Teaching kids about money is critical. Do you remember your first experience with money as a child? Did you receive an allowance? Did you babysit? Overhear conversations your parents were having? Were there arguments?
Growing up, my own relationship with money was, frankly, that we didn’t have much of it. What I did observe, however, was that my mom had a very strong work ethic, and she supported my sister and I on a small, single income. I also observed that others who made more than her would come to her to borrow money, which was interesting to me. For my sister and I, she ensured there was food, clothing and other necessities. I didn’t go to bed hungry.
Flash forward to my high school days, and I remember clearly that my mom made a major financial sacrifice to buy me my first computer, a Packard Bell, for $2,000. This wasn’t something I took lightly. I knew what it meant. I knew the hours that she put in at her retail job, making a fraction of what my classmates parents did, to make this a reality. In her mind, she was making an investment in me. It is something I’ll never forget.
When I started making my own income in high school, my money was sacred. As my weekly paychecks began rolling in, especially more during the summers, I saved nearly all of it. I knew I’d need it for my next chapter – college. I carried this scarcity mindset into my adulthood which has served me well financially. The foundation of what I understand about money today was observed in my childhood. Teaching kids about money early and often is critical.
Why it’s important to teach kids about money
Our relationship with money is imprinted at an early age. Whether you’re a parent or some other role model in a young child’s life, what you do and what you say matters when it comes to how that child interacts with money in their adulthood. It is a big deal. For example, financial issues are a top reason why marriages fail. And, more than one-third of college kids already have credit card debt before graduation. Schools are stretched and cannot always prepare kids for this extremely important life skill. It takes a village, and you should lead it.
Ideas on how to engage your kids in money discussions
(Note: Many of these are also good for grandparents, aunts/uncles and others to do with kids who are close to them)
#1 Play finance-focused games
Monopoly was one of my favorite games as a kid. It taught me some lessons about money being finite. It taught me about the purchasing power of money along with the ability to make income from investments. Don’t just play the game with kids, but explain the significance to them of the actions being taken during the game. Teaching kids about money involves explaining. Explain how you start with some money, how you’re given opportunities to make purchases (some of which you don’t have to make, which is another conversation you can have about trade offs). Overall, help them understand how this applies to real life. Games like Monopoly are a good foundation to use, because they are actually applying what’s learned. Monopoly is very effective at teaching kids about money.
#2 Include kids in monthly budget conversations.
While it is not necessary to divulge all information to your kids (your income, for instance), including them when you are budgeting and paying bills each month is a good idea. It is more important for kids to understand the concepts vs. real figures. They need to understand how money comes in and how money goes out. They need to understand what goes out should not be more than what comes in, along with what that means if that happens (i.e. credit card debt, etc.) and how that should be avoided.
#3 Provide age-appropriate allowances.
Experts say that the appropriate amount of allowance for kids is .50 to $1 per year of age. And it is also advised that you do not tie allowances to household chores or grades. Doing that ties money to punishment, and it is important not to create that kind of pressure when teaching kids about money. The purpose of an allowance is not to be punitive, but rather to teach kids about the limited nature of money and the trade-offs that they need to make if they have a ‘want’ vs. a ‘need.’
When providing an allowance, set expectations for what your child has to fund with that money. For example, candy, snacks and so forth. As kids reach their teens, putting funds on a debit card weekly not only makes things more convenient for them and you, but will also get them into the groove of using a credit/debit card they might have at some point. You can provide login info for them to check balances and manage their own incoming and outgoing funds.
#4 Open a savings account for them.
A savings account is a monumental occasion for a kid. I still remember the day I opened my first account. It was special. There are several high-yield savings account options out there such as Capital One and Ally, some of which have specific accounts oriented toward kids.
#5 Consider giving kids a savings match.
Just like an employer would do with a 401k, consider giving your kids a match on their savings to incentivize them to be savers. We were finding that our younger daughter was hesitant to save any portion of cash she received for birthdays and other reasons. Her older sister’s bank account grew larger than her’s, and she would react with “that’s not fair.” I talked to her about how that happened and explained that she had the power to change it by the choices she makes. We decided to try something new. We began 100% matching any portion of money our kids decided to put aside in savings. The result? She quickly began saving 50% of her “earnings.”
#6 Use give, save, spend buckets when teaching kids about money.
For early budgeting and saving application with kids, consider using give, save and spend buckets. As your kids are earning money, have a conversation with them about the importance of giving back (this could be charity or even a gift for a special person), saving for the future, and spending mindfully.
#7 Practice needs vs. wants while shopping.
When you’re shopping, this is a good time to practice weighing needs and wants with your kids. If you have things in a shopping cart, have a simple conversation about each item and have them describe if it is a need or a want. When they bring things to you to purchase for them, ask the question “is this a need or a want?” And with their allowance, they should begin paying for their wants.
#8 Help them understand there’s more than one way to make money.
Too often, kids are pressured to go to college. While I certainly value education, as someone with an advanced degree myself, I realize every kid is different. At a young age, it is important for our kids to know that there are many paths to an income and to financial independence. Entrepreneurship and skilled trades are a couple options. Investment income is also another source of income. The key thing here is keeping an open mind yourself and letting your child lead you to where their interests lie. Our role in all of it is to guide and be supportive. Not to dictate the best path or the path we took.
#9 Teach them about investments.
Recently, my 10-year-old daughter mentioned something to me about Apple. Someone she knew had gotten an Apple watch. I said, “hey Lucy, did you know that mom and dad are owners of that company? Your friend just earned us more money.” She tilted her head and had a surprised reaction. “OMG, are you serious?” she replied. I used this as a hook to grab her attention and meet here where she was to teach her something while she was interested. We spent 15-20 minutes at her computer pulling up different companies and their stock prices, charts, etc. I was able to explain how we are actually part owners of many companies because we own shares. She now understands what shares are, how each company has a different price, how stocks can grow in value over time and also pay dividends. All in that 20 minutes conversation.
#10 Take your time so they understand.
When talking to kids about money, break it down for them slowly. Don’t feel like you need to talk about everything in one sitting. Like the investment example above, I saw the opportunity and used it. You have time. The key to success is simply having these critical conversations over time. Shovel too much at them, and they will get turned off. They’ll quickly think of money and finance as boring, similar to many adults who didn’t have these short talks when they were young.
#11 Be open and honest.
Many of us have made mistakes with money. It is important that our kids know that we are not perfect. They should know how we’ve specifically made mistakes with money and learned ‘the hard way.’ We’ve talked to our kids about how we bought much more house than we needed at a young age and the implications that had on us financially. Interestingly, both of our kids constantly comment about wanting a smaller house when they grow up so that they feel closer to their family. If you’ve accumulated credit card debt previously or have a debt snowball currently, open up to them about it. Share how it happened, what it means and how they can avoid the same issue. The more you talk honestly about it, the more likely they will be to avoid these situations themselves.
#12 Celebrate wins.
It is important for kids to feel excited about financial matters. My wife and I paid off our mortgage this year. We included our kids in this celebration. In doing so, we were able to talk them through what a mortgage is, how a house is often the highest monthly expense for a family and how it is possible to achieve financial goals. At the same time, we helped them understand other household expenses that still remain, such as property tax and insurance.
Teach your kids about money by talking early and often
No matter where you are in your own personal financial journey, whether you are financially independent already or personally struggling every month, it is important to include your kids and teach your kids about money so that their relationship with money is healthy, starting in their formative years. By taking this on and being consistent, you can have a positive impact whether it is with your own kids or kids who are close to you. Starting early is good for their wealth and will pay dividends in the future.
Until next time friends.