In honor of a very important day today, we wish all you moms a happy Mother’s Day! We hope you feel truly honored and loved today and always.
It is hard to fathom how much of who we are comes from the example, love, and instruction of our mothers. In light of our Mother’s Day celebration today and knowing the influence moms have, we wanted to pass along ten tips on teaching kids about personal finance. As a mother of four myself, it is a topic near and dear to my heart.
For All Ages
1. Be a good example. Perhaps you have heard the expression, “More is caught than taught.” The biggest way you can teach your kids about money is to be a good example. What do your spending habits look like to your kids? Do they hear you and your spouse arguing about money? Do they see you grabbing your credit card for impulse purchases? Or do they hear you talk about things you are saving for so you don’t need to go into debt? Do they observe that you practice “delayed gratification” by waiting for a dream vacation until you can save for it?
For Young Children
2. Give your young kids opportunities to work for money. Find something – anything - they can do to earn money. Start Early! Even as little children make sure they earn their money; do not just give them an allowance for their mere existence. Even though our kids did not earn money for routine daily chores, we could always find what we considered extra jobs for them like raking leaves, washing the car, pulling weeds, etc. Work creates ownership. Ownership is value. By working for money, kids understand that the new toy they want may equate to two hours of raking, for example. This is how kids learn the value of money (as well as how to work).
3. Let them see what they are saving and spending. We had a clear plastic “bank” when they were little where they could see their collection of money they earned or received as gifts. They could see their cash collection increase as they worked and decrease as they spent. We especially loved one that had three compartments: for spending, saving, and giving. The three-compartment bank (or even simply three jars) is designed to help kids learn these very important concepts of saving and giving in addition to spending.
4. Teach your kids about opportunity costs – how buying one thing prevents you from buying another. And do not be afraid to let them experience it. Sometimes we learn more from our failures more than our successes.
For Upper Elementary and Middle-School Age
5. Have your kids pay for their own special larger purchases. As your kids get bigger so do their “wants.” Thankfully, they also grow in their ability to do work. I found one of the best ways to help my children learn the value of money was simply to not to pay for everything they wanted. This can be harder than it sounds because we love to give to our children. When my eight year old said she wanted to make a special trip to visit her grandparents in Wisconsin, we happily said, “Okay, then you will need to save your money.” She was naturally more of a worker and asked how she could earn money. She began washing cars, and much to our surprise a few months later, right around her ninth birthday she had earned enough money to buy an airplane ticket. She was motivated to work because she really wanted to buy an airplane ticket. But shhh, don’t tell her, she’s a young adult and still doesn’t know, we actually kept all that money in her savings account. 😉 I have another daughter is who a more reluctant worker to put it mildly. But she wanted to go to a particular camp when she was in 7th grade. We gave her the same response, “Okay, then you will need to save your money.” Since she really wanted to go to camp and was highly motivated, she did odd jobs here and there so she could earn enough money to go. Had we just offered to pay for camp, she would not have learned how to work and earn money.
Observe those spending desires that motivate your kids and give them opportunities to earn money to pay for it. Believe it or not, my now adult kids are grateful for having to work to earn a lot of their spending money growing up.
6. Consider creating a family saving goal. Arrange a family meeting and come up with a fun family outing or excursion that you would not normally do, perhaps a day at Disneyland, and figure out creative ways you can save money to make that happen. You could, for example, keep a glass jar and collect recycling money. It is amazing how many cans and bottles you can collect after a soccer game. It is a great way to work together to save and teach your children that you can first save and then spend without putting it on a credit card.
For High School Students
7. Teach them to budget. Once they have the ability to earn money outside the chores or odd jobs you can give them as parents – perhaps babysitting, mowing lawns, or working part time at McDonald’s - help them set up a simple budget. A budget is simply deciding in advance what you want your money to do for you. Have them consider what long term savings goals they have like perhaps a car or college, and what immediate spending needs or desires they have. Most importantly, have them monitor their budget – are they spending and saving in accordance with their budget? Additionally, if you have been teaching all along the importance of giving, have them decide how much they will give of what they earn. It is such a delight for them to be able to give to those causes that tug on their hearts. One of my daughters loved to give to the homeless she happened upon. Another liked the idea of giving chickens to poor villagers in developing countries for eggs for the family.
8. Help your teens open a checking and savings account. While they are still at home, you can help them learn to manage their checking and savings accounts, use the bank apps, avoid overdrafts, stick to their budget decisions, etc. It is also a great time for them to learn to use budget apps like Mint or any number of other budget apps.
9. Teach your teens about the danger of credit cards. Talk to them about “delayed gratification” and waiting until they have saved the money for a desired purchase. If they put that expensive prom dress on a credit card, they will be paying for it long after the memory of prom has faded. Show them how high the cost of borrowing on a credit card is. I recently had a friend tell proudly how well she does with her credit cards. Afterall, she got one that only charges 12%, and she pays a mere few hundred dollars in interest in a year. But I asked her, “Wouldn’t you rather use that few hundred dollars for something like a fun get away with your husband?” Afterall, aren’t there always any number of spending choices you would rather make than paying credit card interest?
10. Teach them about investing and the power of compounding interest. I have taught personal finance to high school students in the past, and one of my favorite charts to show them is a chart Dave Ramsey created to show the significant difference one can make by saving for retirement at a young age. You can see it below and find the article at https://www.daveramsey.com/blog/how-teens-can-become-millionaires/ While I wouldn’t agree with his consistently high returns, the point comes across loud and clear that your money grows over time, and the younger you start, the better – by potentially hundreds of thousands of dollars!
Teaching kids about money is work. But the rewards to your children are worth the investment of time. Besides, it will keep you from having to support them long after you should! 😉
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