Got kids? If so, you should really consider teaching them solid financial principles as early as age 4. (we started at around three and a half) Why? Well, because if you’re anything like most parents, you desperately want to help your children avoid what you have had to learn the hard way. DEBT SUCKS!
Give them a rockin’ head start by helping them understand the money principles that will keep them from making avoidable financial mistakes.
Help them:
- learn how money works
- learn about debt and why it should be avoided
- about what expenses are
- learn about savings and why it’s important
- discover commission
- realize the value of money AND their hard work
- learn to give, save, then pay bills
- learn about compound interest
- discover contentment
By doing so, you will help them build confidence and many other characteristics that will help them make the right choices with money. It’s important to keep things age appropriate. The most important method of teaching them sound financial principles is by being a good example yourself. If you’re trying to teach them how to make good decisions but you are still making bad decisions, what you teach them will go in one ear and out the other.
Be the example.
Take the time to take advantage of teachable moments. I do this by being open with our son about money. It seems to be common practice for parents to keep their finances a secret from their kids. Personally, I think that’s the biggest mistake a parent can make, and it will definitely make teaching them a lot harder. Let them sit down with you when you pay bills. Tell them how much you make, and try to explain to them how your money gets divided up each and every time you get paid. Let them see that your money is not finite. Help them get excited about saving up money to get that special toy they’ve been wanting.
Make those teachable moments interesting. Be creative. Everyone knows that kids have a short attention span (like most adults when it involves financial planning), so make it fun. One thing I do is always find a way to make the teachable moment interesting. Be a little silly. You’ll be surprised at how often your kids will want to reenact what you were teaching them without even knowing they were learning something. You know your kids better than anyone else, so you should know what gets them excited.
The last thing you want to do is sit down with a calculator and go over numbers all day. Use “kid-friendly” examples and illustrations as much as you can.
Kids and Debt
Here’s an example of one regarding debt you can try.
First things first, you should get started using the Kids Finance 101 worksheet I created to simplify the process for you and your children.
Microsoft Excel 2003 – Kids Finance 101
Microsoft Excel 2007 – Kids Finance 101
After they have started to earn money, purposely take them shopping to pick out a toy. Allow them to pick out a toy that is a little bit more than what they actually have. Trust me, they’ll find one no problem! I made sure it’s at least more than a week or two of what they would earn through commissions. You want the impact of this lesson to be in the fact that they will not get as much of their money next time they get paid since it will go towards paying their “debt” off.
Use the term commission. Remember it’s not an allowance when they are earning the money. Allowance does nothing to reinforce the idea that money comes from hard work.
If they have $15, let them get a toy that costs $30. Explain to them that they do not have enough money to get the toy, and that they will have to borrow from mommy and daddy to get it. When pay day rolls around take the time to explain to them why they do not get to put as much in their piggy bank. When they have to wait even longer to buy another toy, they will start to think twice about borrowing money. The impact of not getting to stuff their piggy bank full of one dollar bills will be obvious.
Isaac started crying the first time we did it. I wouldn’t do this too often (maybe once a year or something), because you don’t want the habit of borrowing money to take shape. You want them to save and pay for their toys 99% of the time. That’s the habit you want to reinforce!
We haven’t been on top of this worksheet like we once were since we moved, but what we have done up to this point has been very effective with our 5 year old. All of us need reminders and a gentle push in the right direction from time to time because it’s easy to get off track. I’m going to get Isaac back on track and excited about earning his commissions again.
A Piggy Bank and a Birthday Party
Recently, we went to the park and Isaac met a little boy and ended up getting invited to his birthday party this Saturday. In order for Isaac to go, he had to use money from his piggy bank to buy his new friend a birthday present. He had fun picking it out but he also understood that it was his money that he was spending. He was more than happy to spend his money on his new friend. At 5 years old, when kids seem to be a little more selfish with their things, I think Isaac has learned some valuable lessons that have taught him about more than just saving and spending. He is also learning the importance of giving and sacrifice for the benefit of others. I LOVE IT!
It may just be just a birthday party, but I’m really proud of Isaac and his generosity with his money. He spent $15 dollars on a cool Spiderman puzzle and $3.00 on an even cooler birthday card! He had fun spending his money!
Teach them when they are still young and when they get older, you’ll be surprised at how much they retain. Start now! They’ll be glad you did.
Perfect timing, I was just telling my son he was no longer going to receive allowance and would now have to work to get his money. He was not very happy but went for it. We went through and thought about jobs together and consequences for not getting this done. Thankfully his teacher is doing the same thing with his class. She has them manage their money, pay rent and they get “paid” for their classroom jobs. They also have to pay her when they miss homework or misbehave in class. This week they has an “auction” and she kept 20% of the “profit”. I figure this is a great time to get this going since it is also reinforced at school
Background Info – My son is 10 years old and in the 5th grade.
I’ve been kind of slack myself on sticking to Isaac’s chores and commission sheet since we moved. We’re getting back on the wagon though because he is starting to ask us for money for things. LOL
Excellent article! Good habits start early. I have 5 kids and I’ve been thinking about this topic quite a bit and you gave me some good ideas. I already encourage them to save and have them work at odd jobs for money. Hopefully I’m teaching the the value of a dollar. Thanks for hitting on a very important topic! Blessings….
You are doing an AWESOME job it sounds like! Keep it up and your children will surely thank you for it when they become adults! 😀
I had an idea recently that might help parents with kids saving money. Many kids drink too much soda, and mine are no different. I’m trying a “mind trick” that helps them become a little healthier while making money at the same time. Please read: http://nodebtforus.blogspot.com/2011/03/soda-replacement-money.html
That’s a good idea! This will probably change as our kids get older (hopefully not, but it is likely) but we do not let them drink soda. I could probably write a pretty substantial post about the cost of buying soda. My wife and I have recently cut WAY back on our diet soda, and have completely cut out the caffeinated ones. I am drinking more water since starting P90X, but really enjoy a soda from time to time. It’s a hard habit to break and an expensive one! 😀
When I have kids, I will be teaching them every day financial tips that way they grow up not spending their money on unnecessary items. Will be back again!
That’s a good attitude to have. You will save them thousands of dollars by doing so!
Oh Brad how you challenge me! I’m still working on making budgeting a habit and now I have to do it for my kid too!! I get it though and you’re totally right. My girl has no problem with giving away toys so I hope that this will transfer over to using her own money to purchase presents.
LOL, and yes you do. They will be so thankful for it when they get older and you will be giving them one of the greatest financial gifts ever! Awesome Katie! Our son is the same way, although at first not so much. LOL He is really starting to understand why his daddy hates having lots of unnecessary stuff. Our family is not perfect by any stretch of the imagination but we have really tried to keep our stuff intake to a bare minimum. I’d say we’re a bit above bare, but still. It’s way better than it used to be. We sell stuff ALL THE TIME!! LOL 😀