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How Do You Raise a Financially Responsible Child? (M&M Strategy)

How do you raise a financially responsible child? Through modeling financial responsibility AND creating clear money boundaries. Let me walk you through how.

Teaching kids to be financially responsible is probably at the top of most parent's must-do list.

three preteen girls dressing up, text overlay "how to raise financially responsible kids"

After all, not only do we care wholeheartedly about how our kids end up for their OWN sake…but we also don't want them sleeping on our couches until they're 45. Amiright?

There are two solid ways to teach kids responsibility with money. The first is by establishing good Money Boundaries – the kind that will increasingly give them financial responsibility so that they feel more confident in being responsible for themselves.

And the second? Is by Modeling good financial responsibility, yourself.

I'm calling it the M&M Strategy, for short (and, because, M&Ms are pretty tasty…).

We'll tackle money boundaries, first.

Strategy #1: Establish Solid 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?

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 the things they need and all of the “wants” you allow them: 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 always ask 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 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 needs 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, which 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 of 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 thefts 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's Money System

Take the money boundaries work you did above, and design it into your Kid Money System (also called an Allowance System – you can read much more about this in my allowance for kids article).

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

  • Establish your child’s own banking system for their use (money jars, savings accounts, kids' 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 section 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?

Let's move on to the second “M”, for modeling solid financial responsibility for your kids.

Strategy #2: Model Solid Financial Responsibility for Your Kids

Did you know that 69% of parents feel reluctant to discuss money matters with their kids?

What that tells me is that the majority of kids are learning money habits by modeling behavior from their parents.

Because they learn it from somewhere, right? What kind of money-teaching activities are they observing?

And that’s not just a hunch; after interviewing 17 Mama Bears about their money desires for teaching children about money + their own money relationships, their answers confirmed as much.

Here are a few quotes about where they picked up their financial education (since they didn’t get an official one from their parents):

  • “…My mother's example of always saving and not spending like crazy.”
  • “…My mom had and still has credit card debt. You would think I would have learned to avoid the struggle but I didn't.”
  • “…My dad was an accountant so I more just watched than was taught.”
  • “…I grew up in a family where my parents struggled to make ends meet so I inherited a lot of the poverty mindset. I am aware of it and have to constantly remind myself that I am not my parents.”

In other words, Mama Bears – we’ve gotta be more diligent in the money behavior we’re modeling to our kids (not to mention work on the whole money conversations thing. Check this fun resource out to help with that).

In fact, modeling good money habits for your kids means they’re more likely to have good money habits of their own. In T. Rowe Price’s 2017 Parents, Kids, and Money Survey, they found that parents who are more money-savvy (which is measured by them having 3 different kinds of savings – retirement, emergency fund, college, savings for a goal, etc.) have kids who are 12% less likely to spend their money as soon as they get it, and 9% less likely to lie to their parents about what they spent their money on.

Pssst: unfortunately, the other side is true as well. Model bad money behaviors to your kids? And they’re more likely to follow suit. Just look at the stats.

It’s a little scary, right?

I mean…what if your own money behaviors and savings account balance, well, kinda sucks?

You're not alone, by any means. The Personal Savings Rate in America hovers generally around 5%, which means that most Mama Bears don’t have any savings at all.

But how are you supposed to teach your child to save money and develop other healthy money behaviors in a “do as I say, not as I do” kind of way?

Don't worry. You can check your money hang-ups at the door. Seriously.

Because here are 7 different money behaviors you can model as part of teaching children about money to ensure your child is getting the RIGHT idea about money – the kind that will help them to be diligent savers in the future (be sure to read the bonus below, in case you're feeling overwhelmed).

Money Model #1: Set a Household Pay-Yourself-First Rule

Money Behavior Modeled: How to set up a healthy savings rule to follow.

Let them know that in your household, there is a pay-yourself-first rule that both parents AND kids play by.

Then share with them a percentage of your own money that automatically gets saved each month (hint: if you’re not currently saving a percentage of your income, now’s a good time to start).

Money Model #2: Set Up a Skim-Off-the-Top Rule

Money Behavior Modeled: Always, always, save money off the top of anything that comes in the door. Even if it’s from Grandma’s wallet.

