Teaching My Son Basic Money Skills

My son is only 14 months old. His biggest worry these days is how he’s going to fit the star-shaped block through the square hole (it’s gonna happen damnit!). He’s a long way off from even having the ability to learn about handling money, let alone having the interest. Still, instilling good financial habits is important to me, so I spend time thinking about how to help him learn some basic money skills.

A lot of smart, thoughtful people have already written on this topic, with some good recent examples here and here. There are many aspects to money management and I honestly don’t know all of the different tools I will use with my son. But there are three specific things I have in mind that I think will help him build some very basic but important skills from an early age.

Giving an allowance

My son will likely get a regular allowance that isn’t tied to the performance of any chores or other responsibilities. While I believe in teaching the value of working to earn money, I want helping within the household to just be a part of family life and not something that’s done for money. And I want to be able to teach money management skills from an early age, long before having a job is reasonable. So a consistent, regular allowance feels like the right approach.

This allowance will be his to do with as he pleases. We will certainly talk about the value of saving for long-term goals and the opportunities to give money to those less fortunate and I will give him the tools to be able to do so. But those won’t be required actions. If he wants to immediately spend it all on candy, toys or whatever, that’s his choice.

I believe that people need to learn from experience. If I require him to save money, he’ll do it because of the requirement, not because he’s learned from experience that it’s a good thing to do. I want him to have the choice so he can learn for himself the consequences of his actions and make his own decisions about how he manages his money.

Simulate investment experience early on

When he’s old enough, he can open an IRA or brokerage account and get some real investing experience. But I’d like him to start learning some of the basic principles earlier than that.

My idea is very simple. Some of his money can go into an “investment” account, which will really just be some kind of either imaginary segregated bucket or actual savings account where I have some discretion. At first he’ll only be able to pick a simple allocation between stocks and bonds. On a regular basis, I will credit or debit his account with his “return” for that period, based on the movement of some total market indices. So if the stock market index we’re using returns 10% over a period, his stock allocation will suddenly have 10% more money. But if the market falls, he’ll lose money. These credits and debits will take place in the form of transfers between his account and one I manage.

My hope is that he’ll get experience with market volatility at an age where his reaction to the ups and downs won’t really hurt him. He’ll see how different asset allocation strategies affect his returns and he can get a sense of his risk tolerance. He can even experiment with market timing if he’d like.

Over time, I may give him some more investment options, but I think just this simple experience with investing from an early age could be invaluable.

Allow him to take on debt

If he wants to buy something that costs more than his allowance, he’ll have two options: save or buy on credit.

Within reason, we’ll give him the opportunity to borrow money from us. We’ll charge interest and there will be minimum regular payments, which will be taken out of his future allowance. He’ll have the option to make extra payments, or to pay it all off if he has the money. In other words, it will work almost exactly like it does in real life.

As we do this, we’ll keep track of his total debt levels, the amount he’s paid compared to what he would have paid without debt, and the time it’s taken to pay off his debts. We’ll talk about this regularly so he can understand debt’s impact on his overall financial situation.

If at some point his debt grows to the point that he can’t pay it off in any reasonable time frame, we’ll probably have something like the ability to declare bankruptcy. At the least, this would likely involve a period of time during which his allowance would cease. While this isn’t exactly the same as what happens in real life (your income doesn’t disappear in bankruptcy), it would hopefully simulate the potential for extreme negative consequences from getting in too deep.

I want him to be familiar with the concept of debt and understand how it works before it has a chance to really hurt him. Debt is very real and very accessible and I want him to experience it first in a supportive environment conducive to learning.


The goal with all of these strategies is simply to give my son an opportunity to learn basic financial skills before they start to have a big impact on his life. By giving him opportunities to think about money, to try new things and to make and learn from mistakes, my hope is that he’ll be more prepared when he gets out into the real world.

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18 Comments... Read them below or add one of your own
  • Free Money Minute May 28, 2013

    Interesting approach. Glad to hear you thinking about how to instill good money values in your son. I have a son (3) and a daughter (16 months) who I also want to set on the right financial path. I like the idea of simulating an investment experience. I don’t think I am going to encourage debt, although simulating debt and showing it’s effects may be an effective deterrent for later avoiding it. I also want to install a sense of tithe. Thanks for sharing your plan, best wishes on the execution!

    • Matt @ momanddadmoney May 28, 2013

      Charitable giving is certainly something we’ll talk about and will be an option he has with his allowance. I hope it didn’t sound like I was encouraging debt. I would love for him to go through his life debt-free, but it’s a very real and accessible option in the real world. My only goal here is to give him an understanding of how it works before it has a chance to impact his life in a significant way. Thanks for the feedback. I’d love to hear how you approach things as your kids age.

