Teach Kids How to Be Financially Responsible With Money Boundaries

Looking for ways to teach your kids how to be financially responsible? I’ll walk you through how to create or tweak your current money boundaries.

In Dr. Henry Cloud and Dr. John Townsend’s landmark book on kids + boundaries, they say the following,

“Your task as a parent is to help your child develop inside him what you have been providing on the outside: responsibility, self-control, and freedom.”

There are a lot of articles out there on how to establish clear boundaries with your child so that they understand where their responsibilities begin and where your responsibilities end.

But I haven’t seen many articles – if any – on how to establish clear money boundaries with your child. This is the #1 tool you have to teach your kids how to be financially responsible, so you bet we’re going to cover it!

First up, what the heck is a boundary, and a money boundary at that?

What is a Money Boundary?

Again, we’ll turn to the father of boundaries, Dr. Cloud, to explain what one is. Dr. Cloud states that,

“A boundary is a property line. It defines where one person ends and someone else begins. If we know where a person’s boundaries are, we know what we can expect this person to take control of: himself or herself. We can require responsibility in regard to feelings, behaviors, and attitudes.”

Now we’ll turn this same definition onto the money scene to define what a money boundary is. A money boundary defines where your money ends, and someone else’s (in this case, your child’s) begins. But not just the money; it clearly defines the money responsibilities you are taking on, and the money responsibilities you expect your child to take on.

And of course, money boundaries are a moving target – as your child develops, ages, and gets experience with dealing with their money, they’ll take on more and more of their own money responsibilities until one day they assume them all.

In other words, you’ll be defining these money boundaries in your household until your child becomes a financially independent adult (and even then, you’ll have a new set to take on).

Why Do You and Your Child Need Money Boundaries?

When your child is really young, then you know who is going to pay for what: Mommy and Daddy.

Then they start to grow up, and they take on more household responsibilities. They also develop different ideas from you about what a “need” and a “want” is.

Like when they’re 8, and are always asking for gum at checkout – do you:

  • Splurge
  • say no
  • or have them pay for this extra by themselves?

Or what about when they’re a tween and very brand aware. Suddenly the shoes you want to buy them for back to school are just not good enough. So, you’re still fulfilling the need for them, but they have the “want” of buying a pair that costs $50 more. Who should pick up the extra tab?

Or what about when they’re 14 and want to buy all their friends + schoolmates Christmas presents – is that your responsibility or theirs?

Money boundaries do the following:

  • Set up clear money responsibilities and expectations of both you and your child.
  • Allow your child to make planned spending decisions because they understand what you are and are not going to pay for.
  • Allow you to slooooooowllllyyyyy pass off the financial baton to your child in a way that is both controlled and manageable, so that one day, your child will be a financially independent adult.
  • Require your child to own their money problems. And having ownership of a problem means they’ll be much more likely to take care of it (versus if they think someone else will handle it).

Setting Up Your Own Money Boundaries

It’s time to set up some of your own money boundaries, or to tweak the ones you have in place.

Something to think about before we begin: money boundaries are not JUST for the parent. They’re also for the child. A child needs to have money boundaries as well in order to encourage them to set their own boundaries with others, to fully embrace responsibility for themselves, to learn from their mistakes, and to fully learn how to best manage their money.

The way I like to teach money boundaries is by designing them into + around your Kid Money System.

Pssst: not sure what a Kid Money System is? I’ve got you covered.

If you don’t have one of those in place, then for now you just want to wrap your head around the steps below and start thinking about your comfort level for each.

Step #1: Figure Out Your Current Set of Money Boundaries

You likely have some money boundaries already set up, and just might not have formally told your child, or formally acknowledged them.

For example: perhaps you have your child pay for their own monthly data plan on their cell phone, or pay for their own gum that they want, or you expect to not find money crumpled up on their bedroom floor (yes…this is actually something parents deal with!), or you pay your child for certain chores and have some sort of chore oversight system in place before they get paid.

Take the time to reflect on your current money responsibilities + expectations you’ve given your child already.

Step #2: Choose Which Money Boundaries to Tweak + Add

Now, take a look at the following money boundaries list I’ve come up with and see where yours need some work.

