What should we teach our kids about money?

March 1, 2012: 10:55 AM ET

In a still-uncertain economic world, finding the right middle ground between encouraging excess thriftiness and decadence is elusive to say the least.

By Laura Vanderkam, contributorpiggy_banks

FORTUNE -- My children haven't quite figured out money yet, which makes sense. The eldest of the three is only four years old.

The older two have little banks that they use to stash cash from relatives, and they recently took a trip to the toy aisle of Wal-Mart (WMT) with their grandmother. They saw what they could get by pooling the fives she gave them for Valentine's Day. And so, someday soon, their father and I will need to start talking with them about money. And we need to get our story straight.

I can't say I'm looking forward to these discussions. Even though I've spent the past few years writing about money, I still find this a fraught question. My first thought was that I want my kids to "know the value of a dollar" -- to appreciate money in the same way their father and I do. Who knows what gales our economy will face in the next decades? I should teach them to squirrel away each dollar so they can hunker away from the wind at the door.

But the more I pondered this, the more I realized that, not only is teaching squirrel behavior impossible, I'm not sure it's desirable to pass along all my money attitudes. In an uncertain world, I'm hoping I can teach my kids to think in terms of abundance alongside the usual money worry -- that there's never enough. I want to teach them to be smart, not wasteful or tight, and all this suggests a tough line to walk with my little ones.

When I first started looking into the topic of kids and money, I assumed that there must be lots of research on allowances, financial education, and the like. Childrearing isn't a new phenomenon. But as veteran parents have likely discovered, there are many gurus touting different theories, and many of these ideas aren't based on any research at all.

MORE: Your cash is costing you

In terms of what's been published in peer-reviewed journals, it looks like giving an allowance that's conditional on chores seems to work best, but not giving an allowance at all has a lot going for it too.

Though the theories varied, all the gurus talk of the importance of conveying your money philosophy to your kids.

This is where I hit a rough patch. What is my money philosophy?

I know where my "knowing the value of a dollar" mindset came from. I was born into a coupon-clipping household. My parents eventually did quite well, but growing up, I felt there was a reason I needed to wait for Christmas and birthdays if I wanted something. No one was sending me to Africa to volunteer so I could write a college essay about it; I wrote my college essays in the parking lot of Fazoli's Italian restaurant on my 15-minute "smoke" breaks. Standing on your feet all day in exchange for sub-$5/hour paychecks will give you a healthy respect for exactly what it can take to earn a buck.

Fast-forward 15 years. Thankfully, I have moved beyond the garlic butter ladling days. I feel incredibly lucky for the life I can give my children. But when it comes to kids and money, a certain amount of comfort can muddle everything up.

When I was at Barnes & Noble with my eldest child one Saturday not long ago, he found a display of wooden Thomas & Friends toy trains and asked me for one that he was missing from his collection. Despite the $21.99 price tag, I complied. Then, having bought Gordon the Express Engine in haste, I repented at leisure, fretting that I was spoiling my child. He wouldn't know the value of a dollar! That train would have taken five hours of breadstick buttering at Fazoli's to earn.

Then I remembered that my husband, brother, and I had spent much more than $21.99 on drinks the night before, because we were having fun. Why can't my kid have his fun, too?

The hard truth is that unless I'm willing to impose austerity on all of us -- an austerity we have worked hard to avoid -- there is just no way to teach my kids the same flintiness that once manifested itself in my boiling chicken bones to make soup stock to save the $1.50 a can. If I now buy name brand Ziploc bags, my kids will learn to buy Ziploc bags, rather than the generic kind.

MOREDating and business: Not all that different

But that's not all bad, because I'm not sure that my temperamental cheapness is as noble a trait, overall, as much personal finance literature makes it out to be. It has its upside: I've never had any debt beyond a mortgage. But it has its downsides, too. I give less generously than I would like, to charity and with gifts.

I put off hiring as much childcare as we needed, because it was expensive, but that made it harder to build my career, and put a lot of strain on my marriage. I have been reluctant to invest in the business side of my work, by hiring assistants or paying for publicity, because I tell myself I could "save" money by doing it myself. Except then it gets done badly or (more often) doesn't get done.

I want to teach my children that frugality is not a virtue in its own right, divorced from any larger goal. Money is powerful not because of anything inherent in these numbers, but because of what it can do. Sometimes we have to take risks, and sometimes we should invest in things that matter.

That can include the happiness of our children. I'm not sure what forces will shape the economy they'll eventually work in. You have to plan for the future, but if the future is unknowable, there is something to be said for enjoying today as well. I'm trying to figure out the right balance between squirreling and profligacy -- that magic point where money is stripped of the drama, and becomes a tool for building the lives we want. Too bad that's hard to teach in the toy aisle.

Laura Vanderkam is a regular contributor to Fortune.com and the author of All the Money in the World: What the Happiest People Know About Getting and Spending, out this week.

Join the Conversation
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.