How to Teach Kids About Money
Good financial habits start a young age. Kids with good money skills starts with parents modelling good money skills themselves. The best ways to teach kids about money is to show them, talk to them and give them tools to succeed. Build the right money lessons through simple resources to show your kids the real value of a dollar.
You swore it would never come out of your mouth. I swore it would never leave my lips as well. Yet, there is was, “Money doesn’t grow on trees, y’know.”
The problem wasn’t really even the concept of money. My son wasn’t asking for money; he was asking for me to “Pull that plastic thing out of my wallet,” so he could get a new Transformer. While I could appreciate his logic, this wasn’t going to bode well over the long haul of raising a son.
Here are 7 Money Lessons to Teach Kids
Money Lesson #1: Start with A Wish List
Just ask Santa, your child has a very extensive list of things she wants. In fact, I would suspect that if you took all the toys in the toy aisle and lined them up end to end, that would almost cover the length of your child’s list. That’s fine. My wish list is pretty long too and includes that new Range Rover and a wrap-around deck for the house.
Help your kids learn how to prioritize by writing a list down. Write yours down too. It’s a good way to explain to them that even Mommy and Daddy can’t just go to the bank and get money. Not only does starting a wish list teach kids about priorities, it shows them how they might need to save to get a big item they really want.
Money Lesson #2: Open a Bank Account
Nothing helps your child feel like a grown up more than going to the bank and making a deposit or a withdrawal. While it seems easy to say, “Hey Mom, just go to the bank and get the money,” when your child is pulling it from their own bank account the tune changes. By having your child make deposits, and then reviewing their statements with them, you reinforce good savings habits.
Taking money out when it’s taken a while to accumulate and seeing how much will be left when the withdrawal is taken teaches kids valuable lessons on budgets and limits. Money is finite and they can only get what they have. The bank doesn’t just give them more.
Money Lesson #3: Do an Online Auction
It may sound strange but online auctions teach kids how to value something. Show them how to research standard prices and what would be a good price limit to get a deal. Don’t forget to point out the shipping and handling or taxes that apply.
In our home, eBay became an ultimate resource for my son to learn that the price of something is relative. People will pay based on desire not necessarily value. He’d watch the auction bids with baited breath, knowing he had a stop limit on bidding. It didn’t take long for him to start understanding the stock market ideas of buying and selling based on market costs compared to value.
Money Lesson #4: Have a Job Board
Giving kids an allowance is a bit 1970s. Letting your kids earn money from a home job board allows them to pick the jobs they want to do for what you feel is a fair wage. Put 3×5 index cards on a bulletin board with a job description and price: rake the leaves for $3.00. Your child collects the card, does the job and then gives you the card to get paid (after inspection of course).
With a job board, you might find that your child is suddenly motivated to do a lot of things without you asking because he wants to buy something special. Make sure that his house duties aren’t part of the job board such as keeping his room clean or walking his dog. Just like you have to do laundry and dishes, there are just some things everyone has to do.
Money Lesson #5: Loan Your Kids Money
Stay with me on this one. If your child is adamant for something he really really really wants. We have all been there. He has blown his savings and just won’t relent. Explain to him that you could loan him the money. This will teach him a very important lesson that even if the bank gives you a bit more money, it’s going to come with a cost.
If the toy is $10, tell him that you will finance his purchase today. Until he earns the $10 in total, he will have to pay you $0.50 weekly and then repay the entire $10. Chances are he’ll rethink what he really really really wanted and turn that into a playground tactic to make money from kids during annual candy sales at school. (Watch out for that one.)
Money Lesson #6: Volunteer and Share
For money your kids don’t put in the bank, don’t grab the old piggy bank. Teach them to use three jars and allocate a percentage of all money they get to each of the jars. Label the jars: Saving, Spending and Charity. This is a valuable lesson that teaches children that by keeping some money on the side, that will grow for other bigger things.
Spending weekly is a nice immediate reward. Donating a little teaches them the importance of helping and that all rewards aren’t in the form of money or things at the store. Don’t forget to review the Savings jar occasionally along with their wish list. Always give kids positive reinforcement for the money they save. They’ll want to do more.
Money Lesson #7: Show Them Compound Interest
There are many online calculators that can show a child how money grows with compound interest. Explain to her that money can earn money. Revisit the loan scenario; point out that to borrow money would have cost her money. The explain the when banks have your money, they pay you to keep it there so they can loan it to others and make their money.
Count the money in the savings jar and plug that number in. She’ll see how what she has can grow if it earned money for her. Chances are she’ll want to make a trip to the bank more often for deposits, not just withdrawals.
Final Thoughts on Teaching Kids About Money
At some point, kids grow up and become adults with their own income and expenses. Teaching them about money early on not only helps your family budget and sanity when shopping but gives them tools to be responsible with their money throughout life.
Don’t be afraid to tell your children when you make a financial mistake either. Part of being a good role model is to learn from your own mistakes. You are human and maybe really really really need those new heels.