  • Holly Johnson May 28, 2013

    My kids are 4 and almost 2 and it’s fun trying to teach them about money. My 4 year old is currently saving in her piggy bank to buy the 2 year old a Dora DVD for her birthday =)

    • Matt @ momanddadmoney May 28, 2013

      That’s awesome! Sounds live you already instilled some great values. My son is just starting to get into Dora. The fun begins…

  • Budget & the Beach May 28, 2013

    I’ve said this many times in comments for similar articles…I really wish I would have been taught basic money and finance skills as a kid!

    • Matt @ momanddadmoney May 28, 2013

      I’d say that most of us could have used better guidance. It just isn’t something that’s commonly done.

  • Andrew May 28, 2013

    Very interesting…I hope you keep us updated as to how it goes. I’d definitely want my kids to be financially savvy, but haven’t devised a plan to teach them about money yet…I still have time! One of the main reasons I became interested in investing at a young age is because my parents saved and invested money for me in a regular savings account (interest rates were a lot higher back in the day) and also in a mutual fund. They allowed me to contribute the money I received from birthdays, holidays, etc into the accounts. When I saw the account grow, I was hooked. When I was given the option of keeping the money to spend or to invest, I often invested most of it.

    • Matt @ momanddadmoney May 28, 2013

      My grandfather saved money for me, and all of his grandkids, just like your parents. My dad also convinced me to start a Roth IRA right out of college. Both of those things were really influential just in terms of making me think about saving and investing. I think that’s a great approach as well.

  • John S @ Frugal Rules May 28, 2013

    Our oldest is five and it really is fun to teach her the foundations to what will hopefully be a financially prudent life. We’re going to start an official allowance for her this year and will be working with her in regards to saving, spending and giving portions of it…all of which neither my wife or I were taught.

  • Very cool. I wonder how you’ll manage the loan process. Against how many weeks of future allowance could he borrow? And what if his allowance is garnished due to behavior problems in the meantime? How would that affect his loan terms? =)

    • Matt @ momanddadmoney May 28, 2013

      Great questions! I hadn’t yet thought about exactly how much debt-to-allowance we’ll allow. That’s something we’ll definitely have to work out. I’m not sure that garnishing allowance will be a punishment that we use. As I think about it now I think it’s probably not necessary and would likely just confuse the issue. My guess is that we’ll find other methods of punishment. But I love the questions. Still a lot more details to iron out.

  • Greg May 28, 2013

    I like the plan! I especially wish I had more experience in how investing worked at a younger age. My parents had a nice chunk set aside for my college fund, but I was never included when they met with the broker on what to invest in.

    • Matt @ momanddadmoney May 29, 2013

      Thanks Greg! I think having parents who are on top of their finances, as yours seem to have been, is a big help, but I like the idea of letting my kids get a little more hands-on as well.

  • Shannon Ryan May 30, 2013

    Thanks for mentioning my guest post at 3 Coins. I really appreciate it! Justin’s post was great too. I love how you’re already thinking about educating your son about money. It’s so important and yet so few parents do it. I’ve started teaching my 9-year-old about compound interest and begun introducing investing to her. I like your thoughts on it. Right now, I’m planning to start by “playing”. She can pick a stock (something she’s familiar with, like Disney) and we will track it’s progress. I would certainly consider doing some real investing if she’s interested. When my nephew was 10, he asked me to open an investment account for him and invest all the money I would have spent on gifts for him instead. Smart kid, 🙂 I also like how you’re planning to approach debt. While we’d love it if our children never had debt, that reality is slim. One of the reasons I think college graduates struggle is because they have never dealt with debt before. Now they have so much thrust upon that they are overwhelmed and making uneducated choices because no one taught them how to think about and handle their debt. I wrote a novel here, but I think it’s great that you plan to educate our son about money when he is young. I started when the girls were toddlers and it’s made a huge difference. I know it will for your son too.

    • Matt @ momanddadmoney May 31, 2013

      Thanks for the awesome comment Shannon! You’ve got one cool nephew, that’s for sure. I think you’re approach to teaching your daughter investing is right in line with what I hope to do will all of these approaches. I just want him to have hands-on experience from a young age so that he has some idea how to think about and manage these things before he hits the real world. The best we can do as parents is give our kids the tools to be successful. How they choose to use them will be their own adventure.

  • Tie the Money Knot May 30, 2013

    It’s never too early to start thinking of such things! I have a friend who was obsessed with training his son athletically, wanting him to be a star in certain sports. The thing is, the guy himself is average and sadly I don’t see his efforts being worth it. However, if he instead spent that time on teaching life lessons – including money lessons – that might have better long-term value.

    • Matt @ momanddadmoney May 31, 2013

      Haha, I’ve had fantasies of training my son to be an elite punter. Think about it: great salary, minimal physical risk, not a lot of people striving to reach that position, seems like a great deal! Of course I’m not actually going to do that, but it’s fun to think about. I think giving kids the tools to handle life’s basic needs is just about the best you can do as a parent.

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