How to Teach Your Kids About Money

May 04, 2016

A recent survey on kids and money revealed that 4 out of 5 Americans believe that an allowance helps to teach children the value of money and financial responsibility but only 68% actually pay an allowance. With student loan debt growing at an average of over $2,700 PER SECOND, it’s essential that kids enter college with a baseline of knowledge so they know what they’re getting into with this debt. If you’re not modeling good behavior for your kids, you may be setting them up for financial stress down the road. I don’t have kids yet, but I have a lot of plans for how we will ensure that they set themselves up for financial success. Here are some ways to teach your kids (or nieces and nephews) about money before they have to start making important decisions on their own:

Start early: As soon as kids learn how to ask for things (or start throwing themselves screaming on the floor of the grocery store because you won’t buy candy), they can understand the concept that they have to wait to buy something by saving up for it. Instant gratification is a problem that plagues humans for life, but teaching kids how to delay it is a predictor of future success. Whenever your child receives money, have them add it to a jar or piggy bank and consider keeping a paper record to instill banking knowledge as well. Every so often, help her count to see how close she is to her goal. Help keep her eye on the prize by explaining how much closer she is to reaching the goal with each addition.

Explain trade-offs: Once your child enters school, he is ready to learn that when you spend money on one thing, you’ll have less to spend on another. Use grocery shopping as a way to demonstrate this. Give him a budget for his own treats, and then as he’s making his selection, explain how buying expensive yogurt might not allow him enough to also buy his favorite juice boxes. Share your own financial decision making as you’re shopping for the household as well.

There are also a bevy of free web-based money games out there. Try the Great Piglet Challenge or Kids.gov for a variety of fun games. Heck, try them yourself. (I’ve yet to conquer the Great Piglet Challenge!)

Consider an allowance: Whether or not you think kids should “earn” money through household chores or if you consider pitching in to be a part of family life, an allowance is a great way for kids to learn how to spend and save. You can also explain how compound interest works once kids reach the “tweens” stage. Use real numbers and say, “If you save $1 per day starting now, you could have over $26,000 by age 65. But if you wait to save until you’re 30, you’ll only have about $15,000.” This may make it easier to talk your tween out of buying a daily sugary snack at school and instead save the money toward a new video game.

Consider college costs: Whether or not you’ll be able to afford to send your kids to the college of their choice, discuss how their decision will affect you financially. If your child will require financial aid in order to pay for school, share your own struggles with debt as a way to explain the consequences of student loans. And don’t shy away from having them take a part-time job to save toward spending money in college. Understanding how hard it is to earn money will make them appreciate the value and think twice about blowing it all on beer and pizza…just most of it.

Drive their own decisions: Once your teen is ready to start driving, instead of just handing her the keys and crossing your fingers that she’ll drive safely, put some of her skin in the game too. My parents had me take care of my own car insurance when I got my first car, which was a great way for me to learn several money lessons. Instead of doing it for me, my mom had me call their insurance contact to ask to be added to the policy. The agent walked me through the additional costs and I handed over money to my dad each month to pay my share.

If I was late or short paying, my car was parked until I paid up. I not only learned how to budget for my bill, I was empowered to take responsibility and when it came time for me to get my own solo insurance policy, I knew what I was doing. Thanks, Mom and Dad!

Most importantly, it’s vital to model good money habits for your kids. We all have our own money stories – our personal frame of reference based on our own experiences growing up around money. For most of us, the biggest influence in our stories came from our parents. Set your kids up for success by rewriting your own story to one of success and financial security.