Show your kids that each time any extra cash comes into your hands – from a bonus, a promotion, an inheritance, Mom still sending money to you for your birthday (thanks, Mom!) – you skim the same percentage from above off the top and put it into savings.

They can do this, too, from their summer job for kids.

Money Model #3: Flip Your Household Money Language on its Head

Money Behavior Modeled: How to set your intention for what you want and expect, plus how to have faith in yourself, and your kids, despite past behavior.

“In this household, we save money as soon as we get it.”

Repeat this savings mantra to your kids.

Even if it’s not true. Even if they spend their money as soon as they get it (even if you do, too, Mama Bear – no judgment here).

By changing your expectations for them, you’ll help shape their actual behaviors.

Money Model #4: Pass Down a Savings Story

Money Behavior Modeled: How to come up with a savings goal, and see it through.

Events become legendary in families when they’re told through stories that get passed down over and over.

Add a savings story to your family’s legend. You, your spouse, or your parents get to detail a time when you really, really wanted to buy something and decided it was so important that you wanted to save for it.

Don’t gloss over the details, and don’t forget to include any mistakes made! Sometimes – after the fact – those can be funny and add elements to the story so that it can become legendary in your family tree.

Money Model #5: Let Your Kiddos Listen in On a Money Meeting

Money Behavior Modeled: Communication with your partner about finances is absolutely key in a healthy marriage.

Have a conversation ahead of time to outline a few things you’re both comfortable talking about with the kids listening.

Money Model #6: Choose a Family Savings Goal

Money Behavior Modeled: How to set a goal, and save up for it through to the end.

Maybe you’re not ready to sit down and whip out all your bills or financial statements to show your kiddo how it all works.

That’s perfectly fine.

Instead, hold a family meeting and choose a family savings goal – this is how you can let them in on the money world in a positive, but still realistic way without revealing too much of your own digits.

Money Model #7: Hold a Family Yard Sale with Proceeds Going Towards a Purpose

Money Behavior Modeled: How to give your money a purpose, and see it through despite how much comes in.

Involve the whole family in either a neighborhood yard sale or one you set up and advertise for yourself.

Here's the “modeling good money strategy” catch: ahead of time, tell your kiddos where all of the money is going to go to. Then let them watch you send the money to that specific place.

Where could the proceeds go to? It could go to a charity, a personal savings goal, or see Money Move #6.

Of course, with any of these action steps above that you take you’ve got to remember one thing: kids are no dummies. They will see if you say one thing and do something completely different.

Don’t worry when teaching children about money – you don’t have to be perfect, either! There are golden nuggets in life’s imperfections. If you do slip up, be sure to talk to your kids about your mistakes and how you’re going to change them moving forward. That is a much better money education than just trying to sneak it under the rug while they’re not looking.

Bonus Strategy: Fake it ‘Til You Make It

Okay…are you still completely intimidated by modeling good financial behavior to your kids? Or you feel like you just can't afford to?

Just because you're not saving the amount of money you’d like to each week, month, or even year, doesn't mean that you can’t model good financial habits for your kiddos to pick up on.

Here are some ways to fake it ‘til you make it, or rather model good savings behavior even when you’re not where you want to be:

  1. Make Physical Cash Deposits: Even if it’s just $10 – because honestly, your kid doesn’t have to see how much you are depositing into your savings account, just that you ARE depositing money into your savings account.
  2. Set Up a Change Jar with a Specific Goal: Maybe change jars aren’t exactly your thing. But they’re a great visual to share in your savings process. So, set up a savings jar and write what you want to buy with the money on the outside. Empty your wallet into the change jar on a consistent basis. Don’t be surprised if your kiddo starts their own!

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.

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Amanda L. Grossman is a writer and Certified Financial Education Instructor, a 2017 Plutus Foundation Grant Recipient, and founder of Money Prodigy. Her money work has been featured on Experian, GoBankingRates, PT Money,, Rockstar Finance, the Houston Chronicle, and Colonial Life. Amanda is the founder and CEO of Frugal Confessions, LLC. Read more here or on LinkedIn.