Tips for Teaching Kids About Money
As a single parent, I know the meaning of the words, “scraping by.” Raising two children on one income is not for the faint of heart. It requires creativity, self-discipline and a healthy sense of humor. And on top of all that, it’s also my job to pass on everything I learn to my kids. As parents, we have to give our children the tools they need to make smart financial decisions. You know, so they aren’t living with us for the rest of their lives!
To Spend or Not to Spend
Some people are spenders, others are penny pinchers. I have a representative from each camp. My firstborn loves stuff. He always has. He’s mentally spending his money before it’s even in his pocket. My daughter, on the other hand, will rub a nickel until it turns into a dime. I have a video from a Christmas morning when he was 7 and she was 4. My son is running from item to item, mentally checking it off his list. He suddenly stops in the middle of a mountain of toys, looks at me and says, “Where’s my Spiderman shirt? I asked for a Spiderman shirt.” Meanwhile, my daughter is in the corner of the frame happily playing with an empty box. When she was around 10 years old, I watched her eyes brim with tears as she unclenched her fist and handed over some cash to purchase an outfit she wanted. I was almost certain she would snatch her bills back and scrap the whole transaction!
I had my work cut out for me. One needed to learn that eating out of a dumpster is not an adventure he wants to go on, and the other needed to learn that it’s okay to enjoy the fruits of your hard work, within reason. Fortunately, these money lessons work for both.
Learning to Love Money Through the Ages
Money is a complicated subject. I’m all about teaching kids the value of money early on, not waiting until they have their first real job or go off to college. I think that’s far too late for them to genuinely appreciate and absorb the information they are going to need to go out into the world and manage themselves successfully. This is an education best given over time and in small doses. Fortunately, even very young children can begin to learn about the value of money and financial responsibility.
Teaching 3 to 5-Year-Olds About Money
Make it a point to carry cash. We have become a society who lives by the card. Always paying for goods and services with a card allows us to detach ourselves from the actual handing over of our money. Remember the story about my tearful daughter turning over her wad of bills? She had to SEE her money going bye-bye. It makes a difference. It’s important for kids to see money and witness the exchange from an early age. They need to know it’s not as simple as handing over a piece of plastic.
A fun way to encourage awareness is to save empty boxes for various products in your home and allow them to play “store.” With some play money and a few plastic shelves in a playroom (and supervision, if they’re younger), you can have them shopping, learning about making purchases and developing a greater appreciation for why mom has to say no sometimes.
Teaching 6 to 10-Year-Olds About Money
This is a great age to introduce personal responsibility through assigned chores and an allowance. It’s crucial though that you actually PAY the allowance when the kids have held up their end of the deal. Children at this age are more than ready to learn how to make responsible choices regarding spending their money. One technique I used was to tell my children how many hours I had to work to purchase an item they were longing for, rather than what the price tag read. With me being a single working mother, we didn’t always get a lot of quality time together. The knowledge that I had to spend 3 hours at work to afford a pair of expensive basketball shoes gave them a very real illustration of opportunity cost.
Try setting up three containers that can act as banks. One labeled “spending,” one “saving” and one “giving.” Discuss how to divide the money between the three banks and why you’ve elected those percentages. Introduce the concept of delayed gratification by having them identify an item they want that requires them to save money over a period of time. Don’t be surprised if by the time they reach their goal, they’ve decided they want to maintain their savings more than they want the item! Also, have them research reputable charities or local organizations in need. Choosing a cause that means something to them personally will make donating that much sweeter.
Teaching 11 to 13-Year-Olds About Money
By the time kids are between the ages of 11 and 13, they’re able to understand setting long-term goals and the value of compound interest. This is a great time to introduce them to the wonders of investing and the stock market.
Encourage your kids to research and select stocks that they want to “purchase.” Have them create graphs that track how investments can increase and decrease over time. Show them how to use a compound interest calculator; being able to see how your money grows is a great incentive. Also, dust off that old Monopoly board. This is a perfect game for having fun with money and learning simultaneously. And let’s face it, there’s a certain satisfaction in making your sibling pay rent on Park Place.
Teaching 14 to 18-Year-Olds About Money
At this point, your child is probably earning some money outside of home. Whether they’re babysitting, doing yard work for neighbors, or being formally employed at a retail store or restaurant, they’re most likely managing their money with some independence. They should absolutely have savings and checking accounts that you can help them reconcile each month. This is a good time for them to start practicing what you’ve preached while still having you around to act as an advisor. Focus on encouraging them to save more heavily as they began thinking about pursuing a college degree or the possibility of starting a business.
Research credit cards with them and show them how loans work. Discuss the need to establish credit with them. It is crucial that they understand how heavily their credit score will impact every major decision they make in their lives. Explain the importance of maintaining a favorable debt to income ratio and how they can be late to a party, but NOT late paying their bills. Illustrate how they are laying the foundation for the security of their financial future. Be honest with them about money mistakes you’ve made in your life and tell them how to avoid those.
Now That the Investment Has Been Made…
We may share every scrap of knowledge we have and tell our kids all about that guy we knew in college that spent his entire financial aid check in the first month of school, or the elderly man down the street who lived a miserable life all alone and died leaving 8 million dollars to a cat, only to find that they’re still spending $350 on an outfit, or squirreling away every penny and never taking a reasonable vacation. Our money habits are driven by a combination of psychology, our experiences growing up, and our education. While we can’t control that psychological component, we can make every effort to give them good experiences and a proper education. Believe me, we want to pull out every stop. After all, they’re going to be the ones looking after us when we’re old!