You can teach kids about money even from an early age. Here are simple techniques to help your kids learn their dollars and cents.
It’s the taboo topic, even among adults. We’re not supposed to mention incomes, debts, or how much we spend on purchases. We size each other up based on our perceived worth. Yet so much about money pervades our lives. The opportunities we have. The values we shape. Paying for college. Staying home with the kids or not.
I was fortunate: I graduated college with no student loans. I learned to pay off the balances on my credit card. I entered adulthood with no debt.
But I also didn’t save much. I assumed I should spend money I earned from my first real job on things I could now afford. You know, adult things: Furniture (“No more hand me downs!” I would say). Dinners. Going out. I even confessed that I now “deserved” a brand new car—until a cousin knocked some sense into my head.
Sure, I saved a bit here and there in a retirement account, and I still never got into debt. But I could have benefited from saving aggressively when I had the opportunity to. (And when I didn’t have kid-related costs depleting my budget.)
Now I know better than to leave my kids without some lessons about money. But how do you start? And at what age?
You can teach kids about money even before they know anything about math and numbers. Before allowances and first jobs.
While we should know money terms (IRA! compounding interest!) we need to focus more on behavior and psychology behind money. The ‘why’s of how we spend and save and earn.
After all, we all know how to add and subtract, how to open bank accounts and how to earn money. Yet why are people in a position to make financial gains instead make financial mistakes?
How to teach kids about money
We want to raise kids with clear values about money where they can use it as a tool to live a life with opportunities. Where they can decipher between excess and enough. And where they know better than to spend more than they earn.
Encourage delayed gratification.
Children who wait for rewards instead of instant gratification lead successful lives as adults. And with money, delayed gratification takes it to a whole new level.
When kids learn to save now for the future, they’ll make sound decisions rather than rash ones. They’ll also have better purchasing power when they have $10 saved rather than $1 here and there.
And compounding interest is no joke. The more kids save now, the higher the likelihood of saving more money than had they saved later in life. The benefits of delayed gratification—of simply waiting—can be taught at an early age.
We can teach our kids to wait through simple things:
- Say ‘no.’ Don’t concede to every request and avoid spoiling your kids.
- Have them wait. If it’s only 30 minutes before dinner time and your kid wants to eat, have him wait instead of giving him a snack.
- Think about it. If they ask for something and you had no plans to purchase it, say you’ll think about it. Ask them to do the same and wait at least a day to see if they still want the item.
- Find distractions. Encourage them to find ways to distract themselves while waiting. Praise them for behaving well and entertaining themselves while waiting in line.
Require them to save money.
The best time to start a savings account for your child is the minute they start receiving cash for gifts. Take half of that money and stow it in a college savings fund. Then take the other half and put it in a savings account.
As they grow and ask for things you’d rather not buy, introduce them to their savings account. Show them that this money is theirs to use on purchases they’d like to make.
Should they ask for a big-ticket item, don’t buy it for them. Tell them to save up for it using their savings account. The extra time needed to make this happen just might convince them that they might not want that item after all.
Then, when they get money (like through gifts or earning it), have them save some into a college fund. This gets them into the habit of saving a percentage of their income for long-term savings. Just as we adults save for retirement.
You might even want to pitch in and match their contributions. For every $1 they save in their college fund, add an extra $0.50 or $1.
This method forces them to set aside money they’ll never touch for years. When they’re adults, setting aside 10% of your income for retirement won’t sound strange. Nor does the idea that they don’t have to spend every penny they earn.
Distinguish between wants and needs.
Show the difference between necessary and luxury. The everyday and the once-in-a-while. We need to eat lunch—we don’t need to eat cake.
Watch your language, too. Saying, “I need to get a new jacket” would be better said with, “I want to get a new jacket.”
Define what your family needs and what’s extra. It’s fine to feel like you need to spend time together as a family. But you don’t have a rational “need” to do so on an expensive vacation.
Describe your work and how you earn money.
When the kids ask why you go to work, use the opportunity to explain the general idea behind earning an income. Describe what you do during the day and how your employer or clients give you money for doing so.
Then suggest different ways she can earn an income herself, either now or when she’s a little bit older. Some ideas to motivate a budding entrepreneur:
- Hold an art show and sell her paintings and artwork. Does your child have a proclivity for arts and crafts? Host an art show at your home and invite friends and family to view and buy her art pieces. You can even help fund her startup by loaning her money to buy canvases and frames.
- Do household chores for friends and family. Your child can help clean or do chores for a fee for others. To make it less awkward for your friends and family, you could front the money. That way, they won’t feel pressured to part with theirs in what’s a lesson for your child.
- Write stories and books to sell. This was my “venture” when I was a kid. I would write and illustrate stories and workbooks that I’d sell to others. I don’t know if I ever actually sold anything but all my books came with “coupons” for the next installment!
While I encourage entrepreneurship in kids, I’m also leery about focusing on money as the ultimate reward. Kids should do acts of kindness out of goodwill and not for the monetary reward. That said, when they learn about earning income, they understand how to do so in adulthood.
Describe store interactions and money.
Explain exchanging money for goods or services by describing store interactions. Let’s say you’re at the farmers market.
Tell your child you’re giving the vendor $2 so that you can take home four sweet potatoes. How you’re paying the restaurant because they cooked and served you food.
At the bank or ATM, show them how you store your money in banks and once in a while use a card like a key to take your money out. They won’t think that banks and ATMs are flush with free cash. Instead, you’re taking your money out to use.
Model sound financial habits.
None of these lessons makes much of an impact when we don’t model them ourselves. Align your values with money so that items aren’t the epitome of life. Nor should one’s income determine their self-worth. Balance the stresses of work so they don’t interfere with other aspects of your life. Perhaps then we can not only raise financially-literate children, but non-materialistic ones as well.
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What money lessons would you pass to your kids, and which of your mistakes would you hope they steer from? How do you teach kids about money? Share them in the comments below!