  • Money Loans/Advances: Do you allow your child to take loans out from you/siblings, or do you allow allowance advances when they overspend? The opposite of this is a no-bailout policy.
  • Spending Rules: Do you have veto power over the purchases they want to make? How about a spending threshold, where your child needs to discuss with you before spending over a certain amount of their own money on something?
  • Negotiations for Pay: Do you invite allowance or chore pay negotiations from your child? Or do you establish the pay rate?
  • Spending Responsibilities: Have you clearly outlined what your child is expected to pay for from their own money, and what you will pay for? This could be based on wants vs. needs, specific items or categories, specific events, etc.
  • Replacement Cost Rules: Who is expected to pay for the replacement costs to things like broken iPhones, lost soccer cleats, or sister’s decapitated Elsa doll?
  • Using Your Money Accounts: Can your child use your debit or credit card to make an online purchase, and then pay you back?
  • Raiding/Stealing Money: You’d be surprised (or maybe not) that many parents deal with small theft in their household. You need to have clear boundaries (that go both ways) about using someone else’s money. Raiding a piggy bank when you’re short on cash? Think twice about doing that and how your child may perceive it in terms of them being able to “raid” your wallet one day when they want something they deem important to them.

Step #3: Build these Money Boundaries + Responsibilities into Your Kid Money System

Take the money boundaries work you did above, and design it into your Kid Money System.

While this is an entirely different article in itself – you can sign up here to be notified when my free 48-hour Kid Money System Challenge opens again:

I’ll give you some ideas to get you started:

  • Establish your child’s own banking system for their use (money jars, savings account, allowance apps, debit card/checking, etc.).
  • Establish clear payday cycles so that your child can plan out their spending and avoid payday loans and advances.
  • Establish clear oversight and rules for what you expect in return for the allowance or chore commissions or consultant fees you’ll be paying your child.

I’d like to close this down with one more quote from Dr. Cloud,

“Children raised with good boundaries learn that they are not only responsible for their lives, but also free to live their lives any way they choose, as long as they take responsibility for their choices. For the responsible adult, the sky is the limit.”

Now isn’t that what we all want for our children?

Make sure you bookmark this article so that you can come back and go over your money boundaries now, as well as in the future as your child’s money understanding + needs change.

Trying to teach my kids how to be financially responsible is hard work. Since money is difficult to talk about at any age, I'm so happy I found this article targeted towards teaching kids! #howtobefinanciallyresponsible #teachingkids #pocketmoney #teachkidsresponsibility #money #teens #tweens #tweenboy #parenthood #teenmoneymanagement | https://www.moneyprodigy.com/how-to-be-financially-responsible/

Introducing Money To Kids – A Clever Way To Use Your Growth Chart

I'm going to show you how introducing money to kids can be a fun process while teaching your child to save, all thanks to the Growth Chart Method.

Introducing money to kids at an early age is such a great idea.

If this appeals to you – which I’m sure it does, because you’re here reading this! – then you’re probably thinking along the lines of ways to get them to count their change and make their first store transaction.

Great places to start, but how about we go one step further than that?

Many parents who try to instill the value of saving money into their young kids run butt-up against the problem of how to get them excited about money that sits in a savings account.

I mean…it just sits there. They can’t touch it, or hold it, or use it to purchase new things in their lives.

True, they can see the growth on a savings account statement if you were to show it to them, but let's face it: numbers lay pretty flat on a page.

So, perhaps you’ve gone the money jar route.

With money in their pockets or in a clear money jar, they can at least see whether their dollars seem to be growing “bigger” or not. And if they take money out to buy a new video game, then they can physically see that the money jar is now much emptier than before.

However, there are two issues with the money jar. First off, money sitting in a jar is not earning interest (a missed money opportunity + missed money lesson opp). Also, money in a jar becomes quit tempting to tap when the ice-cream man jingle rings.

Psst: Check out the most unique piggy banks for kids here, in case a piggy bank is the way you want to go!

But getting them really excited about money growing in a location they can't physically see or touch − a savings account − let alone the amazing effects of compound interest, is pretty difficult.

What Gets Kids Excited About Saving Money

What's going to get your kid excited about saving money is a lot like what gets adults excited about saving money: seeing the numbers go up.

Except for one difference: adults drool over savings statements, understanding that money increasing in value is exciting.

But kids? Well, that's a different story.

They drool over holding money, having some sitting in their wallet, being able to touch it, and being given the power of choice.

Savings Statements are 1D

Kids live in 3D. They want tangible things, and they don't necessarily latch onto abstract concepts like compound interest working for them around the clock.

Actually, lots of adults don't latch onto that either.

