Financial Habits Are Learned by Age 7. Here Are 4 Ways to Give Your Kids a Head Start
Your second grader probably isn’t discussing the Fed’s next rate hike. But according to PBS.org, their money habits are set by age seven. Here are four ways you can pique the interest of money management into children.
1. There’s an app for that
Added screen time might not excite most parents, but using that time to build a child’s money mindset should.
With allowance transfers and debit cards, children can learn the value of earning cash and the importance of spending wisely, without facing overdraft fees and other penalties. The best part is that parents have full control over their child’s experience by limiting purchasing categories and reviewing every transaction.
2. Open a custodial Roth IRA
When your child begins receiving earned income, opening an IRA for them is a great learning opportunity. By having an account in their name and funded by their hard work, children will have a sense of ownership as they take an early step toward a secure retirement.
And don’t forget the investments. Encourage your child to research investments and watch them grow to make a lifelong investor. Just remember to diversify their holdings: nothing is more discouraging than watching hard-earned money disappear!
3. Make them your financial copilot
Investing your retirement account? Show them what you’re doing. Running to the bank? Introduce them to the teller. Meeting with a financial advisor? Take them with you; they might even get a sucker. When it comes to a financial education, make it experiential.
A 2018 study found that family communication patterns greatly improve financial knowledge among college students. By opening up about your financial picture to your children, they have added experience when it comes to their own financial future. Learning the abstract is important, but hands-on experience is the best way to foster their interest.
4. Learning in the classroom (yeah, really)
Financial literacy classes in public schools still have a long way to go, but some non-profit organizations are filling the gap. Junior Achievement and the Jumpstart Coalition are two such groups bringing personal finances to the classroom.
As a parent, you have a lot of influence over what is taught in your child’s classroom. Why not check to see if these or other personal finance programs are offered by your child’s school. If they aren’t, have a conversation with the administration to see how that can be changed. If they are, get involved. Volunteers are always encouraged. When it comes to financial literacy, every parent should be an advocate.
How To Teach Teens About Money: Financial Lessons They Won’t Learn In School
Not surprisingly, there is a massive lack of financial education for kids. While schools should teach this important concept, a lot don’t. So, many of the lessons are either learned from parents or from the school of hard knocks.
April is Financial Literacy Month. The ability to understand and earn money, save, budget and use their finances wisely is so important to our happiness in life. And after high school, when your teen enters the “adult world”, these financial skills become even more important.
How can you help your teen prepare for a financially successful future? Start with these five lessons.
It’s All About the Budget
THE LESSON:
Many teens are likely to spend their allowance or part-time paycheck right away. If this behavior isn’t nipped in the bud, it could instill a bad habit of blowing through their full-time paycheck when they enter the adult world. It’s important to help them understand needs vs. wants and how to plan for what they truly have to spend if they want to live a financially stress-free lifestyle.
One of our favorite budgeting methods is the 50-30-20 rule, and we even have a tutorial to help guide teens and parents through it. Showing teens to prepare a basic budget like this is a key step toward sustaining financial independence.
THE ACTION:
Help your teen develop a budget that clearly shows spending vs. saving. And, when they become of legal age, they can transfer those savings to high-yield savings accounts where their hard-earned cash can work for them by earning interest.
Understanding where their money is going is a big part of money management skills, so encourage them to keep track of where they spend their money by using an app.
They’re Both Plastic, But Credit And Debit Cards Aren’t the Same
THE LESSON:
A debit card and credit card may look the same, but teens need to understand how they differ. Explain to them that credit cards are a great tool when used correctly. If not, a credit card can hurt them in the long run if they run a balance higher than they can pay off.
THE ACTION:
Prepare them for their own credit card by letting them borrow money—plus interest—from the “Bank of Mom & Dad”. Don’t have enough cash for those new wireless earbuds? Put them on a payment plan, and if they don’t make payments, ask them to temporarily return the item to you. Help your teen understand that credit extends beyond purchases, and establishing good credit—making on-time payments and maintaining low balances—can help them buy a home or car in the future.
Educate Them On The Cost Of College
THE LESSON:
After graduation, college or trade school is right around the corner—along with all of the expenses associated with that next phase of their educational journey. Tuition. Textbooks. Heck, maybe even their first apartment or dorm. If you’re not planning to fund all of their college lifestyle, it’s time to initiate discussions so your kids know how to plan and save accordingly.
THE ACTION:
Help your kids to understand the cost of college by working with them to tally up all the expenses that might be headed their way. Start a conversation about the differences in costs between attending a university versus community college, in-state, and out-of-state tuition costs, and how your kids’ future earning potential will impact their ability to repay any foreseen student debt.
