Cash-Conscious Kids: Teaching Your Children To Respect Money

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When do you need to start teaching your kids about money? When is it too early to teach about debt? When is it too late to go over the basics of investing?

Personally, I don’t think any of these questions have clear answers. Start teaching lessons as early as possible, but don’t expect compound interest to make sense to a kindergartener. In the end, how you go about teaching these concepts matters just as much as when you start offering the information.

It’s also worth remembering that people have different theories and different means of teaching. What Warren Buffett might teach his kids will be different from J.J. Watt, and both of their styles will be vastly different from a young mother working two jobs and trying to pay off student loans. The ways in which you use your own money will likely provide the strongest lessons of all.

Financial education is ongoing. I’m still learning ways to make my dollars go further, and I teach about this stuff for a living. You’ll have to update your teaching methods as your kids get older and you’ll have to constantly reassess as you learn more. You very well might be passing financial knowledge to your kids after you’ve become a grandparent.

While there isn’t a clear lesson plan, there are a few tactics that will help you stay the course as your kids get older and begin to see the importance of money. This article focuses on the ways you can show your children financial responsibility instead of just telling them about it. If you stay consistent with that effort and make necessary adjustments as time goes on, you’ll have a good shot of raising future financial experts.

1. Visuals Matter

How you organize bills in your wallet has little-to-no bearing on your wealth. If you crumple up spare bills and jam them in your pocket, you don’t decrease the value of those dollars - except in the eyes of your offspring.

Children learn visually and are far more perceptive than a lot of adults give them credit for. The small things you do when buying an ice cream or paying for groceries don’t go unnoticed, and it’s important you do your best to set an example. If your children don’t fully grasp the concept of a financial transaction, they see dollar bills as pieces of paper. Treating those pieces of paper with care gives one impression, while handling them the same way you do an old post-it note illustrates something very different.

Believe it or not, you can demonstrate the value of money at home when you aren’t buying anything. Around four or five, lots of kids starting seeing the connection between dollar bills and the things they like. While the mental correlation builds, the visual connection stays strong, and establishing a saving jar can serve as a very useful device. If you go with a glass jar or a plastic jug, your little ones can see the money accumulate. Without diving into interest rates and account fees, you can put the importance of saving on display.

This tactic can work in a variety of ways: if your kids fill a jar with change, they can get a reward once the container is filled to a certain point. If they put bills inside a jug, have them count the money once a week or every other day, knowing that once they hit a certain amount they get to go to the movies or the arcade. It’s always good to work some math in while you teach financial fundamentals.

When your kids get older and you start giving an allowance, try to use crisp, new bills. Eventually, your kids won’t care about how nice the paper looks, but you should emphasize the value of the individual bills for as long as possible.

If you want youngsters to understand the value of money, let them see that you care about every dollar and quarter you have. That visual will go a long way.

2. Give Responsibility

Some responsibilities can wait, like making decisions with savings and investments. Other responsibility, like taking ownership of a purchase, can start sooner than later.

When you take your son or daughter to the toy store and let them pick out what they want, make sure they know the price. Have them repeat the number back to you and then show them something cheaper and something more expensive. The child will still buy whatever he or she wants most in that moment, but the concept of value will start to seep in. With the knowledge that different things cost different amounts, a child might start putting a little more thought into what a toy is worth to them.

After they decide what they want, let your children handle these transactions. Give them the money to hand to the clerk, then put them in charge of accepting the change and organizing the bills. In the early going, you want to focus on establishing the relationship between treating money with care and getting the things they want. This will be harder at certain ages and on certain days, so don’t expect it to go flawlessly every time; do your best to make the whole process feel fun and rewarding.

After a few years, giving money to a vendor and accepting change will lose its luster. The type of responsibility will have to evolve as your children get older, and there are plenty of different avenues you can take. Having your child open a savings account (even though you’re doing the actual opening) around eight or nine years old will make them feel grown up and important, even if they don’t fully understand where their money is going.

A bank account will slowly help kids understand what really goes in to making bigger purchases down the road. When they reach a savings goal, they get rewarded. You can draw parallels in your own life with purchases they might notice, like new furniture or a new car. Do your best to point out when you reach a financial milestone, and see if it’s something your child can emulate.

The money that goes into savings will most likely come from an allowance. It’s important that money not be given out for nothing, and also that you don’t make it too grueling to earn. Find the balance between useful chores and making your kids feel like the payment is worth the effort. As much as you’d like to have a son or daughter who loves working hard no matter what, it can backfire if your kid hates the work so much they dismiss the idea of earning money altogether.

While teaching financial responsibility, don’t lose sight of the fun we want our children to have. You can make chores enjoyable and you can give an allowance without spoiling. Make sure you establish the relationship between good behavior and financial reward.

