Tim Connolly

Children need to learn to spend and save appropriately.

If your five-year-old automatically squirrels every penny he gets, don’t beam with pride. That’s not considered normal behavior for small children. The child may need help and guidance in realizing that saving money is just a way of postponing the pleasure of spending. Neither is it good if,as soon as a child receives money, it is quickly spent.

Children will be more inclined to save if they are saving for a definite purpose

Make that purpose an immediate goal rather than a long range one. A 10-year-old will get more excited about saving for a new bicycle than saving for college.

Give children control over their own savings.

Instead of a piggy bank that must be broken to get to the money inside, a bank that locks and can be easily opened by your child is a better idea. If saved money is easily accessible, children may learn even more about making choices.

When children are old enough to legibly sign their names, go with them to a financial institution to open a passbook savings account.

Use of Gift Money

Let children decide what to use gift money for, especially if it’s a relatively small amount. You may want to advise them when the amount is larger, but remember the money is theirs. Let them make the decision as to how it will be used. Encourage them to show appreciation to the giver.

When They Need Extra Money

Encourage them to earn it. As they get older, children’s needs may soon likely outstrip a parent’s ability to cover them with an allowance. Within the family, come up with a business deal for special jobs which someone would usually be hired to do,such as window washing. But pay only for the exceptional job and not for routine household chores. Agree beforehand just what is to be done and how much will be paid. Pay children no more and no less than what the job’s worth.

If possible, encourage them to find jobs outside the family when they are old enough. Such jobs give them a taste of working for someone else and meeting the expectations of people outside the family.

Punishment or Reward?

Never use money as a punishment or reward. Children will find it difficult to learn to manage money if they are never certain when some of it will be taken away as punishment.

Children who know they can always get extra money for good behavior are just as handicapped. How can they learn to manage on a certain income if they always know they can count on more money if they play their cards right?

As the parent it will probably be difficult to give children their allowances when they deserve punishment; but find some other way–some way not involving money–to punish them if punishment is deserved. Many attitudes we have about money as adults result from how money was or was not used as a punishment or reward when we were children.

What If They Overspend?

Try to find out why. Where did they blow their allowances? Do they know where it went? If not, this may be a good time to suggest keeping a simple record of their allowances. Advances on allowances are usually not a good idea. A much better idea is to find a way for children to earn the money they need.

Lost or Stolen Money

Help them to decide why the money was lost. Do they need a better billfold to carry money in? Do they need to limit the amount that they carry with them? Then decide together how much was lost and replace the amount that would have gone for necessities such as school supplies. But you probably will not want to replace the money that would have gone for “extras.”

A Final Thought

A pitfall that some busy parents fall into is to use money to buy love, or substitute money for companionship. The growth of a child’s emotional stability and ability to manage money are hindered with this kind of reaction. There is no substitute for parental love and companionship. So set aside some time in that busy schedule for each child.

There is no set recipe or formula for teaching kids about money to become responsible money managers. Parents can do a great deal to help their children develop healthy attitudes about money, its purpose and limits if they remember actions and examples speak louder than words. Parents can examine their own money attitudes and practices and use ideas discussed here to give children realistic money experiences. It will pay off in satisfaction for both parents and children.

Your kids might get you a little extra pocket change come tax refund time. Here’s what parents need to know about the 2020 Child Tax Credit, plus three other credits that could help you save.

Kids cost money, it’s just a fact. All year long parents are shelling out cash for everything from field trips to new shoes to that special, must-have birthday gift. But at tax time, something surprising can happen—parents can actually get some cash because of the kids thanks to tax credits.

The best part about tax credits, or credits toward your overall tax owed, is that they are a dollar-for-dollar reduction. If your tax liability is $2,000 and you qualify for $2,000 in credits, your tax bill drops to zero. Credits are different from deductions though many people use the terms interchangeably. Deductions are dollar amounts subtracted from your adjusted gross, also called taxable, income. Deductions reduce the amount of income you are taxed on, while credits reduce the actual tax.

Here are the top tax credits that are available for parents and families that can make quite a difference in your overall tax liability.