Discuss the amount, if any, you are willing or able to pay. If you’re not covering the full bill, discuss ways your kids can cover their educational costs by working, saving, applying for scholarships, and exploring cheaper college options.
THE TOP 10 PRODUCTS KIDS SHOULD BE SPENDING THEIR ALLOWANCE ON
One of the best parts about being a kid (besides the whole not having to pay bills things) was getting an allowance. And while kids these days are still earning cash for chores, what they’re spending it on is much different than what it was 20-some years ago.
Here are the top 5 things that kids are saving up for, and meanwhile you can focus on teaching financial education to kids.
A new phone
Yes, every kid wants an iPhone but no, not every kid needs—or is ready—for one. Our parenting editor, Anna Lane, says her child’s school has a “wait until 8th” policy and that “anything that costs a lot of money is a good thing for kids to save up for, because they learn a.) how expensive “stuff” is and b.) delayed gratification.”
Once you do allow your child to have their own phone, make sure you set the proper parental controls to keep them safe.
LEGO sets
I’m not a parent but even I know the excruciating pain that is stepping on a Lego barefoot. While rogue blocks are a nuisance, Legos themselves can actually be fun and educational.
A Nintendo Switch
People are obsessed with the Nintendo Switch (it’s the fastest selling game console in the U.S.)—and for good reason. Not only can your whole family use it at home, but it’s also the perfect size for your child to take on the go. Just make sure you protect it with one of these Switch cases first!
Dolls and other figurines
While you probably think your child has enough toys already, their allowance is great for those things that they really want but that you refuse to buy, like Hatchimals, which Lane’s kids love, or the cult-favorite LOL Dolls. Our Exec Editor, TJ Donegan also says that by making your child use their own money, you’re teaching them how to save and budget.
“You can even set them up with their own savings account at a local bank or credit union,” he says. “If your kid is old enough to handle their own money, they’re old enough to learn how to manage it wisely.”
Books and magazines
For the kids who love to read, their choice in books and magazines will come down to personal preference. For Lane’s family, however, she says they love the Harry Potter books (who doesn’t?!) and Ranger Rick and Ladybug magazines. And if your child isn’t a reader—but you want them to be? These must-have audiobooks could be a good starting point.
Saving has a rather ironic purpose: Your kids do it so that, at some point, they can spend. This activity has some big benefits, not only for your children’s money-education but also for their personal and social awareness.
1) To confirm that money has a value
On the most basic level, the value of money comes from the ability to trade it for something else. Your kids, for instance, can give it to a cashier in exchange for, say, some jeans, a comic book, or a snack.
In this sense, it is connected directly to the old system of bartering, which allowed people to swap goods they acknowledged as having a relative value—people adopted coins and bills simply because they standardized the currency used, and because they were more convenient to carry.
A reasonable amount of responsible spending lets your kids understand exactly what the current trading value of money is, which helps them plan financially and grasp why tracking the money they have is worth taking seriously.
2) To be part of the economic system
When your kids spend money, they support the economy, regardless of what good or service they purchase. This plays a big part in keeping communities stable. As you let your kids buy stuff, you have a great opportunity to discuss this relationship and make the connection between their spending and social responsibility.
Be sure they understand that they can have an effect on communities around the world based on direct and indirect global ties, particularly as the Internet allows them to work with vendors from virtually any geographic region.
3) To carry a goal through to completion
When kids are younger, they’re still developing their ability to think abstractly and rationally. That ability comes as their brains grow and they go through new experiences.
Impulse control, therefore, is a huge issue, with kids usually wanting to spend in the moment. Although a little splurge now and then is fine, it’s important to teach your kids to be more future-oriented with their cash so they get used to planning and budgeting.
Have them set goals for specific things they want to buy and then help them track their savings progress. When they have enough money to get what they set out to buy, make a big deal out of the fact they followed through—resisting temptation is tough!
4) To get used to having regular expenditures
Much of the time, mommy and daddy make what kids need appear, covering financial responsibilities.
As a result, a lot of kids simply assume that their parents will keep picking up the tab for whatever they need or want, which makes it very difficult for them to understand why they need to practice some restraint and frugality with money.
If they have to spend a little of what they have, they get a better sense of how to prioritize goods and services, and they have a more realistic concept about getting stuff for free.
5) To set themselves up for financial security later
Talk to most financial gurus these days and they’ll tell you that, given typical incomes, working just isn’t enough if you want to be rich (or at least, inarguably financially secure). You have to let your money work for you through investments, too.
