3 Ways to Teach Your Children about Money | Business
Most of us learned all that we know about money by watching our friends and family handle money. The rest of our education typically came from media and the market – car dealers/appliance stores/banks and a few other places along the way.
However, parents have the opportunity to give their kids an incredible advantage early on by teaching them about money well in advance so they don’t make the same mistakes that their parents or perhaps their parent’s friends have made in their teens and adult life.
The first way we can teach kids about money is to let them get some real world experience with money. You can do this by giving them an allowance, but I believe that the allowance ought to be tied to certain little jobs. It’s important to teach kids from an early age that doing work leads to rewards.
Put your kids on the family “payroll” and make sure they understand that they only get all or part of it if they do certain things and nothing if they do not do them.
The second is to teach them what to do with the money once they earn it.
Money is just an abstract concept, as abstract as playing a video game to a kid. They have to be shown what money is for and its correct use.
For young children, it’s a good idea to start them on piggy bank system. Give them 3 clear containers so they can visually see the money accumulating. Next, label each container. One for giving, one for saving, and one for spending. On the spend container, you might want to attach a picture of a toy or something they want.
When you pay them, pay them in coins or in small bills so they can divide the money up amongst the jars. Have them put 10% or so in the giving jar, 20-30% or so in the savings jar, and the rest in the spending jar.
When they have a few dollars in the savings container, take them down to the bank and have them deposit it. You might also want to keep a running total on the savings jar so they know how much they have total. Explain that the savings container is for future needs (maybe college or something like that).
When they reach their “goal” in their spending container, they get to go spend it on whatever they want. This will give you the opportunity to explain opportunity cost in a way that they’ll understand. They’ll get to see that if they buy one toy, they can’t buy another – and you shouldn’t change that for them either. This is not a good time to get them hooked on the bank of mom and dad.
Now, let’s talk about the giving jar. If you attend a church or other religious organization, let them use their money (not yours) to learn about giving by paying tithing. They can also let the money build up throughout the year and then allow them to participate in a Holiday event where they can bless another child or in some way directly see the results of their generosity. Generosity is essentially the opposite of entitlement, and therefore it is an incredible thing to teach early on.
The last way we can teach kids about money is by making sure that we actually understand money ourselves. Do we know how money works? Do we have great money habits? It cannot be understated how important it is that they see you handling money responsibly and that whatever you teach them – you actually believe and practice.
In other words, if you’re frequently using credit cards to finance things, they will probably do the same later on in life. If you’re not saving proactively and you want them to do it, you need to do it too. No matter what we tell kids, they listen to our actions far more so.
If you need to figure out your finances, or need to see how good (or how poorly) you’re doing managing your own money, check out my book “Your 33 Day Money Action Plan” as a great way to get an objective view of your current financial situation and to put together an action oriented plan to improve or completely turn around your current situation.