Teaching your children financial responsibility can be a difficult task.
Where do you even begin? How young should you start? What are the best strategies?
Forbes Advisor notes that “plenty of parents aren’t helping their kids become financially literate. T. Rowe Price’s 11th Annual Parents, Kids & Money Survey found that nearly half of parents said they miss opportunities to talk to their kids about money and finances.”
Forbes explains that the same survey shows that children are eager to learn financial principles from their parents and regret that their parents aren’t more open about the money side of life.
As parents, it can be easy to shy away from complex topics that are hard to convey, but it’s our job to do just the opposite. Setting our kids up for financial success begins at home at an early age.
In this article, NWEF will come alongside you and offer some simple tips and strategies to help you navigate this dicier side of parenthood!
A Lesson Firsthand
It was Christmas week in 1999. My grandmother, aunts, girl cousins, sisters, mama, and I had gone on our traditional “girls’ day” to the local antique establishment for some fun and unique Christmas shopping. As we excitedly walked toward the door, I happened to glance down at the ground.
There it sat placidly at my feet.
A new, crisp 100-dollar bill.
After my initial shock wore off, I slowly bent and scooped it up reverently. I examined it for signs that it was fake. Maybe a Christian tract or perhaps a child’s toy. No, it was authentic!
Of course, I showed my mother, and we carried it to the manager and turned it in together. Just for fun, we left my name and phone number in case the errant owner didn’t return and ask about it.
To my utter shock and amazement, two days before Christmas, we got the call! No one had claimed it! My grandfather swung by on his way home from the office to pick it up, and that evening he placed it in my eager little hands.
At 11 years old, I was rich!
The envy of my cousins, the awe of my siblings, I held power, prestige, and the Christmas miracle!
Little did I know the wisdom of my parents at that moment. Instead of encouraging me, or even forcing me, to put much of my newfound wealth into my savings, they didn’t make any suggestions at all. Not one word about how I should spend my good fortune. My young head was swimming with dreams and plans.
One hundred whole dollars, all to myself!
It took just over a month for me to spend every penny. As I handed the last of my precious hoard to the cashier and grasped my final bag of goods, I felt a small twinge of sadness that the joy ride was over.
That night, I sat on my bed and cried as if my heart would break. The realization hit me that I had eleven cents left and had almost nothing to show for it. I had squandered my wealth on candy, fun food, and tasty drinks (I did share sparingly with my grateful siblings and cousins).
The only tangible reminder I had of my spending spree was one average-sized glass doll with beautiful red hair and a pretty silk hat.
The Value of Money
My lesson was hard to learn, but over twenty years later, I’ve never forgotten it. My parents chose the most practical and meaningful way they knew to show me a vital principle: that every dollar holds value and should be spent with forethought and wisdom.
Children must be taught the value of money. The Guardian explains, “The early experiences children have with money can shape their financial behavior as adults…children who are allowed to make age-appropriate financial decisions and experience spending or saving dilemmas can form positive ‘habits of the mind’ when it comes to money. This could lead to a lifelong improvement in their ability to plan ahead and be reflective in their thinking about money, or they may learn how to regulate their impulses and emotions in a way that promotes positive financial behaviour later in life.”
A child who’s never experienced disappointment or loss won’t fully understand the importance of the item they currently enjoy. Allowing your children to have an immersive experience in financial situations will give them a first-hand understanding of what their money means and its potential. It will also enable them to understand that choices, good and bad, have consequences.
Let’s examine some practical ways your kid can gain that vital first-hand knowledge!
Introduce Them Young
Kids are naturally curious and have eager young minds ready to explore the world around them. Introducing them to the concept of money as early as is safe (i.e., they’re old enough that they won’t swallow a dime!) encourages their enthusiasm.
Even if they don’t fully comprehend all the details yet, allowing them to examine, handle, and question cash and coins gives them a familiarity with the system of our currency. As their math skills grow, teach them the values of each coin and bill, and use the opportunity to apply some simple mathematics practically.
“Once your children…learn math basics, educate them about money and provide practice,” the Child Development Institute suggests. “Play money games at home…Identify different coins, count them together, and teach your child how to make change. This way, your child will learn how to use cash when the time comes.”
Let Them Earn
It can be fun to give our kids their own money, but is it what’s best for them? Financial guru Dave Ramsey suggests that this approach, such as an allowance for simply existing, isn’t a great idea.
Instead, Ramsey suggests paying what he calls a “commission”—a financial incentive for properly completing a chore.