Options like buying stocks or bonds or setting money aside in a government-backed college plan might decrease the amount of cash your kids have immediately available, but in the long term, they can provide a good return that lets your kids do more.
If your kids choose to spend their money this way, just make sure that they’ve at least outlined some broad goals. They might not know where they want to go to college, for example, but they can at least acknowledge that they want to enroll and that the money they’ll gain through investing is meant for that.
Kids are more likely to stick with a saving or investment plan if they have a clear objective for what to do with the cash.
Conclusion
Money is not meant to be hoarded. It’s meant to be spent, albeit with good planning. As you get your kids on a solid savings track, don’t forget to let them see this second side of the financial coin, be clear on how to teach kids about money.
While it’s never too late to learn, the earlier you learn financial literacy, the greater the long-term impact. That’s why we’ve compiled money methods to teach financial education to kids at every age.
Toddlers
Kids start learning the moment they are born. Initially, this learning is imitation based, like following a parent’s lead to smile, track objects, and say their first words. Whether you know it or not, they are learning and picking up your habits.
Start early by setting a good example for them to follow later. The habits they’ll pick up include developing a budget at the grocery store, paying bills on time, and resisting impulse buys. When you discuss your decision-making with your toddler, they’ll learn how to make better decisions on what to (or not to) buy.
Preschoolers and Kindergartners
While kids at this age may not understand the value of money, they should understand the need to pay for merchandise. Kids learn from shared experiences, so include them in the grocery trip to help them understand this process. To make it more tangible, leave the credit cards at home and use cold hard cash.
By 7 years old, we develop basic financial behaviors, according to a University of Cambridge report. Before you panic and think your kids are already behind, they’ve probably addressed the basics: counting and exchange.
Counting This starts with simply counting objects, but should grow to include counting coins and dollars. Show kids the different kinds of coins and bills, allowing them to recognize the differences, group them, and then count that specific set.
Exchange One of the hardest lessons to learn at this age is that something must be given up to make a purchase. Money can only be spent once. To teach this, give a child one dollar to spend in the store and focus on choosing an item they really want. The child must hand over that dollar to purchase the item and experience the exchange of goods.
First to Fifth Grade
With a basic understanding of the purchasing power of money, your grade-schooler probably now wants more. It’s time to explain how to earn money, save it, and what opportunity costs are.
Earning money Unfortunately, your mother was right and money does not grow on trees. It is earned, and for kids at this age, it should be earned with chores. Rather than an allowance, reward work with personal funds. This teaches the ultimate lesson in finance: it takes work to earn money.
Kids who earn their allowance are in the majority. A Junior Achievement USA survey found 82% of the children earned an allowance for doing chores, getting good grades, doing homework and simply being kind to others at school and at home.
Saving It’s time for a piggy bank or maybe a mason jar, instead. A clear mason jar allows a child to see the money grow over time. It helps reinforce the benefits of saving. It’s also important to introduce children to the benefits of banks. Take them to the bank with you to deposit money, explaining the benefits of saving money there versus at home. Most banks and credit unions offer savings accounts for children — and many pay interest on deposits.
It’s also important to explain why you save: short-term needs, long-term goals and establishing an emergency fund. Provide scenarios to explain how you save and why. Honesty will help them learn and appreciate real-world finances.
Opportunity cost A fifth-grader should be able to understand opportunity cost, even if you don’t use that term. Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. You can help your child understand impulse buying versus long-term goals. It’s a constant battle that we begin learning at this stage. Explain the difference between needs and wants, and how to prioritize them. We all have impulse buys, but we must learn to recognize them and limit them.
Sixth to Eighth Grade
At this stage, you’ve established a lot of great money principles for your middle-schooler. The next stages focus on expanding on those basics concepts with income, budgeting and contentment.
Income What do you want to be when you grow up? The question at younger ages elicits a cute response. By middle school, though, it’s a real conversation about the need to find a career that will support you for a lifetime. Explore different job options and discuss both their responsibilities and their paycheck. This is also a good opportunity to explain why your salary isn’t how much you take home. Explain taxes, Social Security, insurance premiums, and other deductions from your paycheck.
Budgeting While your child doesn’t need a personal budget right now, it’s a good idea to learn how to set one. Include them in your budgeting, asking for input on financial decisions like meal planning for the grocery budget.
Contentment and giving “Mark got a new iPhone. I need one too!” It’s easy to compare ourselves to others, and for pre-teens and teenagers, the pressure is even greater. Kids at this age need to learn contentment — being satisfied with what they have rather than trying to keep up with the Joneses. Even better, they need to learn to appreciate what they do have. If they don’t already, kids should understand the benefits of giving back and donating to charity. Volunteering or donating items is a good lesson for all of us.
