Our relationship with money is personal, and we pass a lot of that onto our kids. Teaching fiscal responsibility is one of the most important things we can do for our children to foster independence, especially for our daughters. It takes a little effort, but has huge benefits when you teach your children how to be financially savvy!
Money conversations don’t happen in a vacuum. Instead they pop up at various times throughout the messy business of everyday “teachable moments.” So here are a few tips to take advantage of those moments and in the process, teach your kids to be financially savvy.
Start the conversation even earlier than you think you should. By the age of 3 kids begin to grasp the idea of value and exchange. They can also delay gratification and make choices. So when you notice your kid swiping a pretend credit card or push buttons on the ATM, or looking through your wallet for change, start teaching them some of the basics about where money comes from and how to pay for things.
Keep it age appropriate. Stick to the truth when talking about money, and adapt your message to your kid’s level. If you lose your job, tell your elementary schooler that you’ll be cooking at home more since that costs less than eating out. If you’re talking to your high schooler, tell them the loss of an income will affect college financing, as you can’t save as much for college. Also discuss the potential for qualifying for more financial aid. Tell it like it is, but also offer reassurance that the kids and you will be okay.
Never fib about how much money you have on you. It’s natural to want to fib to avoid tantrums when passing our kid’s favorite stores or during difficult checkout-line discussions. Try not to, even though it may seem harmless to tell a young child, “I don’t have any money with me, so I can’t buy you that bag of gummy bears,” it’s better to say something like, “No, I don’t think we need to spend money on that now. Besides, the dentist told us to avoid chewy sweets.” Straight talk is a good example to set and if there are real reasons behind your decisions, it’s actually helpful to share them with our child. If what your kid wants simply isn’t in your budget, say so and explain why. Kids mostly don’t believe “We can’t afford it.” Especially if you use your credit card to pay for something after pleading poverty, you’ll be busted.
Don’t try to keep up with the Joneses because it will teach your kids to do the same. It’s natural to make comparisons with other people, especially since living in a consumerist, instant-gratification, media-driven culture doesn’t help. Resist making assumptions or drawing conclusions about another family’s spending habits or values – especially when in hearing range of the kids. The ways that people choose to spend money are very personal. If you want to teach your kid to avoid the trap of keeping up with or looking down on their friends and neighbors, steer clear of that behavior yourself.
Don’t expect your child to have money skills if all you’ve given him is money. With money, as with most other aspects of parenting, it’s important to introduce expectations gradually rather than go from zero to sixty.
How to teach money skills with an allowance.
5 C’s of Allowance:
- Be CLEAR: Keep it simple and realistic and let kids know what this money is to be used for. Parents pay for basic NEEDS (food, clothing, shelter) General guidelines: Young kids – they buy extras like trendy hair ties, candy at movies, small toys. Jr High Schoolers – kids pay for their “wants” like difference between $50 parent is willing to spend on jeans vs. $100 price tag. High Schoolers – kids pay for clothes over parent’s budget, meals with friends, entertainment, and birthday presents for their friends.
- Be CONSISTENT: Stick to whatever you decide and pay consistently.
- Give CONTROL: It’s OK to have spending rules like limited candy, no toy guns, and ban on lipstick for small girls. But in general, let your kid have the freedom to buy what she wants, especially as she enters middle school. What the parent controls is how much to give. A common rule of thumb for an allowance is to give a dollar amount equal to your kid’s age per week. $10/week for 10 year old = $520/year. Is that within your budget? You decide. There’s a good chance you may be spending that much on the array of little things that she will now be paying for herself.
- Use CASH: We spend less when we pay with cash, and kids need to learn this, too. Don’t give kids debit cards until they get their first job in high school.
- No CHORES: Chores are good for kids because they teach responsibility and importance of chipping in to help others. But it’s a MISTAKE to link those chores to allowance. Basic responsibilities/tasks should be part of everyday family life (putting away toys, putting clothes in the hamper, clearing the table of dirty dishes, folding laundry, taking care of pets). You can pay your kids for WORK above and beyond his/her usual responsibilities. (Make sure boys and girls learn how to do all the household duties like dusting, cleaning, and cooking.) Don’t use allowance as leverage because kids don’t do their part. Discipline your kid in some other way, (withhold privileges like screen time) and keep the allowance issue separate.
