The Consumer Financial Protection Bureau estimated, in 2013, that outstanding student loans have swelled to over $1.2 trillion. Seven in ten college seniors who graduated in 2012 had student loan debt, at an average of $29, 400. Scary! It is extremely important for kids to have a good handle on personal finance before they enter college. Personal finance is now becoming a part of the K-12 curriculum in many school districts, but the best education can only come from parents and habits developed at home. So how can we raise money smart kids?
How do you teach your kids about money?
- Educate yourself: You can’t teach something you don’t know yourself. If you are not great with money, it is time you change for the sake of your kids. Learn as much as possible about budgeting, getting out of debt, saving and investing. Once you have a good grip of your own finances, you can be an example.
- Teach them by example and be honest: What you say doesn’t matter, kids learn by observing what we do. You have to practice what you preach. Lead by example. Be open about your financial decisions. Do not make them feel they have access to unlimited amounts of money. If you do not have money to get something they want, have an honest conversation. Kids understand more than we give them credit for.
- Teach them the principles, not just the techniques: It is easy to get bogged down by the minutiae of personal finance. Cultivate good spending habits: Teach them to set up goals, prioritize and encourage them to share. Techniques to implement things will always change but good principles will stay with them for life.
- Teach them to take responsibility: Personal responsibility has the highest impact on one’s finances. Instead of feeling entitled and blaming others, we need to accept the fact that no one cares more about our money than we do. This will automatically lead us to find ways to get out of debt and save for our future.
- Teach them to give: This is something I want to teach my kids, but don’t yet have any good ways to teach them. Right now my idea is to take them volunteering with me to help them see what a difference a small act of kindness can make in someone else’s life. If you have any ideas on how to encourage kids to give, I would love to hear from you.
- Help them earn money early on: In an interview with NBC, Warren Buffett quoted a study that tried to find predictors for business success later in life. Turns out the age you start your first business impacts how successful you are later in life. Case in point — Warren Buffett started his first business when he was six. You can help your kids succeed by helping them start their first business. Set up a lemonade stand or throw a garage sale and make it kid centric — let them help set up, choose what to sell, value the goods, sell, and do the books at the end of it. Make them realize that earning more money will get them closer to their goals. When kids learn how to make their own money, they will also learn the value of money; how to be careful with what they earned and how investing money will help them make more money.
- Talk to them about consumerism, impulse-buying and advertisements: Most of us don’t realize how much advertisements affect us. Ads are created based on years of research into human psychology and are created with one goal — to make us buy what the advertiser wants us to buy. We might think we are rational beings, but we are not. It is better to accept that we are vulnerable and do something about it. Talk to your kids about consumerism, clutter, and impulse-buying; then teach them to have a “cool-off” period before they buy anything big.
- Teach them to distinguish between a want and a need: If they demand something, is it really a need or a want? For the most part, parents buy what a kid needs, so it is probably a want. Encourage them to evaluate their purchases in this way. If it is a want, is it an impulse buy? Can they wait for 30 days to get it?
- Let them have control of some money: Let them budget their money, pay bills, save for their needs and wants. Sit with them and draw up a budget. Keep it simple so that they don’t associate budgets with something that is hard and unpleasant.
They should learn that money is not something to be afraid of or obsessed over. It is just a tool, which, if used skillfully, can promote a happy life.
There are plenty of resources to help parents teach their kids about money. Here are some that I found extremely useful and interesting:
- H.I.P. Pocket Change
- Practical Money Skills Games
- The Mint
- Choose to Save
- Secret Millionaire Club (Entrepreneurship)
- Fraud Scene Investigator
If you have kids, when did you start teaching them about money? How are you teaching them? Do you think teaching personal finance should be the responsibility of the school or parents?
4 Responses to “How to rear money-smart kids”
Teach them to give – have your kids do things for trusted friends and neighbors, like cut grass/bushes, paint rooms, prepare meals, walk their dogs, wash their cars, etc. Kids can always do something for others. This will not only teach your children how to give, but it will bring you closer to people in your community. This will also fight the “me only” and “self” attitude. Plus, this could also become a great business for your children later on.
I should add the caveat that I am trying to talk about economic choices and gratitude concepts with my kiddo. Time is a resource meant to be shared as well 😉
I love the idea of collecting a number of age/stage specific ways to introduce kids to giving! I have a four year old, and I find ways to have her participate in giving with me weekly. Examples: we give our time when we go for a walk and collect errantly discarded cans and bottles to recycle. We give a food item to the church’s food shelf every single week (and that’s her job). We bake food for elderly neighbors and deliver it. We go through her clothes and toys and things probably quarterly and talk about what items are good candidates for a new home. We read books and talk about the needs others might have (such as Jack from the Beanstalk story being hungry). We grow veggies/flowers in the summer and share/give some of the bounty.
One of the most valuable money lessons my father ever gave me was the skill of keeping track of my money. This has been invaluable to me as an adult.
As a child, I got a modest allowance every two weeks. With my piggy bank, my dad gave me a little notebook. In the notebook I was required to record every deposit and withdrawal from my piggy bank:
$3.00 in for allowance.
$0.30 out for tithing.
$10.00 in from grandma for birthday.
$3.50 out to buy a birthday present.
Every two weeks, I’d take my piggy bank and notebook to dad for my next allowance. If the ledger and the amount in the piggy bank didn’t match up, no allowance that week.
Dad didn’t influence what I spent my money on (too much). But he did care that I paid attention to where my money was going. This is one of the biggest financial lessons kids can learn. Adults should never wonder where the money went at the end of the month, yet you hear people say that all the time. By simply being aware of your income and expenditures, you naturally begin to budget and be conscious about spending in your own mind. Awareness is the first and greatest money lesson kids can learn.