How to Use New Toys to Teach Kids About Money

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Last year, my daughter asked for a hamster, and I hatched a nefarious plan. Since I really didn't need another animal in the house, I told her she'd have to pay for it herself, hoping that this would lead her to drop the topic.

We went to the pet store and looked at the hamsters, which (to my dismay) only cost a few dollars. Then we priced cages, food, bedding, chew toys, and a hamster wheel. Once we calculated it all, she understood that a hamster costs a lot more than the price of the rodent itself.

Instead of giving up like I'd expected (and hoped!), she saved $75 over the next several months, and proudly brought home her new pet, along with all his little hamster accessories, and several months' worth of bedding and food.

When my daughter proved me wrong, I realized that we often underestimate kids' capacity for understanding how money works. Here are more ways to harness children's wants to help them learn financial lessons that will last much longer than any toy (or hamster). (See also: 4 Bad Money Habits You're Teaching Your Kids)

Don't Shy Away From Discussing Cost

You and your child are in the toy store, and they ask for a new Lego set. Don't just say, "It's too expensive." Whether you are willing to buy it or not, have the child check the price of the item. Discuss how much time you would have to work to purchase that toy, and what other things you could pay for instead with that amount of money.

Let Them Earn to Learn

Your six-year-old probably won't find a lot of job opportunities on Monster.com, so his pay is probably going to come from you. Whether you choose to pay your child an allowance that is inedependent of chores or jobs they do at home, the important thing is that they get a little cash of their own, so they begin to learn that spending $1 on gum means they no longer have a dollar to put toward a yo-yo.

Let Them Buy Stupid Toys

One of the most agonizing experiences of my life was following my daughters around Chicago's huge American Girl Store, watching them try to decide how to spend a little money I had given them. My older daughter bought something sensible, a folding seat that would allow her to strap her doll to her carryon luggage. My younger daughter wanted a hair-styling set, which included sponge curlers, curling papers, and a plastic spray bottle. It killed me to watch her lay down $20 for a box of small items that would have cost $1 elsewhere, knowing they would soon be scattered all over her bedroom floor.

But I let her do it. Just as I expected, she played with the new set for about one day, but I spent years finding the curlers and papers in odd places around the house. Now, a few years later, this daughter does put a litte more thought into how long her toy purchases might last, so — even though I am still finding those curlers — it was worth it.

Show Them How to Get More for Their Money

If your child is saving for a specific toy, introduce them to ways they can get there faster, such as using coupons and sales. Personally, I usually have my kids save enough to cover the full price, then if I have a coupon, I show it to them just before the purchase, and give them back the cash that the coupon saved. Getting cash back in their hands seems to make a big impact.

Practice at Yard Sales

Even if my kids don't have any of their own money on them, I am known to hand them each a dollar or two when we come across a garage sale, because the situation is rife with learning opportunities. It's great practice conducting sales transactions; kids often have to politely ask how much things cost. It's a safe place to make mistakes, because no matter how useless a toy they purchase might be, chances are they only blew a few bucks.

And yard sales, of course, offer true bargains. My son recently purchased a toy space shuttle at a block sale using one week's allowance; he would have had to save for months to buy the same toy new. My 12-year-old is getting so confident shopping yard sales that she will actually negotiate with the seller.

Let Them Sell Their Own Used Toys

This tactic takes some supervision, because unfortunately, kids can seriously undervalue gifts adults have purchased for them. I cringed when my son wanted to sell a remote-control dinosaur that he had received for Christmas at our yard sale, where it might have fetched just $5 (it had cost his grandparents about $100).

But with a little price research and some talk about the feelings of gifters, kids can resell toys and use the money for something new. Not only is this a way for them to fund their own purchases, it shows them how quickly most new items lose value.

Let Them Choose Gifts for Friends and Charities

Every time my kids are invited to a birthday party, I turn them loose in the toy shop or bookstore with instructions to choose any combination of items that totals $20 to $25. They've learned to check price tags and weigh the benefits of choosing two or three small items versus one big thing.

At the holidays, my kids have conducted fundraisers with their service groups to buy gifts for local foster children. First, they raise the money via a bake sale or other fundraiser, then they use the earnings to buy gifts, using everything they've learned about maximizing their money to do the best they can for the kids they're helping.

How do you teach your kids about money? Share with us!