I often wonder if every family realizes the importance of teaching the kids about handling money. Money certainly is a topic that comes up every day, and when your kids reach a certain age, they should be included in the process that can teach them how it’s earned, spent, saved, and donated to help others and worthy causes.
Children are most likely to be receptive to this kind of education at an earlier age rather than later. Teenagers, for example, think they already know everything there is to know, have a competitive mindset when it comes to status with their peers, and certainly mom and dad can’t really teach them about much, can they? Young children are constantly absorbing and asking questions and being curious about everything. Money is no exception.
After having raised a couple of kids myself, here’s my view on what you can do:
- Start the process as early as age 3-4 years old. Teaching your kids about coins and their values even before school age gives them an understanding that they have value and can be accumulated. Make it fun and sort of a game and it will keep their interest. Reward them in some way when they can tell you the names of the coins and what they are worth in comparison to each other, like 5 pennies can buy what a nickel can buy.
- When they are a bit older, around 5-6 years old, you may want to start giving them a small allowance. That is provided that they understand the allowance is based on their good behavior and it’s something they have demonstrated that they have earned. If they haven’t yet earned it, explain how and what they can do to get it. At age 5-6, $3 a week* is a good starting point and it can be used to help them start thinking about how earning money and making decisions that prioritize spending habits can be translated into good lifetime patterns. Set up a small clear box or jar (clear rather than a piggy bank so they can see the money accumulating) for them to save their money until they need to buy something. It can show them ways to spend within their means and budget for what they want to buy. They quickly learn that they may have to save up for something they can’t afford today.
- At age 9-10, allowances can be tweaked to fit the learning process. I tried giving my kids $0.50 a week for each year of their years of age, so a 10-year-old would get $5 per week, with a small catch! When the allowance is issued, a percentage (let’s say 15%) must be saved and another portion (10%) must be earmarked for charity as well. By doing this, you’re teaching another two of the four main milestones about money: saving and charity, to go along with earning and budgeting. Once they’ve saved up a decent sum, it’s time to open a savings account for them at the local bank or credit union. That’s the time for teaching about interest and how compound interest can make your money truly grow.
- Let them make their own money mistakes and don’t swoop in to save them. When they spend wastefully, they will soon regret it and learn to think more carefully about what they purchase.
- Set an example. Take them shopping with you and let them see how you decide what to buy and how much you can afford. Answer their questions honestly and use it as a teaching device.
- As they get a bit older into the mid-teen years (think 14-15), you can start teaching things more complex like paying your bills, check writing, online payments, and debit/credit card responsibilities. Explain how you have financial obligations like car payments and rent or mortgage payments (needs) which must be paid first before you spend on wants. Don’t hide mistakes you may have made in the past; it can teach them a lesson from your experience. Helps them make their lists of things they need now versus wants which can wait for later.
- Teach them about jobs. They want things they can’t afford now with just an allowance, so teach them about the jobs they can get that earn money. They can shovel snow, rake leaves, have a yard sale, walk the neighbor’s dogs or wash cars, and many other things to earn some extra money. For even more great ideas, check out these 33 fun and lucrative summer jobs for teens. If your teen is old enough for a regular part-time gig, start teaching them about taxes and how we all need to contribute for shared services.
- There are some additional things you can pass on to your kids, like putting together lists for shopping (be it groceries or school supplies or other household goods) to limit impulse buys or placing the necessities at the top. If you set regular goals for your finances, teach them about how careful planning helps you to spend on your priorities.
- Introduce your children to the public library. It has many entertainment items that they can save their money on and still enjoy, like movies, video games, music CD’s, books (including audiobooks and ebooks), lectures, and concerts…all for free!
- Cook as a family and include the kids. Besides gaining a skill for life, they’ll so enjoy it that they’ll forget about the fast food stops you make, and save money you’re currently spending. It’s a great way to save, educate, and spend quality time together. My kids started packing their own lunches for school so they could save the money from buying them each day. If you’re family uses meal planning, be sure to include the kids on that too, maybe even giving them a night each week to decide on a (healthy and affordable) dinner.
Those are my tips and lessons on how to teach your kids about money. I’m sure there are some great ideas you have used and can recommend, so please comment and share. I’d love to know how you’re helping your kids to grow into financially responsible people.
* Many parents, especially those with multiple children, use a rate of $0.50-$1.00 per year of age so there is a regular and “fair” progression in weekly allowances. Of course the amount also depends on your family finances, the cost of living in your area, and the responsibility level of your children.
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