On top of that, kid savings accounts typically grow at a smaller rate than adult ones. It's not like they're out there working from 9-5, right? So, they have less money to fund their account.

This is why getting their savings statement every so often − when you actually remember to show it to them − isn't going to be really exciting.

I mean, who would jump and holler over $0.10 in interest earnings (well, besides money geeks like me)?

Let’s work on linking your kid’s savings account money with a different kind of visual so that they get interested in saving their money from the start because they can associate it to actual growth.

Nail this, and they’ll send a lot more of the green stuff to their bank account.

Pairing a Growth Chart with Money Growth

I've got a really cool idea for how kids can track their savings growth right alongside their own growth, all at the same time.

It’s using a Growth Chart.

You know, that nifty, giraffe-like chart you swore you’d fill out with them on a regular basis as they went from crawler to walker to runner?

The idea is: just as kids are excited to see how much they've grown from month to month, watching their savings account grow with a vertical visual is going to up the cool factor on saving money.

Psst: your kiddo doesn’t have a bank account yet? No worries. Here’s my article on setting up bank account for baby (even if ‘baby’ now wears braces).

How the Money Growth Chart Works

Use your growth chart as an actual growth chart, but make one minor adjustment.

On the other side, create tick marks evenly spaced apart, all the way up.

I’m using the Monster Growth Chart from Oh Bessie, which conveniently has those tick marks already laid out — click on this link and use the code MONEYPRODIGY15 for 15% off your order!). At the top of this column, write in, “Money Growth”.

Each tick mark on this side is worth $5. You can write this in (use pencil if you think you might want to change it).

Here are the steps for using this Money Growth Chart:

  • Pick a Consistent Time Duration: Choose a consistent time duration to do this, such as once a month, twice a year, annually, etc.
  • Log Into Your Child's Savings Account: Before you get ready to use the growth chart, log into your child's savings account online and find out their new balance.
  • Mark their Height Measurement: On the right side of the growth chart, you'll chart your child's growth just like you normally would. Record the date and create the tick mark. Your child will be amazed by how much they've grown since you last measured their height!
  • Mark their Money Measurement: Each tick mark on the left side of the chart is worth $5. I chose this small amount because it's helpful for them to still see some progress even when their savings isn't growing really rapidly. Mark where their new savings account balance is with a date next to it. Let them color in the column you just created. Have them watch you go through the entire process – as in check the amount of their current savings statement, then count up the tick marks and estimate where they’re at – so that they can associate the idea of money being able to grow just like they grow.

Pssst: Is your child beyond the age of thinking you measuring + tracking their growth is cool? Then high-jack their growth chart and use it solely as a money growth tracker! They’ll likely get more excited about that.

Ideas You Can Use to Make this Even Cooler

There are several ways you can adjust this chart for your own use + make it even cooler for your kiddo(s).

For example:

  • Use it for a Specific Money Goal: Use the area on the growth chart to fill in for a specific savings goal that your child may have, such as a video game, a charitable goal, a trip to the bookstore, etc. You can write this savings goal out (I would do so in pencil, as their savings goal might change and you want to be able to erase!). Not sure what they want to save for? Help them come up with the best savings goal for them with this one-page savings goal guide
  • Visually Separate Out the Free Money they're Getting: If your kid sees compound interest in action, then they're going to get pretty excited. Explain to them that since their money is at the bank, the bank pays them for it. So, fill in the savings money growth from actual money they've contributed, then use a different colored pen or marker to show them the free money the bank paid them for their own money (you can put the extra money earned in a different color on top of the other color – like the icing on the cake).
  • Time Your Measurements with a Trip to the Bank: After updating the money growth side of the chart, take advantage of your child's peaked excitement over how their money has grown by having them gather up all their loose change and dollars to physically go the bank with you and make a deposit.

Display their Money Growth Chart in a prominent location, where they can see both their own growth progress as well as that of their savings account.

Who knows? This one step might be just the thing that turns your child into a savings growth monster!

Introducing money to kids had me nervous but I'm feeling more confident after reading this article. I can't wait to try out this activity to introduce money in my household! #introducingmoneytokids #introducingmoney #firstgrade #activities #to2ndgraders #introducingmoneyactivities #teachingyoungchildren #teachingyoungkids #moneysystemforkids #raisingkids #parentingadvice #teachingkids #forkids #play #teachingkidslifeskills #pocketmoney #money | https://www.moneyprodigy.com/introducing-money-to-kids/