I grew up in a small farming community in southeast Idaho. Consequently, I heard one question over and over: “Is your dad a potato farmer?” Sadly, the answer was no. Not only did he not grow potatoes, but we didn’t even have a garden. Instead, my dad was a banker; money was his business. So, while he didn’t teach his kids the importance of good soil, he schooled us, from a young age, all about money. Teaching your kids about money can be tricky, but by the time I got married, talking about money was second nature—a tradition I carried on with my husband into our new family. Just like we had to agree on basic parenting skills like dealing with our kids’ emotional health or proper technology use, we needed to agree on the best strategies to teach our kids about money.
After much practice, here are some strategies we’ve found most helpful.
Start Early
And I mean early—before kids even come into the picture. Your best bet for teaching your kids to be responsible with money is to figure out how to be responsible with money yourself. Here are some things to consider:
· Talk about money habits and expectations while dating your future spouse. Regardless of the status of your relationship, if children are in your future, figure out how money works between the two of you.
· Come to an agreement about how money will look in your household. Simple suggestions like not spending more than $100 (or whatever limit you choose) without the consent of the partner or paying bills together to monitor income and expenditures can limit fights and add to financial security in your home.
· Make a plan for teaching your kids about money. If you wait until your 7-year-old daughter starts asking for money, you might be too late. Know how you will respond before the conversations begin.
· Keep the conversation about money going. Money is an integral part of our lives. So make it a common topic of conversation. Assess and reassess where you stand financially to increase security.
Tips to Teach Your Kids to Be Smart with Money
What if you already have kids and you haven’t tackled the awkward money conversations in your home? Don’t panic. If you want to teach your children to be responsible with money or help them understand the value of money, start small. And start right now. Make conversations about money a family affair. Here are some tips and tricks to get your kids started on their journey to smart money management.
Give, Save, Spend
· Give first. Help your kids see the value in giving a small portion of their money away first. Rachel Cruze, personal finance expert, counsels, “Giving is one of the most important of the three categories because you’re teaching [children] to feel the impact of helping others at a young age. That’s invaluable.” Help your kids pick a favorite charity, church, or other good cause and encourage them to give some of their money away.
· Save next. As tempted as your kids might be to spend their remaining funds, help them set aside a specific amount for the future. Whether the money is earmarked for emergencies or a particular goal, teaching your kids to establish a habit of giving and saving first will pay tremendous dividends in the future.
· Finally, spend. Allow your kids a chance to spend some of their money on purchases of their own choosing, even if you don’t love their choices. Give them complete control over a portion of their money, no matter how small. This practice will help them learn the value of money. It will also help them understand, in concrete terms, the concept of opportunity cost—when they spend money on one choice, other choices are no longer available.
Teaching Your Kids About (Physical) Money Management
· Use clear money jars. If you want to teach your three-to-five-year-olds about money, start with clear money jars labeled GIVE, SAVE, and SPEND. This simple tactic will allow your kids to watch their money grow. It will also provide a visual of what happens when money is saved versus spent.
· Open bank accounts. With easy access to online banking these days, you can find a variety of checking and savings account options for your kids. Many banks offer accounts under a parent’s umbrella. Others offer stand-alone teen accounts. Regardless of the type of account, encourage your older kids to use a financial institution to save and manage their money. Not only does this give them practice for adulthood, but it helps them take control of their finances right now.
· Use payment apps. Some apps are specifically designed to make payments and move money. According to thebalance.com, the six best payment apps of 2021 are:
o Paypal—Best Overall
o Venmo—Best for Friends
o Cash App—Best with No Frills
o Zelle—Best for Banking
o Google Pay—Best for Google Pay
o Facebook Messenger—Best for Social Media
Create a Simple Budget
· Write out their needs and wants. Help your kids identify standard expenses and write out a simple budget to meet those expenses. As part of the simple budget, build in a category for discretionary spending. This practice teaches your kids to meet obligations before spending for fun.
· Allow your kids to watch you follow a budget. Parents might feel uncomfortable with this concept at first. But when you involve your kids in your finances, even on a limited basis, they develop a better understanding of what it takes to live in the real world. They learn how to balance necessary expenses like housing and utilities with luxury expenses like entertainment and dining. They can even appreciate that expenses like cell phones and cable might be more of a luxury than a necessity.
· Pay bills online. Even if your kids don’t pay bills personally, let them observe you paying bills online. This practice teaches them easy options for creating and sticking to a budget each month.
Avoid Impulse Buys
· Wait twenty-four hours. If your kids find something they can’t live without, encourage them to wait twenty-four hours before making the purchase. According to Ramsey Solutions, experts in money management, “It will likely still be there tomorrow, and they’ll be able to make that money decision with a level head the next day.”
· Evaluate the need versus the want. It’s fine to make some “want” purchases. But sometimes, wants outweigh needs, especially with impulse buys. When considering impulse purchases, help your kids determine if the purchase is necessary and smart. Time and a little distance from a potential purchase can help them see the situation clearly.
Teach the Pros and Cons of Interest
· Teach your kids how interest works. Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. . .he who doesn’t. . .pays it.”
· Avoid credit. This was a big one in our house. Teach your kids to avoid purchasing on credit at all costs. This is the fastest way to lose money unnecessarily to interest. It’s not a bad idea to get a credit card in your kid’s name to help them establish and build their credit. But this is important! Teach them to never use a credit card unless they have cash to pay off the balance in hand before they make the purchase.
· Avoid student loans. As tempting as student loans might be with their beguilingly low interest rates, nothing kills the joys of a new career faster than loan payments and unwelcome interest costs. Encourage your kids to explore other options like scholarships, grants, and part-time jobs to fund college or vocational training.
· Help your kids invest. Think your kids are too young to start investing their money? Think again. Kiplinger.com offers seven suggestions to help your kids learn about and venture into the investment world while they are young. Some of their suggestions include:
o Involve your kids in financial conversations.
o Teach them that investing isn’t a get rich quick scheme.
o Get them interested in companies they know.
o Encourage them to practice in virtual stock markets.
Another great resource is Bankrate. Bankrate can help you teach your kids how to start investing young. Once your child (and you) feel comfortable, they can give investing a try.
Encourage Kids to Make Money
· Teach the value of money. Kids value money more when they have earned it honestly. Rather than giving an allowance, give a commission for work done in the household. Help your kids understand two important principles: 1) hard work pays off and 2) there’s no such thing as a free lunch. The sooner kids realize that money has a value, the more likely they will be to manage it effectively.
· Encourage your kids to get a job. As soon as possible, help your kids find a way to make money. Encourage them to get a part-time job after school, during summer break, or on the weekends. They can flip burgers, clean cars, or bag groceries. They can even take their own ideas to the next level by becoming an entrepreneur. Whatever they do, working for their own money will help them take ownership of their giving, saving, and spending habits.
Never Too Soon, Never Too Late
It doesn’t matter if your kids are five, seven, eleven, or seventeen. It doesn’t even matter if you don’t have kids yet. Deciding on and implementing solid strategies for teaching kids about money is always a smart play.
I may not know how to grow potatoes with any kind of acumen, but I will be forever grateful that my parents took the time to teach their kids about money and how to make it work, and your kids will be, too, if you take the time to teach them about money management.