As important as money is to our everyday lives, it’s always baffled me what little is done in the education system to teach your kids about money.
I guess I can’t say they didn’t try though. When I was in elementary school, we took a field trip to a place called Exchange City. It was a mock town set-up in a children’s learning center. In the town, everyone had a job that they were paid for, and could then go spend their money in the stores. And I guess I did leave high school knowing that an IRA was used to save for retirement.
They’re Always Watching
Much of what I learned about money came from my parents. I still remember when my parents made me open my first savings account at a bank when I was teenager. I watched how my parents spent money, listened to how they talked about it my entire life. While I never wanted to for anything growing up, I understood the importance of not living above your means. I understood the importance of saving, and that your wallet should never be full of credit cards.
However, I graduated college never having paid a bill in my life. My parents made my brother and I the promise that if we went to college, worked hard and graduated in good standing, they would take care of housing expenses. And guess what my dad made me do when I signed my first lease in the “real” world? He made me pay the deposit, first month’s rent, and moving costs all by myself. To go from never paying a bill in my life to dropping a few grand – not to mention the cost of living I would incur moving forward – knocked the wind out of me. While I’m forever grateful for the opportunities my parents gave me, that was one of my biggest reality shocks to date.
Now at age 26, I’m actually very proud of the financial progress I’ve made. That savings account my parents made me open over 10 years ago I still have – and it has a very healthy balance in it. I’ve started saving for long-term goals. But all of this is because of what my parents taught me about money. I didn’t learn my good habits from school – I learned them from my parents.
7 Simple Ways to Teach Your Kids About Money at Every Age
Giving your children this foundation is essential. I don’t know where I would be today if my parents hadn’t done it for me. And it’s easier than you may think.
Pulling from my own childhood memory bank, here are seven simple ways to teach your kids about money at every age:
1. Waiting to buy something you want. I was in the store the other day, and in front of me walking down the aisle a boy was bugging his mom for a toy. When she said they didn’t have money for that right now, he fired back with “Just put it on your credit card.” Kids are smart. If you’re constantly whipping out your credit card to buy whatever you – or they – want on the spot, they learn they can buy anything, any time. Rather, teach them the importance of saving their money to make a purchase. This is a hard concept for even most adults to grasp, but the positive effects that come from mastering it are invaluable.
2. Designate money for saving and spending. I remember that I always had “spending” money and “saving” money. In fact, I still do as an adult – you probably do too, even if you don’t consciously call it that. Kids need to understand that you can’t spend everything you make. A portion of their money should be put into savings every time they earn it. Then, the other portion can be used for their spending money. This starts to form the good habit of “paying yourself first” at a young age – something I’m very grateful that my parents taught me.
3. Congratulate them on saving their money. Saving money is boring. It’s way more fun to spend it. And your kids will quickly realize this once you start giving them money. Tell them this upfront, be direct with them. But, stress the importance of this “boring” habit. And make it fun – when they’re younger, track their savings progress and make a big deal about how much they’ve saved. Show them how much they could have if they keep saving, talk through it with them and tell them how much they need to reach their goal and when they’ll reach it.
4. Show them how to spend money wisely. This is probably the second most important lesson. Kids need to understand that money is finite – once you spend it, it’s gone until you can earn more. Be firm, and don’t let them dip into their savings. That money is only for emergencies or unexpected costs. If they buy that video game, they can’t buy that toy. When they’re older, involve them in some of your financial decisions to show them your reasoning. This helps them weigh decisions and understand those decisions have consequences.
4. Don’t hand out money for free. One of the biggest mistakes you can make is giving your kids money for no reason. This can teach them that they don’t have to work for money. My brother and I had to do chores in exchange for an allowance when we were younger. If we worked hard and got good grades, we got $5 for every A and $50 for straight As. Do I need to say how hard I worked to get straight As in high school? If I was in sports, I still had to do chores for an allowance, even though my parents did help fill in here and there. If I wasn’t in sports and was old enough to have a job, that was my only option. Mom and dad weren’t handing it out for free.
5. Make your kids get a job. As annoying as it was at the time, I’m so glad that my parents made me get a job when I was teenager. Not only does it teach your kids responsibility, but it opens their eyes to many things about money, like taxes. They’ll also take pride in earning their “own” money, not money from mom and dad. This isn’t only applicable to teenagers either – when your kids are younger, treat chores like their job.
6. Compound interest is powerful. Even young kids can grasp the basics of this concept. Give them a certain amount of extra money every month – say 50 cents or a dollar. Tell them this is the interest that their money earned, and talk through it with them. Explain to them that money can make money. Once they’re teenagers, a good idea is to have them open up a bank account. While interest on savings accounts can be low, it still teaches them the foundation for how it works. This can help them understand the importance of saving even more, and how it can help them when they start investing for long-term goals as an adult.
7. Explain the concept of “credit.” A crucial lesson to teach your children is that using a credit card means you’re using borrowed money. I remember seeing my parents put things on their credit cards when I was younger, but not grasping how credit worked until they actually explained it to me. Teach your kids that purchasing items with credit cards is essentially making a purchase with borrowed money. You have to pay that money back every month, and if you don’t, you’ll pay extremely high interest. This is a great plug for telling them you should never charge more on your credit cards than you can afford to pay off in a month.
Why Does it Matter to You?
Parents, knowing how to teach your kids about money is crucial. Of all of the lessons you will teach them, lessons in money are some of the most important ones they’ll get. It will shape their view on money for their entire life. It lays the foundation for whether they will fail or succeed financially. Think back to what your parents taught you about money, about the things they did with money or how they spoke about it. Chances are, you still think and talk about money in a similar way. Your kids will be thinking and talking similarly when they look back 20 years from now. And guess what? What you teach your kids about money, they will teach theirs. Give them the tools to succeed.