This is one of my favorite topics – kids and money. April is Financial Literacy Month, and April 24 is Teach Children To Save Day, so this is a timely topic in commemoration of both events. Money is a fact of life whether you are a materialist or a minimalist. As your children grow, age-appropriate conversations should be had so that they enter adulthood with an appreciation of where money comes from and how it should be handled. I don’t always get this right but here are my thoughts on the subject.
Kids need to understand that work is how money is earned. Allowances are a common theme in childhood but they may send the wrong message. The biggest problem – when they come without work or chores attached. In other words, nothing was done to earn the money other than breathing air. Dave Ramsey likes to say that we don’t make allowance for anyone; we pay them commission for work completed. I agree because if your child sees that their work or chores are rewarded then they begin to make that connection as to how money is created.
Kids also need to learn that there are three things to do with money. They can spend it, they can save it, and they can give it away. I think that they need to begin practicing all of these lessons. For instance, if your child earns $5 in commissions for doing chores or work around the house, maybe they want to spend $2, save $2 and give away $1. This is just an example; you can work with your child to make it fun and meaningful to them. Maybe they keep a glass jar for each category so that they can see how their money is growing.
Help your child learn how to spend wisely. The best place for your child to learn the hard lessons of money is while they are still under your guidance. And just because they have saved some money to spend, you as the parent have the final say on what they can buy. Teach about quality versus price. Teach about needs versus wants. Teach about marketing and how it impacts us. Teach about new versus used. Teach them about shopping online and comparing prices. As they get old enough to understand, teach them about how your budget works and show them the reality of what life in the real world costs. Let them manage the money that you would have spent on them as they become teenagers. All of these are critically important concepts for your child to learn in order to spend their money wisely.
Without learning to save, your child will never grasp the concept that their money can work for them. Ben Franklin was a fanatic about teaching on the subject of compound interest, and reportedly Albert Einstein once said compound interest was the ninth wonder of the world. Though you might struggle with savings as an adult, you can still teach your child some important concepts. Find a website with a savings calculator such as the ones on The Mint and walk through some scenarios with your child. Using the glass jar example above, praise your child on their savings efforts as their money fills the jar. Teach about long-term and short-term savings goals, and when they get enough money in the bank let them begin to save in the stock market.
Guide your child in the importance of being a giver. In my opinion, the way that this country will best take care of itself is through gifts of acts and charity, and not dependence on the government. Whether you are religious or not, giving of one’s time and money does something to change not only the recipient but also the giver into a more compassionate, outwardly-focused individual. That is important for your child’s growth and maturity. There are any number of quality organizations to donate to, so help your child decide how much and where their efforts should go.
Be an example for them in this area. Talk about money often. Be transparent and tell them about your struggles with money, but don’t make them feel guilty. Ask questions, and encourage them to ask questions. Whatever you do to teach your child in the area of money, be sure to keep it fun and interactive with your child.
Parents, if you have needs or ideas for teaching kids about money or about in the finance and money in general then let Affluent Student help. With my background as a Dave Ramsey Certified Counselor and years of parenting expertise, I have several options for individualized or group coaching and speaking. Head over to my Contact page if you would like to find out more.
Application Question – Does my children learn practical applications about money from me, or am I just assuming they are picking it up along the way? How can I incorporate teaching about money in my daily interactions with my kids?