Never too young to learn about money!

Barclay the ice dog recently joined the NHL St. Louis Blues team for a “ruff” practice, and had a great time!  As you can see, this young dog is very comfortable on the ice, and having fun learning how to play hockey (sort of!).

Similar to Barclay, our kids are never too young to learn about money.  Not only that, but we might be surprised at how quickly our kids can figure out how money works.  A recent survey found that 83% of parents agreed that it’s never too early to start talking to your kids about money.  However, only 56% of them had actually done so.  Why do so many of us NOT talk to our kids about money?  Maybe we don’t know how.

How can you start teaching kids about money?

Here’s a simple and easy idea that many people have used.  When children are very young and learning how to count, use coins to teach them.  Count with pennies, and when you get to 5, make it a nickle.  When you get to 10, make it a dime, and so on.  This is a very easy introduction to money and how it works. 

There are some great board games out there to teach kids about counting money, using a budget, getting out of debt, and investing.  Age 5 and up seems to be about the youngest that these games are made for.  Monopoly Jr., Allowance, and Exact Change are all money games for ages 5+ that would be a great way to get started.  Money Bags is for ages 7+, Pay Day is for age 8+.  There are many other games out there for kids 10+ and teens.  Making it fun is always a good idea.

Help them start to save

Kids can start learning the value of saving at a very early age.  Just like squirrels save nuts so they can make it through the cold winters, we need to save money for things we will need in the future.  A good old fashioned piggy bank is great for kids to have.  If you can find a clear one that lets them see their money inside, even better!  Of course, a clear glass jar will do the job too.  As they start to save, you can start teaching them about how compound interest can help their money grow.

Kevin O’Leary, famous investor and member of ABC’s Shark Tank has done just this.  He would go into his kids room at night and add some pennies to their clear glass piggy bank.  The idea was for them to learn that compound interest helps them earn more money even while their sleeping.  He would say to them, “Look, you’re going to get gifts from your friends and your grandparents and for your birthday, how about saving it?  How about actually putting it aside with the idea that if you invest your money it will grow while you’re sleeping?”

The point was to show that socking away money and putting it toward an investment that grows can have long term benefits — rather than only seeing the short term benefits of spending.

“They understood it really early on and now they’re pretty good investors,” O’Leary says. “They understand the idea that money makes money. And, when you spend it you kill that money.

“If it’s gone out of the bank, it can’t make more money from itself because it’s gone,” he continues. “You put it into a pair of shoes, or you put it into a sweater or you bought some piece of crap you don’t need.”

Learning to work and earn

A lot of people ask themselves, “should I pay my kid an allowance?”  Many families will use a small allowance with their kids so that they have some money to make decisions with.  I think this can be a good thing but you need to be careful that you don’t teach your kids that they deserve to get money for nothing.  Tying that allowance to them doing some family chores and getting good grades is a much better idea.  Not only do they learn that good grades and working hard are important, but it reduces the chance of them feeling entitled to money for no reason.  If you have a child that is not motivated by money, then an allowance in exchange for cleaning the bathroom may not be enough to get him off of the Xbox.

One of my clients, Jackie, shared her story about allowances with me.  Her young daughter kept asking her for a long time for an allowance.  She finally decided that she would try it out.  But here’s what she did that I think was genius.  She asked her daughter how much she thought she needed each money to be able to do the things she wanted to do.  She and her daughter agreed on a number.  However, her daughter had to use that allowance money to buy things she really wanted, to go to the movies with friends, etc.  Jackie said her daughter really enjoyed having this freedom to spend money at first.  But soon, the money ran out before the month did.  Her daughter soon learned how to make smart decisions about how to spend her money.  This was a lot harder than just asking mom to buy her something whenever she wanted it.  It was also hard for Jackie to not give in when her daughter ran out of money and asked for more, or for an advance on next month’s allowance.  But it worked!  Jackie’s daughter now has a child of her own, and is very good at managing her money!

Pay jobs!

Whether or not you pay your kids for doing chores, you can give them the opportunity to earn extra money by doing ‘pay jobs’.  Make a list of ‘pay jobs’ they they can do that will pay them various amounts of money.  This could be washing windows, mowing the lawn, spraying out the trash cans, raking leaves, whatever you want!  The point here is teaching them to learn to work and earn money for themselves.  They will appreciate these dollars a whole lot more after they’ve had to work for it!  As you kids start to earn and save money, let them use that money to buy things they really want.  That new video game, the lacrosse stick, or the movie tickets will mean so much more to them when they paid for it with their own hard-earned money.

Let them make financial decisions?

Most people let their kids start making financial decisions as early as 2 or 3 years old.  We let them pick out their favorite cereal at the grocery store.  We might let them pick out a treat in the check out line.  We might let them pick out a present for a family member or a friend.  I think these are good things to do with your kids.  One more step that would be great to add to these decisions is setting a price limit that can be spent towards the item and helping the child stay within that budget in their choice.  When they know that there is a certain amount of money available to spend on a purchase, they start to learn about the value of money and trading it for things they want.

Help them start a business

Having your own small business is an excellent way to learn about money at an early age.  Whether its a lemonade stand, pet sitting, lawn mowing, or washing cars, kids can get a great education by becoming an entrepreneur.  Depending on the child’s age and situation, you’ll probably need to help them get started.  But as they start to make money and find some success, let them use their own profits to grow the business.  Not only can they learn a lot of great life lessons this way (communication, marketing, sales, customer service), but they can make a lot more than working for minimum wage for someone else.

Money doesn’t grow on trees

How many times have you heard that statement?  We’ve probably all said that to our kids at some point in their lives.  Kids don’t naturally know where money comes from, or how much it costs to pay for things.  As kids start to get older, you can start talking to them about some of your bills that you pay, like utilities, cell phones, and insurance.  Teach them that it costs money to turn on the lights, run the water, buy food, drive the car, etc.

For teens, school shopping is a great time to learn how to budget money.  Instead of mom and dad swiping the debit or credit card every time you take the kids to shop, here’s a different idea you might try.  Give your child a certain amount of money to spend on school clothes, in cash.  Let them spend that cash on the clothes and shoes they want to buy, with your supervision of course.  Handing that cash over in exchange for their treasures, and seeing just how far it goes, will teach them a lot about money.  We tried this last fall with our two high school age boys.  They were shocked at finding out their wad of cash didn’t buy near as much as they thought it would. 

I used a similar process with our son who will be heading off to college next year.  We made a list of all the potential schools he was interested in.  We listed out all the costs for each school, including tuition, books, food and housing.  We sat down and went over it all together.  I said, “Look, here’s how much money we have set aside for your education.  If you pick these schools, you could potentially graduate with no student debt.  If you go another route, you will probably need to take out some student loans to finish school.  It’s up to you.”

You could use this same process any time you’re faced with a purchase for your child.

Teaching your kids about money isn’t a super difficult thing to do, but it does take some careful thought, planning and discipline.  It also takes some patience to let them learn things that have taken you decades to figure out.  Most of this kind of stuff is not taught in schools, so it’s really up to us parents and grandparents to teach our kids how to handle money.  Having good financial habits is the key to financial peace and success.  No matter how old your kids are, start teaching them about money now, and they will thank you for it down the road.

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