How to Teach Your Kids about Money
Despite what many people think, financial responsibility should start in childhood, well before they are old enough for their first job or car. Laying the groundwork now, while they are still young, will ensure that they are making good choices with their money as they gain more freedom that comes with age. Keep reading to find out how to teach your kids about money.
1. Include Children in Money Conversations
Too often, parents shy away from talking about money in front of their kids. They think they’re too young, that it’s none of their business, or don’t want to worry them. And yes, if there’s more month than money, you don’t want your child to worry about having enough food, if that’s your situation.
At the grocery store
But a great way of teaching them the value of money is by talking about money openly. When you’re at the grocery store, include them in choosing items. Treat it like a game, even as they are learning numbers. My son loves the “more than-less than game.” Do it when buying shoes, or any time you need to make a purchase (and can spare a couple extra minutes to talk through it with them).
This cereal costs $4. (Show 4 dollar bills.) And this no-brand cereal that is exactly the same costs $2. (Show 2 dollar bills.) If we buy the cereal that costs less than we’ll have more money we get to keep. Is 4 more than or less than 2? So which cereal should we buy that has a smaller price number?
At a restaurant
Another opportunity is when at a restaurant trying to decide what to eat. This may take more time for the littles, but works great as they learn their numbers. Let them choose what they’d like to eat, but give a price cap (or budget) for what they can order and then have them stick to it. It’s your choice what the budget would be, and it could even be an amount that includes everything on the kids’ menu, but let them learn to check and understand how everything costs money.
Talking about money helps them appreciate things and empowers them to make good choices. Just steer clear of making it stressful or saying things like “we don’t have money for that.” They’ll hear the “we don’t have money” part and possibly go to extremes thinking they’ll be living on the street.
This is the time to lay the foundation that we get to choose where our money goes and sometimes that means getting what we want and sometimes it means we choose not to.
2. Give Ways to Earn More Money
This topic is controversial for some families, as each will be different. There are arguments regarding allowances, commission, chores, etc. The point is that if your children aren’t receiving money, then they won’t know how to budget it. It doesn’t matter the amount of the money so much as what they are doing with it (shown in #3).
In their book Smart Money, Smart Kids, finance expert Dave Ramsey and his daughter Rachel Cruze say to give Commissions, not Allowance. This is money that kids aren’t just given, but earn by helping around the house.
I actually prefer a 2-step method for my son to earn money. As he grows, we can adjust it based on what he’s able to do. The names might need to be changed, but the following is my process:
My son doesn’t get money for nothing. He has a responsibility/chore chart. These are things that he needs to do because he is a member of the family. We all help out, no matter what our age is. He’s required to do things for himself like brush his teeth, put his dirty clothes in his laundry basket, pick up toys, etc. But he also is responsible for helping the family too. This means that he lets our dog in/out of the house, puts away the silverware from the dishwasher, sets the table with napkins/silverware, and others.
While he receives an allowance by doing chores that contribute to the family, this is about doing extra jobs or chores to earn additional money. What happens when adults have more bills than income? We work overtime or take on extra jobs. If your child wants to earn that Lego set quicker, they have opportunities to earn more money this way.
Some ideas we use for our 4-year-old are dusting (we use the kids dusting mit from Norwex, but you could use an old sock they put on their arm) and sweeping (we removed a couple of links from the handle of a Swiffer sweeper so it’s his size). As he grows, we would let him earn additional money from vacuuming, mowing, doing dishes, cleaning toilets, etc.
Let’s be honest, if they really want to earn more money, they’ll be willing to do the household chores that even you don’t like. Put a list with dollar amount so they can choose what to do based on how much they want to earn. Money is a great motivator.
3. Help Children set up a budget
Just like the budget you make up for your household, your children should have different goals for their own money. While they won’t have bills or debt to pay off, they will want to separate their money into categories to know each cents’ purpose.
- Tithing– giving back to God through the local church.
- Spending– money that they can spend on whatever they want *Note: they may need some assistance learning the difference between impulse buys and smart purchases, but they should also be given the freedom to choose what they purchase.
- Saving– this helps kids learn delayed gratification and gives them time to realize if certain items are worth waiting for.
- Giving– putting “better to give than to receive” into action. This could be used to get gifts for family, friends, or even to those they come across they might not know just to brighten their day.
As they receive commissions/allowance/money from extra jobs, have your children put it into clear containers so they can watch their money grow or use it based on its purpose. You, as the parent, will need to determine the percentage that each container or category receives and help your kids divide it weekly.
For examples of how this works, how much children should receive, and detailed budgeting for kids, read my upcoming article: How to Teach Your Kids about Budgeting, available July 30th.
4. Lead by Example
Children are more intuitive than we realize. They aren’t going to believe in a budgeting system if they know that their parents don’t. Make sure that you are being consistent with your own budget and that they can see it in action. When you say no to a purchase because it’s not something in the budget, that gives them the ability to see that no isn’t always a bad thing.
Saying “No” allows you to:
- pay off debts quicker
- take grand vacations
- get something better down the road
How to Teach Your Kids about Money Summary
First, include them in money conversations
Second, give ways to earn more money
Third, help children set up their budget
and Fourth, lead by example
Setting these steps in place now will benefit your kids both now and down the road. They’ll be responsible about what they have, and once they have their first job, they’ll know exactly what to do with their earnings. Just another thing you can brag about at family reunions.
Do you teach your kids about money? I’d love to hear your story below!