching My Kids How to Be Smart Spenders

Unfortunately, with little in the way of financial education in schools, most of us don't learn those lessons until we're out on our own. I'll admit that was true for me, and I got into debt as a result -- several times. It took a few bailouts from my mom, a couple of cash-out refinancings, and more years than I care to admit for those lessons to fully sink in.

So I want my kids to learn how to spend -- how to create a budget, make hard choices, and live within their means. My oldest is only 7, but I've already embarked on a multi-year plan to teach her how to manage money responsibly and realistically. (My youngest is 4; we're still working on tying shoelaces.)

Step 1: Deliver allowance electronically

By the time my daughter heads to college in 2023, I doubt paper checks will even exist. And once making purchases by cell phone or fingerprint is widespread, cash likely won't be too common, either.

So we're going to skip the passbook savings accounts of my childhood and go high tech: We'll start with a Paypal account, where her allowance will be deposited twice a month, just like a paycheck would. I'll show her how to log on and monitor her balance, and by using the Paypal debit card, she'll have complete freedom on how to spend it.

Step 2: Follow the money while you're checking Facebook

Next, I'll set her up with an account at, which she's familiar with already from watching how I budget our family's income. That way she can track where her money goes over time, set goals, and enjoy seeing any cash she chooses to save grow.

Step 3: Slowly hand over everyday spending decisions

Once she's comfortable with the basics of budgeting and saving, I'll up the ante each year, giving her a progressively larger allowance. But she'll also be responsible for more of her expenses, such as paying for lunch at school, purchasing birthday gifts for friends, and buying her own clothes. Giving her more control will allow her to make more choices -- does she want to shell out $2.50 a day for lunch or save that money and brown-bag it instead?

Step 4: Give the kid some credit

When she's 13, if all goes well, we'll switch to an actual credit card (albeit with a low limit) so she can add responsible use of debt to her repertoire. And if she fails and blows all her cash on designer jeans and a bedazzled cell phone, racking up debt and leaving her hungry come lunchtime? I kind of hope she does -- because that's exactly the point. I want her to learn the hard way while the stakes are still low, rather than later in life when rent money or her credit rating is on the line.

Step 5: Be the next Buffett

Once she's got the hang of spending within her means, I'd like to get her to start investing (ING has a great offering for kids), buying a few shares of companies whose products she loves, like Amazon (AMZN), Apple (AAPL), and Disney (DIS). Warren Buffett started at age 11, so who knows what could happen!

Motley Fool contributor Robyn Gearey does not own shares of any company mentioned here. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple,, and Walt Disney, as well as creating a bull call spread position in Apple.

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Financial literacy is one thing; giving a credit card to an early teen is quite another. Your choice, but I would never do it.
Nor would I ever promote a debit card. The only good way to really teach the joy of receiving money and the pain of not having it is to use good old tactile cash. When it's in your hand or pocket, you have it. When it isn't, you don't. It's far easier that way. A piece of plastic is totally meaningless, and using it instead makes money something "unreal."

August 23 2011 at 7:46 AM Report abuse rate up rate down Reply

Talk abiut get a credit card issued at the age of 13 years? What a joke. Children should apply only when they are of eligible age (18 years) and ONLY when they earn REAL money in the real world, not the money doled by the parents!!

August 22 2011 at 1:06 AM Report abuse rate up rate down Reply
1 reply to Venkat's comment
Amusements Rentals

Because each kid and each situation is different, some kids you can teach early and it works best for them.

August 22 2011 at 2:07 PM Report abuse rate up rate down Reply

tell of the fraud perpetrated by fed reserve upon the great grandfather exposed the lie to me 42 yrs ago

August 20 2011 at 8:02 PM Report abuse rate up rate down Reply

Allowance is another entitlement. At least try to make it seem like your children are being paid for minor chores. Credit card seems like a bad idea!

August 20 2011 at 6:44 AM Report abuse +1 rate up rate down Reply

Give your kid a credit card and you'll live to regret it.

August 20 2011 at 1:25 AM Report abuse rate up rate down Reply
mighty wizard

man why didnt my parents give me a credit card when i was in 6th grade? what age r u buying her first car 14? u said shes 7 so i assume she already has a cell phone and a computer? lady u r warped and r gonna have a bunch of spoiled brats as kids. i guess her first house is what 18? if she gets A'S on her report card.

August 19 2011 at 11:29 PM Report abuse rate up rate down Reply

Obama has just been endorsed by the Communist Party. Is anyone surprised?

August 19 2011 at 9:59 PM Report abuse +2 rate up rate down Reply
Bill at FamZoo

I like your high level gameplan (I have one pre-teen, 3 teens, and a post-teen). There's another middle solution between piggybanks and real bank accounts that parents can consider - an online "Virtual Family Bank". A bit more flexible, forgiving, and educational (builtin kid/teen oriented personal finance tools) than your traditional bank and a good warm-up for online banking. Google around - there are several now.

August 19 2011 at 9:23 PM Report abuse rate up rate down Reply
David Kimball

Hi Robyn. It is really nice to know someone else is concerned with teaching kids about money. Especially a mom! It is sorely needed these days. Imagine the blessing of them being able to not notice a recession is going on because of their earlier preparedness!

Have share this with my Twitter and FB crowd.


August 19 2011 at 7:15 PM Report abuse rate up rate down Reply

This woman is on glue allowing her child to see the family budget. I agree with the learning about money and responsibility but she must thsnk her child is a mensa member. First the skiils are not age approriate. Kids at that age can understand consequences of short term indebtness but the rest? Wishful thinking. Allowence and make her use 1/3 for whatever she like, 1/3 for her "Bills" like bday gifts or contribution to sae, Long term goals whatever that may be. Electronic is fine online fine, credit card at 13? Why bother never teach her about credit cards better to teach her how to save and use a debit card only. A credit card maybe at 17-18 once she truely understands credit is a last resort.

August 19 2011 at 3:51 PM Report abuse -1 rate up rate down Reply