Looking to check your child’s financial literacy progress? Jump start Coalition created national standards for educators to set financial literacy goals. It’s a good goal for parents too. The benchmarks by eighth grade include:
Set spending priorities to reflect goals and values.
Discuss the components of a personal spending plan, including income, planned savings, and expenses.
Compare saving strategies, including “Pay Yourself First” and comparison shopping.
Illustrate how inflation and interest can affect spending power over time.
Justify the value of an emergency fund.
High-Schoolers
Teenagers are looking for and need new levels of independence. It’s not long before they are off on their own. Many of the lessons at this stage are firsthand experiences with a checking account and budgeting for college.
Personal accounts: While your teen may not use the traditional check register you learned with, every teen needs to know how to balance a checking account. Personal checking and savings accounts do not establish credit, but they do show an ability to handle your finances. While a checking account is all a teenager technically needs, it’s a good idea to open a savings account as well (if you haven’t done so already) so they can include deposits to both accounts in their budget and see firsthand the impact of compound interest.
Credit cards: Our society relies heavily on credit cards, which can have their benefits. However, they may also include high fees and interest charges, even more so for those with limited or no credit history. Teenagers must learn the dangers of credit cards and how to use them wisely. Teach them to pay off the balance and avoid buying things they can’t pay off each month. A good way to explain interest charges is to look at the interest a bank pays you on a savings account versus what a credit card charges you to use their money. Investigate student credit cards together to learn which one is the right one for your teen.
Paying for college: The cost of college is skyrocketing, and so is student debt. As you and your teenager prepare for the next step, compare the costs together, and discuss how you’re going to pay for college. Not every high schooler needs to go to college, and some schools are much more expensive than others. Along with college options, research available scholarships and loans. The decisions you make now will influence the rest of your life.
Many people learn about money from their parents. In fact, most young adults say they look to their parents to teach and guide them in money management (Charles Schwab 2009 Young Adults & Money Survey Findings). Good money skills are the best way to build wealth.
As parents, we can help our children learn how to build wealth.
Whether a child is two or twenty-two, we can help them learn about money.
Preschoolers can learn to count and learn about coins.
Elementary-age children can start to learn about banking, credit, and planning ahead.
Older children may be interested in learning about income and career options.
Your young-adult child may need to know about auto loans or retirement accounts.
One of the most important things we can do is to talk to children about money.
If it doesn’t come up in conversation naturally, make an effort to bring it up. Children’s understanding of money varies by age level. Preschoolers watch as we drive through at the bank, make decisions at the store, and pay at the register. Seize the moment to talk about what you’re doing.
Teach them to count – it’s the basis of all financial exchange.
Have age-appropriate conversations with older kids.
Talk about how your family earns income.
Discuss your household budget.
Be calm and positive. Money can be a highly charged emotional topic for adults.
Three ways to start the money discussion
Here are topics to discuss around the dinner table:
“If you found $100 what would you do with it?”
“What are two inexpensive things our family can do for fun?”
“If you could start your own business, what would you like to do?”
Help your kids make solid consumer decisions
Kids are at risk of believing commercials and ads and may not have the ability to make sound decisions without a parent’s guidance. Consumer decisions may be small, like picking a breakfast cereal; or large, like choosing a career. Consumers, beginning at a young age, need to become aware of outside influences.
Teach your child to think before buying.
Preschoolers will respond to ads even though they can’t understand how they work.
Elementary-age children can begin to understand that ads try to persuade people.
Teens and young adults are potential victims of hard-pressure sales tactics.
Help them to be critical of advertisements and sales pitches.
Guide them in learning to make decisions based on facts.
Preschoolers see that money is exchanged for goods and services.
Young children learn through play. Your preschool or early-elementary child might enjoy setting up a pretend store.
Take turns being the customer or salesperson. Use play money. Help your preschooler learn to make decisions by letting her choose from two options. Make sure both options are acceptable to you. For example, you might ask “Do you want toast or cereal for breakfast?”
Elementary-age children can plan ahead for spending and saving. Teens can gather product information and comparison shop to find the best buy. Young adults may need you to point them in the right direction for finding the answers to complex financial decisions.
Begin early on to talk about needs versus wants.
The sooner children learn this lesson, the better. Needs are things that are critical to survival, such as food, shelter, and clothing. Wants are not necessary for health or safety. They may add fun to life but they are limitless.
Unlimited wants can lead to overspending. A solid spending plan covers the family’s needs before putting money toward things family members want.
