5 Lessons to Teach Kids Money Smarts

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By Diane Gallagher - April 15, 2019

Parents invest a lot of time and effort getting their kids to adulthood. And it's not about being the hovering parent (the helicopter) or removing all obstacles (the snowplow). Helping your children be able to handle responsibilities is critical. One area that may need more focus is money smarts.

One survey  suggests that while parents worry about their kids making financial mistakes, 73% aren't talking to them regularly about money. That may be because we don't feel qualified based on our own past money decisions.

Experience and Practice Make Good Teachers

Regardless of any missteps, experience makes good lessons for your children. In fact, the majority of kids are looking to you as their primary source for financial advice . Also consider that allowing your children to practice managing money produces financial confidence as they become adults.

Start Early or Start Now

Money conversations may not be easy, but they are necessary. You'd much rather your child make a minor mistake—with birthday money from Uncle Bill—than a whopper of a mistake when the stakes are higher as adults. Start teaching financial know-how at any age—even the youngest can learn the value of money.

Here are some money lessons from our Raising Financially Aware Kids program to help you get started.

1. Teach the Value of Money

A foundational lesson is understanding what money is and what it's worth. Hit this idea home by providing examples of items and what value they hold.

Item Worth or Value
Winter Coat Keeps you warm
Dog Gives love and companionship
Sports Equipment Provides fun and exercise
Toothbrush Cleans your teeth
Computer Allows you to work, shop and watch TV or movies
Vacation Offers relaxation and fun for your family

Another concept is opportunity costs, or what we give up when we make decisions. For example, if your kid goes to a movie with friends, they can't go to a birthday party at the same time. Part of the cost of going to the movie is not going to the party.

Older kids can experience this with their own money. Let's say they trade a night of earning money babysitting to attend a concert. The opportunity cost includes the money they forfeited.

   $40 Missing earning money babysitting

+ $70 Attend a concert with friends instead

    $110 True cost of the concert

2. Help Them Learn to Earn

Another important lesson is learning to earn money. A great way for kids to understand income is through allowances. But first decide your own values around this practice.

Some parents give allowances unconditionally—without expectations for chores completed, grades maintained or good behavior. Others believe it should be compensation for work done. Under this philosophy, expectations and timeframes must be clear.

Regardless of which way you choose, allowances can be a great way for kids to learn about using their own purchasing power and making spending decisions.

3. Encourage Savvy Saving and Investing

When kids have their own money it's important to teach them about putting some away for the future. Three rules of saving are:

Money Icon

Save Every Time

Piggy Bank Icon

Save 10-20%

Check Mark Icon

Just Do It!

Make it fun. Let you children decorate containers marked with "Save," "Spend" and "Give."  Or, help them save for something that's exciting by making a wish list, setting a small goal and saving. Consider sweetening the deal by matching their savings or paying interest.

4. Coach Budgeting and Borrowing

Let elementary kids practice budgeting with school lunch money. They can decide whether to bring their lunch (and save) or spend it on hot lunch. Or, institute a clothing allowance. Give your child a budget of what you will spend on an item and have them decide whether to stick to it or use their own money for a more expensive version. Older kids can also keep their own budget on paper or with an app.

Borrowing is another must-know concept. Explain credit scores, credit reports and the positive behaviors needed to keep scores high. Kids will understand the concept of the credit score being like a report card and the FICO score being like their GPA.

When your child turns 18, consider getting them a credit card but not until they understand interest rates and the importance of paying off balances. Knowing about credit and debt will be valuable, especially if student loans are in their futures. Before then, let them practice with a small loan from you and pay it back with interest.

5. Guide on Giving Back

A final lesson is the powerful concept of giving back. Establish a "give" bucket for a cause the whole family agrees on. Or, ask your children if they'd like to receive donations for a charity instead of gifts at their next birthday party.

Giving back doesn't have to be only about money either. Teaching children to volunteer their time, talent and resources is also a good life lesson.

It's About Smart Money Choices

Teaching your children how to handle finances may be a long journey, but one that's worth it. Financial smarts are not about setting a goal to be rich. They're about giving them tools to make thoughtful choices about how they earn, consume, invest and give their dollars.

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Diane Gallagher
Diane Gallagher

Raise Financially Aware Kids

Help them learn what every kid should know about money with our free eBook.

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