Beth is a mother of eight who employed this strategy while her kids were young. On her fridge hung two lists for her children: one with chores that must be done simply because the kids are family members and the other full of “paid jobs,” with the corresponding “price” for each job. When her children needed spending money, they would turn to List #2 on the family fridge.
Allowing your kids to earn their spending cash instills a good work ethic and teaches them the value of their money. It’s a strategy that can work for younger children and older ones.
Lead the Way
Kids watch their parents very closely. They seem to learn from the world around them almost through osmosis! While it’s important to ensure your children feel safe and secure, it’s equally important to let them see you practically interact with finances.
By sharing age-appropriate details about your family’s financial situation, successes, mistakes, and your financial strategies and plans, they can watch and learn in real time. Just make sure that these conversations are positive and don’t set a negative tone for your family or your children’s relationship with money. Using positive language instead of negative tones can go a long way toward forming your child’s ideas about finances.
Taking responsibility – “This was a mistake, but we learned…”
Acknowledging difficulties while creating solutions – “We don’t really have the budget for x, but let’s find a creative way to plan for it.”
Blaming others for financial mistakes – “I really wish we hadn’t been talked into this. People shouldn’t be allowed to make sales pitches like that.”
Letting the budget run your future – “No, we’re too poor for that. Why can’t we just stay within budget?”
Forbes Advisor offers suggestions on how parents can lead the way for their kids. In one suggestion, they note, “Actually, showing them [kids] how money works is…effective. So let them see you making purchases with cash. Even if you pay with a debit or credit card, explain to your kids that you’re using your money to make purchases.”
Here are some other ideas you can implement and modify according to age level to practically lead the way:
- Have a family change jar. This can teach concepts like how quickly even small savings can add up, how to budget for a specific goal, or how a family can work together to reach a financial milestone.
- Let them shop with you. Add the cost of each item as you go and compare the total with your current grocery budget.
- Let them hand the cashier the cash and count the change.
- Let them swipe the card and see the charge come through via your account overview on the computer.
- Let them sit in on the budget planning for the family finances.
- Let them help you pay the bills, balance the checkbook, or check bank and credit card balances.
The Value of Saving
“…[T]he savings habit is an important one to help kids establish when they are young,” advises Investopedia. “Teaching them about delayed gratification when it comes to money can help them guard against unnecessary spending and learn to value establishing control of their money.”
Saving money is vital to financial success, but it’s a learned skill. Learning how to save money can be challenging but very rewarding. A fun way to start is by helping them create their own personal change jar. Watching their savings grow is encouraging and exciting even for a young child!
Another practical step you can take is helping them to set a financial goal. What will their money be saved for? Denying the present for the hope of a future is hard, but you’re their coach, guide, and cheerleader! Help them choose a clear-cut goal and be their ever-present supporter when they begin to waver.
Wants Vs. Needs
Helping our kids understand wants vs. needs will encourage them to make wise decisions now and in the future. North Dakota State University addresses this concept. “Effective money management is based on a realistic evaluation of individual and family needs, wants, values, goals, and resources.”
With kids, mom and dad provide real needs (food, shelter, etc.), so a need might look a bit different for them. Are they attending a birthday party soon? Bringing a gift to the birthday kid is a “need” that your child should consider. Differentiating between wants and needs is a vital life skill and brings other essential traits, such as contentment, gratitude for what one has, and an appreciation for unnecessary luxuries.
The Value of Giving
Successful money management goes beyond a comfortable balance in the bank with all your needs and wants met. It includes responsible stewardship of those funds, too. Giving to others and caring for your community are inescapable aspects of successful money management.
Dave Ramsey strongly encourages parents to help their kids embrace this idea. “Once they start making a little money, be sure you teach them about giving. They can pick a church, charity, or even someone they know who needs a little help. Eventually, they’ll see how giving doesn’t just affect the people they give to, but the giver as well.”
A Million and One
Home life offers a million and one ways to practically teach our kids about successful money management and how to address financial concepts responsibly. When parents acknowledge the vital importance of teaching their kids financial principles, they save them a world of heartache, disappointment, and frustration later in life.
Teaching these principles while the kids are young is a great idea, but it’s never too late to start! Whether you’re reading this with a babe in your arms or with your pre-teen sitting on their bed upstairs, you can shape their future in a big way!
This is the first article in a 4-part series on teaching finances. Read the next article, Introducing Your Teen to the Financial World, here!