A child is truly innocent of how the world works up until they start running into the idea of money and then a little part of their innocence goes away. For kids of affluent parents, this innocence can last longer because money isn’t a concern and parents don’t have to say “no” to many things.
For middle class families, it lasts until they have to inevitably say their children can’t have something because the family can’t afford it. For kids who grow up in less fortunate conditions, their innocence about money goes away rather quickly, as parents often have to choose between basic necessities and less important items like toys.
Many schools will teach kids the very basics of money, like being able to recognize the bills and coins of their national currency and how many of one equals another. (Four bills of one denomination equals one bill of another denomination, for example.)
However, schools tend not to get into things like personal finances, how to save money, where it comes from, how to invest it, how investments work, taxation, interest, credit, debt and other aspects of money.
That’s where parents come in.
If you want your child to be as well equipped as possible to succeed in life, it is a good idea to get them started early on the path to understanding the intricacies of money so they can have a healthy relationship with it.
There are 10 steps to educating your children about money and how it works. These are:
- Make sure you have a healthy relationship with money so you can set a good example.
- Give your kids an allowance, which they are in charge of spending.
- Get children to contribute to family chores.
- Provide extra income opportunities for them.
- Teach your kids to save regularly with a piggy bank before graduating to a bank account.
- Help your children discover the benefits of sharing and how they can help others.
- Show your child how to be a savvy consumer before they purchase something.
- Let your kids borrow small amounts of money from you with the expectation of them paying you back (with a tiny amount of interest).
- Teach your child the value of investing wisely, possibly through games.
- Involve your child in your family’s financial planning by teaching them about budgeting and showing them how you budget for things like groceries, vacations, cellphones, etc.
Let’s take a closer look at each of these.
1. Examine your relationship with money and set a good example.
If you are up to your ears in credit card debt and you’ve already had to file for bankruptcy once, you might need to step back and get some financial education for yourself before you talk to your kids.
You want to make sure that you have a good grasp of managing money before you pass along your wisdom. If you have been responsible with your income and have built your wealth in a way that you can pass along to your children, then you are prepared to talk with them about it.
2. Give your kids a spendable allowance.
This is where you can teach your kids about working for money and being responsible for it. The money they get can technically be spent on anything (within reason) and they will have to decide if they want to spend it all on candy this week or save it for a month to buy a toy or something else they’ve been wanting.
3. Work your kids.
While you may decide to give younger kids a bit of allowance for nothing, it’s a good idea to get them used to earning the money they receive by having them do chores. This is also a good time to teach them about personal responsibility. Keeping their rooms tidy would be a personal responsibility, for example, rather than a money-earning job.
Jobs where they could earn money would be more like something that contributes to the household. Cleaning the cat litter or walking the dog or doing the dishes would be a good job for them to be able to earn money.
4. Provide gig work and other money earning opportunities.
In addition to having regular money-earning jobs for your kids, let them choose to do extra work to earn extra money if they want. If they don’t normally have anything to do with the laundry, they might choose to help with it for some extra cash, for example. This is also a good opportunity to get them used to being trained for a job, as they’ll have to learn new skills.
Other money-making opportunities don’t have to come via housework. Your kids might want to try their hand at something like a lemonade stand or selling some of their old clothing and toys in a garage sale.
5. Get them a piggy bank.
A clear piggy bank gives kids the opportunity to literally see money accumulating and being saved. A non-clear coin bank gives the same sense of accumulation via its weight. Or, you could opt to get a bank that stacks coins and tracks their worth depending on the height of the stack.
Having a piggy bank is an excellent way to show them that not spending money means they get to have more of it to spend on a larger item later.
When they are mature enough, they can move onto an actual bank account. Many banks have special accounts for children.
6. Teach them philanthropy.
Teaching your kids about charitable giving will let them know that not everyone has access to money. It also teaches them that helping less fortunate people has its own rewards, namely the sense that they are making a positive difference in the world. Kids are naturally empathetic and instilling a responsibility to give back at an early age will ensure they keep this in mind as they grow.
7. Turn them into savvy consumers.
Explain the importance of researching and comparing items when they shop so your kids are used to doing it as they grow up. This is also a good time to introduce them to the concept of advertising and how it works and how what they see in ads isn’t necessarily what they will get.
8. Lend to them.
When they’re a bit older (possibly when they are making their own money outside of the home at their first job), you can start talking to them about the possibility of taking out a loan from you so you can introduce them to the concept of lending, credit and interest.
If they borrow 100 from you, tell them they’ll need to pay you back by the end of the month and you will require 102 from them, for example.
This is an opportune time to also introduce them to the concept of credit cards and explain that when they use credit cards, they are basically borrowing money for a high interest rate. You should also make sure they understand that when they buy something with a credit card, it actually ends up costing them more than what they actually pay to buy the item.
Turn them into savvy investors.
If you think your kids can grasp the concept of investing, you can introduce it to them with some examples or by playing games that involve investing. Monopoly is an obvious choice. You might even start them with some mutual funds and explain how they work if you think it’s something they can appreciate.
Instruct them how to budget.
Making a budget is something a lot of adults wish they were taught in schools. While you’re making your monthly budget (or however frequently you do it) explain what you’re doing to your kids and let them participate as much as they are able to. If they suggest doing or buying something that you can’t afford, let them know why it’s not possible to do that.
This is a skill they will keep and use for the rest of their lives.
Talking to your kids about money is absolutely crucial for them to have a healthy relationship with it. It might even get you to reexamine your own relationship with money and give you a healthier outlook on it.