Child Tax Credit

The Child Tax Credit is a biggie. It allows a credit of up to $2000 per child. The CTC replaced child deductions in 2018 after sweeping tax code rewrites. T0 take advantage of the Child Tax Credit, you and your children must meet the following criteria:

• Age: Child must be 17 years old or younger
• Relationship: Child must be your own child (either biological or adopted), a step-child, or a foster child placed with you by a qualified agency.
• Financial support: You must have provided at least half of the child’s financial support over the course of the tax year.
• Dependent: You must claim the child as a dependent on your taxes.
• Citizenship: The child must be a U.S. citizen, national, or resident alien.
• Residence: The child must have lived with you for at least half the year.
• Family Income: You must have a modified adjusted gross income of less than $200,000 as a single filer or $400,000 if filing jointly with a spouse.

Also, according to Michigan-based tax attorney and CPA Chelsea Rebeck, this credit could net you a refund! “For tax years 2018-2025, the maximum refundable portion of the credit is $1,400 (equal to 15 percent of earned income above $2,500). If your tax is $0 and your total earned income is at least $2,500, you can claim the refundable part of the credit.”

Child and Dependent Care Credit

If you send your young child to daycare or after-school care, you know those prices are no joke. But, good news, the IRS says you might be eligible to get up to 35 percent of those costs back by claiming the Child and Dependent Care Credit. The credit maxes at $3,000 for one child or $6,000 for two or more. You can qualify for the credit if you (if filing single) and your spouse (if filing jointly) put your child in care to allow you to work, look for work, or attend school full time. You both must also have earned income for the year to qualify.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a tax credit that benefits low- and middle-income filers and those with children tend to get a higher credit than those without. “If you are below certain income thresholds (all of which are sub $60K for joint filers) you can qualify for the Earned Income Tax Credit,” explains tax attorney Shann Chaudhry. “The EITC is for low income working people, to help offset costs. The EITC is refundable 100 percent. So if you received a credit in excess of what you owe, you might get a refund.” To qualify you must earn less than $55,952 if filing jointly or less than $50,162 for single filers. The credit increases for each child but tops out at three kids. The most you can receive is $6,557 subtracted from your total tax bill. And, if the credit brings your liability down to zero but there’s still money left over in the credit, it could push you over into refund territory!

American Opportunity Tax Credit

Parents of college students, this one’s for you! The American Opportunity Tax Credit (AOTC) is for qualifying education expenses for the first four years of higher education. According to the IRS, to qualify for this credit the dependent student and parents must meet the following requirements:

• Be pursuing a degree or other recognized education credential
• Be enrolled at least half time for at least one academic period* beginning in the tax year
• Not have finished the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

There are also income limitations to qualify: Filers’ adjusted gross income cannot exceed $80,000 if filing single or $160,000 if filing jointly. There are also documentation requirements that the IRS looks at very closely, so be doubly sure you qualify for this one before filing. If you do, it can save you big bucks. You can get 100 percent of the first $2,000 of qualified education costs then 25 percent of any additional qualifying expenses. The maximum credit is $2,500 per year per student.

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While it’s clear that kids need chores, the role of allowance in a child’s life may be less clear. One consistent finding from research is that providing an allowance typically undermines participation in chores. That said, is there any reason to give children an allowance?

The answer is yes, according to Ron Lieber, the “Your Money” columnist for the New York Times and author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money. He suggests that a regular allowance — even for young children — can be a valuable platform to learn about handling money and life values as well. Here are 3 tips Lieber offers to make allowance really count for something in a young child’s life:

Don’t Treat Chores as a Job

The benefits that kids get from chores derive from doing them for non-material gain. They act on their natural instincts to be helpers, which advances their ability to empathize with others and work together with family members. Self-reliance becomes ingrained at later ages and kids veer away from the trend to act entitled. So consider Lieber’s first tip:

“Adults don’t get paid for doing things around the house, and neither should children. It’s just something we do to help one another out and keep our homes functioning. If you want your kids to learn a real work ethic, they can go work when they’re teenagers for someone who doesn’t give a lick about them and will fire them if they don’t perform. And if you want leverage over them, take away their privileges when they don’t do their chores, not their allowance.”

Practice With Money Makes Progress

Not paying for chores does not, however, mean that you shouldn’t give kids money on a regular basis. The trick is to provide an allowance in the sense of a regular distribution of money that is not tied to any type of work or task – it’s simply money they get from you that they can use how they like. Lieber offers guidance on how to make this experience meaningful:

“Money is a teaching tool, and allowance is for practice. One of the most important reasons for kids to have allowance is so they can see how it feels to spend on the wrong thing and experience regret, to save for something bigger and feel that sense of accomplishment and to sense how grateful organizations are when you walk in with your ‘Give’ jar and hand over the money. We’re in the grown-up making business after all, and handling money wisely is a big part of being a successful, happy grown-up.”