How allowances help kids learn about money
Providing an allowance is a good way to help children learn the basic concepts of budgeting, saving, and goal setting. An allowance is a specific amount of money given at a regular time.
For example, you might give your 12-year-old son $5.00 every week. Individuals have differing views about allowance. Some people think it’s a great idea and some are against it. Allowance can be a great teaching tool when it’s done right.
Here are a few do’s and don’ts for allowance.
Do: Give a specific amount at a regular time.
This can be weekly or monthly. The amount depends on your child’s age, your income level, and the types of things you expect your child to pay for. Will the money be pocket change? Will your teen be paying for entertainment, gasoline, and clothing? Provide guidance but also let the child have some freedom to make decisions.
Don’t: Allowance shouldn’t be used as payment, reward, or punishment.
Using allowance for reward or punishment gives the idea that everyone and everything has a price. All family members should have regular household chores that aren’t tied to payment.
“Spend, Save, and Share” is an easy way to teach basic money management.
Spend no more than 80% of your income.
Save at least 10% of your income.
Share at least 10% of your income.
Your child can spend less than 80% if he wants to share or save more. Sharing can be gifts or donations to charity. Guide your child to plan ahead for spending and to set goals for saving. Focus on teaching money management to children and put them on the path to success.
The early experiences children have with money can shape their financial behavior as adults, according to a study published by the UK government’s MoneyHelper service.
By the age of seven, the University of Cambridge study found, most children are capable of grasping the value of money, delaying gratification and understanding that some choices are irreversible or will cause them problems in the future.
The research suggests children who are allowed to make age-appropriate financial decisions and experience spending or saving dilemmas can form positive “habits of the mind” when it comes to money.
This could lead to a lifelong improvement in their ability to plan ahead and be reflective in their thinking about money, or they may learn how to regulate their impulses and emotions in a way that promotes positive financial behaviour later in life.
Make it fun
There are lots of free resources you can use to teach financial education to kids at home. If you prefer board games, Money Match Cafe or Pop to the Shops by Orchard Toys are educational and imaginative, while Cheeky Monkeys subtly provides useful financial lessons about the consequences of avarice and risk-taking.
Finally, do not underestimate the value of playing games such as “going to the shops” at home with real coins. Be sure to set a budget.
Discuss the purpose of money
Collier suggests taking photos of different items in your home that can then be classified into necessities and luxuries, triggering a discussion about what money is for.
You could use these activities as a springboard for discussions about how adults need to prioritise what they spend money on and how difficult that can be if you feel tempted to buy something you cannot afford.
The charity Child Poverty Action Group suggests you ask your child to imagine a child the same age as them, and talk to them about what that child might miss out on if their family doesn’t have money. Its spokesperson Kate Anstey says: “Speaking to children about poverty can help to raise awareness and understanding of poverty and inequality.
It might seem like a difficult topic to broach but teachers who talk about poverty in their classrooms find that children actually cope with it very well.”
Go to the shops
One of the best places to teach children about money is a shop. “Being able to handle money and buy something yourself is very special: it builds up your confidence with money.
If you pay with a contactless card, explain how it works – that although you are not using coins, the money is still coming out of your bank account – and discuss the groceries you buy. Why might you choose to spend more on Fairtrade chocolate or free-range eggs?
Are the more expensive products always better quality? Ask them whether they would like to do a blind taste test at home to check whether they can tell the difference between different-priced brands. Is it worth the difference in price?
Be on the alert for BOGOFs (buy one, get one free offers) and complicated discounts. Teach children how to compare different deals. “It’s absolutely essential that we teach children about money in context,” says Lord, a former maths teacher. “Encouraging children to work out the cost of shopping and comparing offers so they understand the value of goods is an essential life skill.”
Helping your children to master estimating is also very important, she says. “It helps children to develop a real feel for numbers so that they can easily spot when they’re being overcharged and avoid making costly mistakes.”
Make your child’s investments meaningful to them
Open a Junior Isa for your child and buy a few shares in a supermarket or restaurant chain you visit regularly with them, suggests John Lee, the author of Yummi Yoghurt, a book about investing aimed at teenagers.
That way, when you go there, you can explain to your child that you both have a “vested interest” in supporting that business and will hopefully one day get a reward, in the form of a dividend, if the business does well.
You could also talk to them about how you choose other funds for their ISAs and the impact you hope those investments might have on society or the environment. “The important thing is to involve your child and give them an awareness of the companies that you’re buying shares in,” Lee says.
Take them to a charity shop
Charity shops are particularly good places to take a small child to spend their weekly pocket money. They often find a bargain and you can use the opportunity to discuss the power of their pound: how does it make them feel, knowing they are supporting a good cause as well as getting something for themselves?
