Spending Smart: Helping kids learn the value of money

a caucasian teenage girl puts out her hand as her father pulls out his wallet to give her money
a caucasian teenage girl puts out her hand as her father pulls out his wallet to give her money Getty Images

Older children want fancy cellphones, vehicles to get around and the latest video games and consoles.

Where do parents draw the line on what they buy for their kids?

It's a question more easily answered by families of limited means. They simply can't afford such luxuries, and the answer to many optional purchases is no. The question is more difficult for higher earners, who "could" afford many of the discretionary purchases but must determine if they "should."

Many parents know that seemingly inconsequential spending habits children learn young can later translate into serious decisions they make as adults — about credit cards, auto loans and home mortgages.

"We need to be a hand up, not a handout," said Steve Economides, co-author with his wife Annette of The MoneySmart Family System: Teaching Financial Independence to Children of Every Age.

Forcing children to pay for some or all of discretionary purchases can be healthier for the child's money education and the parents' bank account, Annette Economides said.

"You gradually hand over more of the decision-making to them while putting limits on yourself so you're not bankrupting yourself in order to keep up with the Joneses," she said.

Here's a sampling of ideas from spending experts around the country to get you thinking about what parents should pay for.

Needs versus wants

"We need to provide them with shoes, but $200 sneakers are a want," said Gary Foreman, editor of The Dollar Stretcher Web site. "If kids feel that they can't live without those things, they should be invited to do extra chores around the house or work to earn the extra money.

"That way, the parent has fulfilled their obligation to care for their children and also taught them a valuable lesson that will pay off when kids become adults."

A wealth disservice

One hazard of providing too much for a child is that they can become accustomed to the parents' lifestyle rather than one they will be able to afford on their own, especially as a young person, said Steve Economides, father of five. Imagine an executive earning $150,000 a year who spends lavishly on his son, who as an adult is working as a server in a coffee shop.

"You've handcuffed him," Economides said. The adult son's financial boundaries don't relate to his income. It's easy to imagine that young man's lifestyle of overspending, deep debt and asking parents for money.

Return on investment

Return on investment, a business term, is another way to think about buying things for children that seem like needs but might really be wants, Steve Economides said. Does the item help the child do his or her "job," a large part of which is being a student? Ask that question in regards to a personal computer, instead of using the family computer, or a cellphone.

Struggle for success

"I can tell you unequivocally that anything your child can purchase with their own money, they will take ownership and pride in," said Josh Elledge, chief executive "angel" at coupon site "I've found a pattern among my most successful friends — they all bought their own car, paid for their own tuition, worked many hours through high school and college.

This is how I did it, and while I indeed struggled at times, I wouldn't trade my experience."

Cellphones and college

Jill Cataldo, a nationally known blogger and coupon instructor, said she and her husband set specific rules for various purchases.

She bought her high school daughter a cellphone by adding her service to the family plan but refused to buy her a smartphone.

"We decided that she doesn't need a smartphone at her age, though if she would like one, she will be paying the difference for that upcharge," Cataldo said. "She does have a part-time job, but she has yet to decide it's worth ponying up that money."

Spending envelope

Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, had a system when her children were old enough to start the "gimmies" in the supermarket checkout aisle.

She kept an envelope with the child's name marked on it and money inside.

"When the child asks for something, tell them that you're happy for them to have the item and hand them their envelope," she said. "Nine times out of 10, once they realize they're going to have to buy the item with their own money, they'll hand the envelope back to you."

They learned the invaluable lesson of telling themselves no.

As the children grew, Cunningham also had a rule about college. "We agreed to pay for the first degree, but if they wanted to pursue post-graduate degrees, they had to fund it themselves," she said, adding that the rule didn't dissuade them from further education. "Three out of the four children have post-graduate degrees, one a Ph.D."

Unusual circumstances

Iron-clad rules about parental spending don't work because kids are so different.

Teri Gault, frugality expert and founder of, said her oldest son wanted to get a job at age 16 to buy a car.

But, she said, he had "standout baseball skills that could win him a scholarship worth much more than a minimum-wage job."

They bought him a clunker and paid for insurance and gas in exchange for honor-roll grades, hard work in baseball and mowing the yard. He ended up with a $96,000 baseball scholarship to college and signing bonus from the Minnesota Twins, she said.