Your five-year-old has a Christmas wish list a mile long and the clock is ticking. You wonder if it isn't time she learned the value of a dollar. So instead of hunting down that Barbie Video Girl, you consider giving her the money instead and a piggy bank in which to save it.
Should you give someone that young a gift of cold, hard cash?
Go right ahead, advises personal-finance author and television celebrity Suze Orman. "Five years old is not too young at all," she says. "Kids understand money very well by the age of 5, 6 or 7. You just try to say no to them when they go into a store and want something – and watch how they understand what money can do."
Ms. Orman and other personal-finance experts agree that parents can begin to teach kindergarteners financial lessons that can last a lifetime. But those lessons, they say, need to be age-appropriate.
Ms. Orman adds one more notable restraint for parents: When you give money to your children, no matter what age, that money is now theirs. At age 5, your child will put it in her piggy bank and play with it, but by age 8 or 9 she may decide to splurge on some toys. If you say no, Ms. Orman advises, "we have a breakdown in [financial teaching] Because then what you have taught them is their money is your money, their money is not their money and therefore they have no incentive on any level to want to continue to save or have money in their name."
It may be hard for parents to accept this, she admits, but it's crucial. She cites the example of a father who called her for advice – his 13-year-old had saved thousands of dollars from gifts over the years; now she wanted to blow it on clothes and other stuff.
"And I told him to let her spend it all. Every penny of it. It's hers. And once she blows it and there's no money left, and her parents won't give her money any more, she's going to find out the value of money and I'd rather have her find it out at 13 than 31."
If parents want to give their child money to save, Ms. Orman suggests giving them bonds or a stock certificate, and explain it's for their future, because "if you're explicit with them from the start, they get it."
Other experts differ on how parents can begin to teach children the value of money.
Janet Bodnar, the editor of U.S.-based Kiplinger's Personal Finance magazine and author of a number of books on kids and money, says parents of young children shouldn't just write a cheque or give them big bills. "It's meaningless to them," she says.
Instead, she advises parents to give coins and a piggy bank to put them in. With coins, "kids can play with them, stack them and put them in a savings bank." Parents can teach their children what each coin is worth and why they might want to save money instead of spending it.
When a child is seven or eight, it's better to give them money or a gift card for a specificpurpose – to buy a Barbie doll or Tonka truck, for example, or to go shopping with a grandparent, Ms. Bodnar says. "The child learns to budget with whatever they have on the card."
As for wanting your kids to save money, Ms. Bodnar says, "if you give a gift and say, 'Here's a gift and I expect you to save it,' well what fun is that?" But if a child gets a lot of money from relatives, she advises parents to get them to save a percentage of it.
Joline Godfrey, the CEO of California-based Independent Means Inc., who develops financial education programs for kids, says parents should be careful when giving cash gifts to young children because "it tends to set in play the idea of free money or windfalls that have no accountability."
She says, however, parents can create "teachable moments," such as talking to kids about saving, spending wisely and giving. Philanthropy, she says, should be part of every financial lesson.
Ms. Godfrey suggests waiting until kids are older to teach them about stocks and bonds. "If your 12-year-old won't put down the Xbox, you can buy him a share of Microsoft," she says. "It's vital that kids see that share as something living, so be sure to talk about the company when it comes up in the news and ask them what they think about the latest products."
But Ms. Orman says it doesn't matter if kids don't understand everything about a stock or bond at the time you give it. "Eventually they will, and probably sooner than you think."