Point out the positive impact on the environment of buying secondhand and, when you get home, look up how much the item would have cost new and talk to them about how many more weeks it would have taken to save up for it.
Whether you’re teaching money management to children, or those of a loved one, it’s absolutely essential to teach children how to handle the money they have and invest for the future.
Spending
An understanding of spending, including the ability to budget for and track it, is perhaps the most essential money skill you can teach to a child. Children need to recognize that purchases cost money and that money is in limited supply—they can’t just buy everything they want.
They must plan ahead so that they can afford everything they need, and this is why a budget is a necessity. It’s important to acknowledge that budgeting always involves making adjustments. They shouldn’t expect to get it right the first time.
Spending Activities
Spending Simulation: For younger kids, you can simulate the experience of spending to teach them about tradeoffs. Give your child some money (maybe $5) and set up a small, at-home store. The store could include one item that will cost the whole $5, a few between $2 and $3, and multiple small things for $1 or less.
These items can be small toys, treats, or even “coupons” for extra time playing games or a movie night. The point isn’t what they’re buying, but that the child recognizes that they can’t get everything—they’ll have to prioritize what they want most. Repeat the store every so often, perhaps with money they earn instead, to see how their understanding grows.
Expense Tracking: For older kids, help them track all of their spending for a week or month. They can do it on a piece of paper, a spreadsheet, or even an app. At the end of the tracking period, have them evaluate all of their choices.
Did they spend more than they expected? Less? What would they like to change? Help them create a target for the next period and suggest ways they can improve. Repeat the process to see what changes. You may even offer a reward if your child is able to meet a goal you agree on.
Saving
It’s important for children to understand that saving is the secret to getting what they want. In order to do that, they need to recognize the difference between dumping money into an abstract savings fund and saving with a purpose. When it comes to the actual act of saving, teach that creating (and sticking to) goals is key.
They may choose to save a regular percentage of their income or a certain amount each month. As an incentive to focus on saving, consider making a matching contribution by adding 50 cents for every dollar your child saves.
Saving Activities
Create a Savings Goal: Help your child set a saving goal. Children’s goals vary a ton based on their age, but might include toys, sports equipment, electronic devices, special clothes, or other big-ticket items. Let them discover for themselves that not all goals are worth the time and effort it takes to reach them.
Once they’ve set a goal, create a clear way for them to track their progress. The more visible, the better. For example, a jar in the living room or a paper chain that you cut pieces off of for each milestone. This will remind them of their goal and give you both the chance to celebrate progress.
Open a Savings Account: Take a trip to your bank or credit union and help your child open their first savings account. You can even ask an expert at the financial institution to explain how interest works and why it’s wise to store your money in an account. Encourage your child to ask other questions about how financial institutions work.
You may even choose to contribute a little to help get their fund started. But remember, the child needs to learn how important it is to regularly add money to the account. Interest won’t be enough on its own to reach their goals.
Investing
Investing is a powerful financial tool that everyone should understand. The sooner you start teaching your kids the basics, the better! Help your children understand that the goal is to buy when things are inexpensive and sell when they’re worth more. Investing is often done by buying stocks (very small parts of a company).
The stocks are worth more when the company is doing well and less when the company is struggling. Since you own part of the company, you may also get payments when that company earns a lot of money. As the child gets older, you can touch on more complex aspects of investing.
Investing Activities
Track the Stock Market: Have your child pick a few brands that they like such as their favorite cereal, sports equipment, soft drink, or gaming company. Once they’ve picked two or three, go to the company websites or a general financial site and show them how to track the stocks.
You can also point out news articles about the company and have them predict how that will affect their stocks. For example, if a sports drink company decides to stop producing a popular flavor, you can discuss how that may lead to a drop in their stocks. Track how the stocks change to see if your child’s guesses were right or wrong.
Start Investing: Get your child actively involved in investing by “selling” some of your shares to them. For example, if you’re planning to buy 200 shares of a particular company and you have two children, buy 202.
Sell the extra shares to each child either at the price you paid or a discounted price if it’s too high. You can keep track of the children’s shares in a separate register so they can follow what happens and earn some money if the stocks do well. (Be willing to buy the shares back if they prove disappointing.)
Keep Teaching
These topics and activities are meant to help your child form a foundation of financial literacy. Once your child begins to master these topics, expand to others. You could teach about the 3 jar method, the 50/30/20 rule, and more! What’s most important is that you keep an open conversation with your child about money and the importance of managing it carefully.
In a world bent on enticing kids with the trendiest fashions, newest gadgets, and tastiest treats, how can moms and dads work on teaching kids about money? How can they equip their children to survive financially? Those are good questions.