3. Stress Generosity

Sharing doesn’t always come naturally. The act conflicts with a strong survival instinct that tends to rear its head in young children. I’ve seen little boys push food away and then fall into tantrums when that food is offered to their sibling. If we don’t emphasize the idea of giving, it likely won’t develop later in life.

This part requires the most direct teaching. A child looking at a 5-dollar bill won’t understand why someone else should get one or two of those dollars. You may very well spend the first 15 years of your child’s life reminding them of the importance of sharing. Don’t worry if the concept doesn’t take at first - you’ll have plenty of opportunities to work on this.

A good way to start is by putting them in control. Let them give a dollar or two the next time you’re at church; let them see the smiling faces of the congregation and explain how they made people happy. If you’ve got a little animal lover, take them to the shelter and tell them how a small donation will help animals find loving homes. Your child might not always want to give, but he or she will enjoy that feeling after helping someone in need.

If your kid doesn’t have money to give away, purchasing power can teach about sharing as well. When buying candy, make sure to spread the wealth and share with mom, dad and siblings. You can set a rule that allowance can only be spent on sweets if the child agrees to share. Since few things can deter a kid from spending money on sugar, this is a fairly surefire way to create a sharing habit.

It’s impossible for me to overemphasize the importance of giving. Tithing and charitable contributions offer an irreplaceable award while enriching the lives of those around us. As I said before, children are very perceptive - they’ll pick up on the spiritual fulfillment that comes from generosity.

4. Teach the Basics of Budgeting

In the early going, your children will save up for whatever it is they want to buy, spend their money and then start saving again. It’s a zero-sum game that won’t work too well later in life, but it’s OK for little ones still learning the concept of value.

As time goes on, you’ll want to show that money can do multiple things at once; you can save for toys AND gum at the same time! As your kids stop choosing between the things they want and instead start saving for both, it will highlight the importance of keeping cash on hand. Your daughter’s emergency fund might go exclusively toward last-minute clothing and app purchases, but if she’s learning to have funds available, there’s nothing wrong with that.

A simple budget will instill excellent financial principles, no matter how the money gets spent. Say your son gets $10 allowance each week. Seven dollars can go into a cash account, living in his piggy bank or sock drawer. That leaves three bucks to go into an account he doesn’t draw from, working toward a specific goal or just building a reserve that will eventually earn interest.

Even if the cash goes toward candy bars and video games, the 30% that goes into savings will likely feel more rewarding to the child after just a few months. He’ll learn that you can give different jobs to your money and buy things you want while still saving for things that matter more. With any luck, your child will start putting more money toward the saving percentage and spending less on fleeting purchases.

Budgeting confounds many adults, so it’s not worth getting into the nitty-gritty with your kids until they get into high school and start thinking about things like college and cars. The basics, however, can be taught pretty effectively when you show that a 10-dollar bill doesn’t have to be spent in one place. Those dollars can divide and conquer, leading to more wealth without completely sacrificing chips and soda.

5. Talk About Work

Every child will learn to love money. We all want to live in comfort, and money usually offers the quickest means to that end. Unless your sole parenting goal is to fend off materialism, your children will take a liking to any bill with a picture of a president on it.

As such, you should talk openly about professions and wages. You may want to explain that financial matters can be personal and some people won’t want to discuss them, but you should be open about money inside your home. Use the concept of salaries to show not just what can be earned, but to explore the true value of money as it relates to life’s other riches.

I’m all for summer jobs and afterschool work, teaching responsibility and allowing kids to earn their own money. I do think parents need to be careful about placing too much importance on work, and I feel this way for a couple reasons:

  1. We have our entire lives to work
  2. The workplace continues to evolve

It’s important to develop a good work ethic and take pride in one’s responsibilities and obligations. It’s just as important to make the most of youthful years that we don’t get a second shot at. If we force our children to work hard at jobs they don’t enjoy while the rest of their friends go to summer camps and take vacations, they might become programmed to work hard, but not necessarily enjoy it. From my experience, it’s easier to make money when you don’t hate the process.

We also have to remember that jobs and industries have changed since our parents raised us, and they’ll continue changing as our children get older. You can teach your kids about an honest days work, but you can also let them explore classes and programs that could set them up for interesting and fulfilling careers. If your kid has a passion that seems a little impractical, don’t dismiss it too readily. There’s no shortage of success stories that involve the path less traveled.

In short, teach your kids about professionalism and income, but don’t define earning possibilities too rigidly. When it comes to creating a career, you want them to keep hope alive as long as possible.

My guess is that teaching your kids about money will be almost as educational for you as it is for them. You’ll get a better understanding of your relationship with money, and you’ll have some of your spending habits reflected back to you by your offspring.

Try to remember that the lessons can be fun. You can playfully teach financial responsibility without scaring your kids into saving every penny. While all kids learn differently and you’ll find your own methods of teaching, we can all strive to raise children who respect money and understand the power of giving. If you maintain that focus, the curriculum will pretty much write itself.  

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