How to Teach Kids About Finance — Show Them the Virtual Money

Dan Tynan is a contributing editor for Family Circle, where he writes about the intersection of parenting and technology. Follow him on Twitter @tynanwrites or at his blog Hopeless Dork.

Anyone who's ever had kids of a certain age knows what it feels like to have their pockets picked.

"Dad, I need $10 for a school field trip. Dad, I need $20 for a haircut. Dad, I owe $30 to the school cafeteria. Dad, I need $50 for clothes."

Even though as adults we live largely on electronic payments, I always like to have a little cash in my pocket. After all those requests, that's all I usually have — a little cash. Everything else is sucked out out of my wallet and into the kids' hands moments after being disgorged by the ATM. As our children morphed from needy tweens into insatiable teens, I knew this had to stop.

First, let me be clear about something. When it comes to money I am an absolute oaf. I know how to make it, but I have not one clue how to manage it. Fortunately my wife does, or we'd be sleeping in pup tents and busking for spare change. When I say “we”, I mostly mean her.

We didn't want our son and daughter growing up to be as clueless as their dad. So we tried various schemes to teach them how to handle money. We gave them $100 a month using a system of envelopes – $15 in one envelope for haircuts, $20 in another for clothing, $25 for entertainment, $30 for books, etc.

That lasted maybe three months. My daughter spent all of her money on candy and toys within the first week. My son hoarded all his money and wouldn't pay for anything. His hair grew long, his clothes got tattered, and he started to look like a street person.