Especially in view of the fact that most family calendars don’t leave room for detailed discussions of money management. “Ain’t nobody got time for that!” Right?
Not necessarily. As a matter of fact, if you take your role as a parent seriously, you’ve probably already sensed that raising money-smart kids is important.
More than that, you probably know that somehow or other, you’ve got to find or make the time to broach this subject with them before they’re old enough to launch out on their own.
We’re here to tell you that teaching kids about money can be easier – and a lot more fun – than you think.
Foundation: Biblical Perspectives and Principles
We have several activities to suggest that should make teaching kids about money a process as smooth and enjoyable as possible. We’ll provide fun things you and your kids can do together to help the whole family gain a firmer handle on the mechanics of money management.
Teaching Kids About Money: A Solid Conceptual Foundation
But before getting down to nuts and bolts, we need to begin by laying a solid conceptual foundation for the project. The Scripture says, “As a man thinks in his heart, so is he.” In no area is this quite so obvious as in the way we approach our finances.
Application: Putting Beliefs and Ideals to Work
The next seven things you’ll want to know regarding teaching kids about money are more “hands-on” in nature. These are habits to ingrain and cultivate in your child’s daily behavior rather than ideas to instill in his or her mind. Here they are, along with our suggestions for some fun and simple ways to put them into practice.
1. Tithing and Giving
The Importance of Tithing and Giving. Because God owns it all, His wishes, desires, and priorities are the first thing we need to take into account when figuring out what to do with our money. God is Love and expresses His love through free, unmerited grace. So, it stands to reason that generous giving – both to the ministry of the church and to individuals in need – should be central to teaching kids about money.
Activity. You can teach the importance of giving by organizing a family mission project. We don’t necessarily mean traipsing off to the jungle. Simply give your kids contact with people who have more physical and economic needs than your family does. This could mean delivering meals for a food ministry or “Meals on Wheels” project.
Or, how about volunteering to serve in a soup kitchen or homeless shelter? It could also mean getting involved with Habitat for Humanity. You could also sponsor a needy child in another country through an organization like World Vision or Compassion International.
2. The Rewards of Work
Activity. A good way to drive this point home is to hire your kids to do tasks around the house. Even if they get a regular allowance, you can still give them an opportunity to earn extra money by working for it. Post a list of chores on your refrigerator or family bulletin board. Call it your “For Hire” list.
Beside each job, include the amount to be paid for the work and how frequently it can be done. For example, pulling weeds (once a month in summer), scrubbing the tub or shower (once a week), cleaning out the garage (twice a year), or washing the car (as needed).
Let your child know that paid labor is evaluated by inspecting his or her work after it’s done. Also, explain that you will reduce the pay if the quality of the work doesn’t meet your expectations. (Note: the ideal “chores for hire” are the occasional ones requiring extra effort. These are not the routine ones like clearing the table or making the bed.)
3. The Wisdom of Saving
The third habit we want our kids to develop is putting aside a portion of their money in savings. As we’re teaching kids about money, they should be trained to see the value and importance of delayed gratification. Remember the story of the Grasshopper and the Ant. Help your kids understand that the definition of financial maturity is “giving up today’s desires for future benefits.” As Proverbs 21:20 puts it, “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.”
Activity. There are several things you can do to help your children grow up to be savvy savers. The simplest is to buy them a piggy bank and encourage them to use it. You can also encourage them to open a “Home Savings Account.” With that you can pay them interest on cash deposits they entrust to your safekeeping. You can call the interest a “reward for savings” if it makes things simpler).
4. The Necessity of Budgeting
Let’s face it – most of us don’t have an endless supply of money. If kids are to succeed in this world, they’re going to have to know how to work with limited resources. That’s the guiding concept behind budgeting. Perhaps the simplest budgeting system ever devised by the human mind was Grandma’s cookie jar.
For Grandma, there was no such thing as an extended line of credit. When the money in the jar was gone, the spending was over. If your children can grasp that idea, they’ll learn to steward their cash with greater thought and care. As Proverbs says, “The plans of the diligent lead to profit as surely as haste leads to poverty” (Proverbs 21:5).
Activity. Ron and Judy Blue’s Envelope System is one of the best tools around for teaching kids how to budget. Here’s how it works. Beginning about age eight, give each child a recipe file box containing five letter-sized envelopes: a Tithe envelope, a Save envelope, a Spend envelope, a Gifts envelope, and a Clothes envelope. In each envelope put the cash amount that you as parents have budgeted for the item in question for the current month.