Gratitude Is Powerful

While a regular allowance will provide kids an opportunity to learn many lessons about managing money, it can also stimulate thinking about non-material pleasures and broader values. Here’s Lieber’s take:

“Reminding yourself about the good things you have can help divert attention from thing you may want that are financially out of reach. Saying grace is one good way to do that, but so is a round of toasts each night at the family dinner table (or whenever you have time). There are no rules here except that you should raise your glass to someone or something that was awesome that day. Kids love toasting; it’s grownup and a little loud and it doesn’t put much pressure on them or feel to formal.”

The Bottom Line

Raising kids to do chores without receiving an allowance for them, and providing kids with an unconditional allowance to learn and practice money skills, will provide a well-balanced approach that will make both chores and allowances count towards the positive development of social and personal skills throughout childhood.

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Think money matters are just for grown-ups? Not so. It’s never too soon to teaching kids about money lessons. Start now, and your child will be a wallet whiz before you know it.

“Mom, can we go to the dollar store?” The day my 6-year-old son, Darren, asked that, we learned an important lesson. Since he had been saving money he’d received for his birthday, I took him. To my surprise, he had a fit and refused to get out of the car. Why? We weren’t at the real dollar store, he claimed. I asked, “What’s the real dollar store?” His response: “the place where you go and they give you dollars.” He meant the bank!

The confusion isn’t surprising. Many kids think money is free, or have zany notions about how you get it, explains Jayne Pearl, coauthor of Kids, Wealth, and Consequences: Ensuring a Responsible Financial Future for the Next Generation. Getting a grip on finance is crucial, especially for Latino kids: Nearly 60 percent of college-educated Latinos struggle with financial literacy—more than other ethnic groups—according to a study by the TIAA-CREF Institute and the Global Financial Literacy Excellence Center. Give your child a financial head start in life by cashing in on these tips.

1. Job Hunting

Ask a 5-year-old where money comes from, and his answer will probably be “the bank,” “Mom and Dad,” “the president,” or “rich people.” He might not fully understand that your family affords things by working. To help him learn about earning, talk about jobs and how people are paid to do them. Then, make a big deal about his having a job of his own. You can “hire” him to do extra chores, he can sell hot chocolate or old toys, or he could collect and recycle cans to earn cash.

2. Super Shopper

Turn your kid’s bedroom or playroom into a store. Put price tags on household items, give her spending money, and pretend to have a supermarket, a toy store, or a clothing boutique. Your child can come up with a list of things she wants to buy, work with the amount of money she has, find items on sale, and count out (with your help) the correct amount for her purchases. To practice those math skills, give her a chance to be the cashier. As she gets savvier about spending, give her some money and a short list of items that she’ll be in charge of buying the next time you go shopping in the real world.

3. Allowance Bank

Making cash available to your child is a must. “If she never has access to money, she’ll never learn to handle it,” says Lori Mackey, that teaches fiscal responsibility. Determine the amount of the allowance (experts suggest $1 per year of age per week). Then make it interesting by playing “bank.” When the time comes for an allowance, issue your child a pretend check. Tell her that she’ll need to play “bank” with you to cash the check. Follow the same steps you would take at a real bank, asking her if she wants to have all the money now or keep some in her account to take out in the future. “Discuss the reasons she might want to save some,” suggests Mackey. “For instance, say, ‘I know you’ve been wanting new gel pens. If you save up for three weeks, you’ll have more than enough to buy the set you want.’”

4. Compound Savings

What does a kid do with money? Splurge! “A good way to encourage saving is to do a child version of a 401(k) plan,” says Ken Damato, CEO of DoughMain, a family financial-education website. “Tell your son that for every dollar he saves, you’ll add 50 cents of your own,” Damato explains. He probably won’t have any problem socking away a dollar here and there, which will help him develop smart saving habits for the future. “Kids think very short-term, so you have to engage them along the way,” says Damato. A piggy bank that lights up or makes a ka-ching sound when he adds money, a big, colorful chart to see his goal and his progress, or even a clear jar so he can watch his dollars and cents grow can all make saving more exciting.

5. Reality Check

Your daughter is trying to convince you that she needs those night-vision spy goggles. Just like she needs a new bike, a remote-control car, and a puppy! Playing the “Gotcha!” game can help her better understand wants and needs. First, give her a simple refresher on the difference between the two. “You can tell her that a need is something she must have in order to survive, such as air, food, water, and shelter,” says Pearl. “Explain that a want is something she’d like to have.” Then, set up a family “Gotcha!” jar. Any time a family member says “I need” when it’s really a want, someone else shouts “Gotcha!” The person who made the mistake has to put a quarter in the jar, Pearl explains. Your child will be on alert and will love it when you slip up (you will). Periodically, as the “Gotcha!” jar fills, your family can donate the funds to a charity for people who really do need things.