Teach your kids to WAIT/SAVE/Get what they want. You can teach your kids to wait! Most kids want stuff and your job as a parent is to resist buying these things for them, even if that’s the path of least resistance. Instead, help them wait, save, and get some of those things with their own money. Teach your kids about numbers and coins at an early age.
Show your children how to save. I encouraged my kids to deposit their money into three accounts: current want (70%), future want (20%), charity of their choice (10%). Some call it Spend, Save, Gift, and you can set up the % that’s appropriate for your child. It’s important for kids to learn how to save for longer term wants (delayed gratification vs. current want) and also how to give back. This is a huge concept that so many people don’t understand, especially in an “instant” society of immediate gratification. It also teaches kids to “live within their means”. If you don’t have the money, you don’t spend it! Check out this “bank” with Spend, Save, Share and a record tracker of deposits and withdrawals. Great precursor to a checking account.
It’s ok for your daughter to make mistakes. I wanted my daughter to learn how to live with a budget while she was home. With her budget I gave her the freedom to shop for her own school clothes (when kids went to classrooms)! If she chose to spend it all on one pair of jeans and two tops, she had a very limited wardrobe for the next year! I can assure you, she learned early, how to streeeetch her dollars! To this day, some of our best-spent time together is thrift shopping!
Set a good example with your money habits. Instill in her financial awareness by having her look at prices on menus at restaurants or the grocery store. Show her how to comparison shop and guide her on how to make good money decisions.
Keep in mind that kids mimic what they see so it’s important for you to have your budget in place, maybe using the 50/30/20 rule.
Make money by working/doing extra jobs.
Give kids age-appropriate jobs they can do to make some “extra” money. These should be jobs that you would pay someone else to do if the kids don’t. For instance:
- Pulling weeds in the garden.
- Watering plants.
- Help clean out the garage.
- Babysitting.
- Mowing the lawn.
- Washing the car
These jobs foster “work for pay” so they learn how to earn extra money and save for that special item they want.
And make sure you pay appropriately. I know it’s easy to remember what we got paid for similar jobs, but don’t forget about inflation! When I was babysitting (many years ago), I made $0.50/hour. Fast forward to today, and babysitters are getting $10.00/hour. So, pay the going rate, don’t “cheat” your kids!
Teach your kids how to manage their money and invest.
You may think this step is for older kids, but kids learn by the age of 8 what money is and is not by watching their parents. This is an important lesson because so many schools do not teach financial literacy. I remember learning how to balance a checkbook in high school, but this isn’t taught any more 🙁
At a minimum, talk to them about:
- What a checking account is and how to balance it.
- How to use a debit card and deduct those purchases from the balance.
- How to use a credit card and pay it in full each month.
- The importance of a credit score.
- The cost of interest.
- The importance of saving first and then buying.
Make investing fun and relatable by teaching your kids what it is and how to do it. You can establish an investment account for them and use birthday money to buy their first stock so they can see that dividends buy more shares. It’s fun to give the kids a couple options, so they pick a company they’re interested in, and encourage the grandparents to contribute gift money to this account, too.
Stockpile.com is a kid- and gift-friendly option for buying fractional shares of almost every company your kid can think of. The Stockpile site and app provides a real-world investing experience where your child can track her portfolio online. She can even set up a stocks wish list friends and family can see. (Hint, hint: birthdays, … a stock is a great gift for any occasion!). Stockpile requires an adult to be present to set up the custodial account and approve transactions.
There are several excellent resources available, I like “Make Your Kid a Money Genius” by Beth Kobliner, because it covers money topics and recommendations for kids through college age.
Fun books for kids to read are The Berenstain Bears’ “Trouble With Money” and Little Critter: “Just Saving My Money.”
Raising financially savvy kids involves teaching them a variety of aspects from budgeting to planning, earning, saving and investing. Besides giving them an understanding of the value of a dollar, teaching your children about money helps prepare them for life in the real world. Money management is a vital life skill and it is never too early to teach your kids to be financially savvy.
Join the conversation in my private Facebook Group, Women Talk Finances, where any money question is a good one!