5. The Cost of Consumption
The Cost of Consumption. This is simply another aspect of the challenge of working with limited resources. When we talk about the cost of consumption, we’re acknowledging that everything is a trade-off. If you spend a certain amount of money today, you’ll have that much less to spend tomorrow.
And due to the principle of compounded interest, the cost or trade-off isn’t dollar for dollar. In actuality, one dollar spent today removes multiple dollars – dollars that might have been gained through savings or investments – from your future resources.
Activity. As we’re teaching kids about money, identify an item that your children tend to waste money on – for example, candy, ice cream, or video games. Ask them how much the item costs. When they answer, say, “That’s how much it costs today.
6. Shopping Smart
Shopping Smart. Kids (and adults) who understand the cost of consumption will weigh potential purchases more carefully – like the celebrated “Proverbs 31 woman.” “She selects wool and flax and works with eager hands. She is like the merchant ships, bringing her food from afar … She sees that her trading is profitable” (Proverbs 31:13-14, 18). They’ll learn quickly that by being smart shoppers, they’ll have more money available to do other things.
Activity. Advertisers of cars, big-screen TVs, and boats rarely mention the actual purchase price of the items they’re selling. Instead, they say, “Only $399.00 per month.” Examine some of these ads with your children. Read the fine print to find out the total cost of the item and how many monthly payments would be required to complete the purchase.
Compute the total amount of these payments. Then, compare it with the price you’d be paying if you simply saved up your money and bought the car or TV for cash. Your kids will be amazed at the difference.
7. Goal Setting
Goal Setting. As kids get older, you can use the Envelope System to teach them the wisdom and value of setting long-term as well as short-term goals. Even an eleven-year-old boy can understand that if he doesn’t spend the money he earns during the summer, he can save enough to buy a car by the time he’s sixteen.
Saving money is part of teen money management, but it might not come naturally for your teenager.
Should Kids Get Paid to do Chores?
Next time your teen asks for reasons why they have to save money, simply pick from one of these explanations below, as being a parent it’s your responsibility to teach kids about money.
Because Saving Money Gives You More Control
Kids want more and more control as they age. And by the time they’re teens? Well, they not only want it, but they demand it.
Control over how they dress. Control over when they have to be home with the family. Control over what they eat. Control over who they hang out with. Etc. etc. etc.
Approach your teenager with the concept that the best reason to save their money is to actually give them more control over it.
Think of a river as the cash flow in your life, just constantly flowing by you.
It’s nice and all…but do you know what can be accomplished when you intentionally divert some of that river towards another area, and “pool” some of that money for your own use, later?
Could be a good analogy to approach this topic of conversation with your teenager.
Because Saving Money Sets You Up for More Fun in Your 20s
Becoming an adult with more responsibilities, control, and rights is quite cool.
But do you know what can really goof that up?
Not having any money to do anything with. OR, having only enough to subsist on a parent’s couch/their old bedroom.
You don’t want your teenager to be in a position where they have a great opportunity open up and could only take it if…they had some money saved.
Because Teens Need an Emergency Fund, Too
Your teenager might never have heard of an emergency savings fund – a savings space where you keep money that should only be used in the case of an emergency.
But that doesn’t mean they shouldn’t have one.
As a child ages into teenage-hood, they take on increasing responsibilities and own more adult-like things that take adult-like funds to maintain and repair.
Because Parents Won’t Be Paying for Everything Anymore
At some point – and this may have already happened – you’re going to cut certain things off from your teenager. And if not your teen, then certainly your 18-year-old, 22-year-old, etc.
I recommend gradually moving more money responsibilities over to your teen as they age so that they’re not thrown into the deep end in their first apartment, shocked by water bills, surprised by electricity bills, and wondering how to pay for cable since their rent was due, fyi.
This point feeds into that. Since you, the parent, are no longer going to be paying for everything for your teenager, they need to save their money.
Because People Like to Help People who are Helping Themselves
Now’s a great time to explain to your teenager that when they help themselves – in this case, either saving money towards a savings goal they have, or building up an emergency fund – then other people (such as you) are much more likely to want to help them out.
Because as You Get Older, You Gain Both Rights AND Responsibilities.
Young adulthood is SUCH an interesting time – exciting, nerve-wracking, and tons of opportunities your teenager has never even dreamed of before.
We want the best for them, but we also want to prepare them for the added responsibilities that come with all those cool new rights and privileges they have being an adult.
Explain to your teenager that with rights come added responsibilities – and money responsibilities are part of that.
For example, they’ll get to stay out as late as they’d like, work wherever they want to, live wherever they want to, and date whoever they want to.
Tim Connolly 