When is the best time to talk to your kids about money?

Right now.

Your kids will learn about money from someone. Don’t let it be from an out-of-control celebrity on social media. You have the opportunity to be the positive example in their lives and the guiding voice they can trust.

No, money isn’t a taboo subject, and no, your kids don’t need to be sheltered from financial matters. So buckle up and just have the talk already—or go deeper if you’ve only skimmed the surface. If you want to change your family tree, you’ve got to change your mind-set.

Here are five tips for talking to your kids about money.

1. Start slow.

According to a 2017 T. Rowe Price survey, 69% of parents have some reluctance when it comes to talking about money with their children. And only 23% of kids say they talk with their parents frequently about money. There’s no need to schedule a five-hour lecture presentation to review bank account balances and retirement plan contributions. Start by simply answering your kids’ money questions at an age-appropriate level.

You may be surprised at what they already know or what they need to know more about.

Once they realize you’re open to these discussions, they may be more comfortable coming to you with money questions.

2. Be honest.

If you regret going into debt or not saving more for college, tell your kids. Parents so rarely have open, honest moments with their children. Kids can handle it—really.

Instead of hiding your financial failures or covering it up when money is tight, tell your kids the truth. If you ran up debts in your past and had difficulty paying them back, share that. They’ll appreciate your openness and learn a valuable lesson about overspending.

3. Talk values, not figures.

If you’re hesitant about disclosing your salary and major expenses to your kids, don’t sweat it. The good news is your kids don’t really want (or need) to know that stuff. They need concepts like saving, budgeting, paying down debt, and giving.

To help your kids get an idea of what real-world budgeting looks like, encourage them (when age-appropriate). They can use the tool to track spending habits and see just how far their money is going. Soon, establishing a budget will feel like second nature. And if they stick with it, they’ll be well ahead of the curve by the time they hit the college campus.

4. Set family goals.

Let your children sit in on and contribute to family budget committee meetings. Just remember you and your spouse are the adults. Only mom and dad make the final decisions. If you are paying off debt or saving for the future, let the kids join in as you celebrate reaching milestones along the way.

As you set goals as a family, remind your kids that goals require sacrifice. That might mean skipping a vacation in order to cash-flow a car. But they’ll catch on—especially if they understand these sacrifices will affect their future as well.

5. Learn about money together.

Eventually you’ll touch on topics you may not completely “get” yourself—like mutual funds, money market accounts or Roth IRAs. If you don’t feel fully knowledgeable on these topics, that’s okay! Admit you don’t have all the answers and do the research together to find ways of securing your future. It’s a great excuse to spend some time together!

So go ahead and open up about the family finances, but keep it simple. Start the conversation, be honest, and teach and lead by example. Someday, your money-smart kids will be proud to follow in your big financial footsteps.

Want more great tips on how to teach kids about money? Just drop your comments in the comment section.

What can you teach kids about money? Plenty.

Some kids go their entire childhood with no clue about how money works. Why? Probably because their parents feel weird talking about it. One T. Rowe Price study found 66% of parents are reluctant to even talk to their kids about money.⁽¹⁾ That just sets them up for the potential to make big money mistakes when they’re adults.

It’s like Dave says, “If you don’t teach your kids to handle money, they will grow up and move into your basement.” Ouch.

So what’s a parent to do? When it comes to raising money-smart kids, you don’t have to cover all the ins and outs of an investment portfolio or proper mortgage purchasing practices—just start with the basics, like letting them know food and clothes are paid for with money. And make sure they know there’s a right way and a wrong way to handle money too.

Teaching Kids About Money is Important

It can be tricky to navigate even the simplest of money conversations with your kids. That’s why we put together our Adventure Pack for kids ages 3–12!

At the core of our Adventure Pack for kids, you’ll find three familiar Ramsey values: Spending with purpose, saving with intention, and giving cheerfully. It’s a great way to start teaching children about money at their own, age appropriate level.

Of course, your 6-year-old isn’t thinking about the woes of student loan debt yet, but what your child learns today can stick with them for the rest of their life. You’re teaching money habits now whether you realize it or not. Make them count!