You may be a frequent reader of FFL and trying to make money and save money, but to those with children – are you passing on this information to them?
Did you know that 57% of kids aged 8 to 14 are more likely than their parents (at 44%) to say they are spenders? Over half of kids rather spend their money than save it.
This same survey showed that only 28% of kids were knowledgeable about managing personal finances and only 21% understand how to handle credit.
As for parents – 8 out of 10 felt that they are setting a good financial example for their kids – but two-thirds of them stated they’ve done things that may not be good examples.
Now, let’s improve those statistics and learn 10 money lessons our kids should know:
1. Start Young
You can start teaching your kids about money as young as pre-school age. Start showing them the meaning and concept of money. Here are a few beginning steps:
- Have a Savings Jar – Many of us had piggy banks growing up, but we could not see how much we had until we opened it (or broke it). Use a clear jar to visually see the money accumulating. Teach what each coin means and how many of each they have currently.
- Start your own money habits – kids follow what you do, not what you say. Start your own proper money habits and they’ll learn from your examples.
- Show them that things cost money – Don’t tell them how much things cost, show them. Take their money jar with them shopping and show how to take their money out and spend it. Watching how much something actually costs has more impact by doing it themselves.
Start young and start simple. Have a simple saving and spending plan that they want to work on – a specific toy, and physically show them how it’s done.
2. Money Doesn’t Grow on Trees
When my kids were young and I said no to a new toy because we didn’t have enough money at the moment, they responded: “Just take the blue card out of your purse and swipe it!” I then had to sit them down and explain how debit cards work and the money comes from our paychecks that we put into the bank.
I then showed them their money jars and how much they needed to save to get that toy and the things they could do to earn that money. I then created a list of chores they could do and for how much. This way they learn that money is earned – not given.
Working for money sets up a lifelong lesson for employment, shopping, and savings. Honestly, kids will be more grateful, careful, and proud of the things they’ve worked for than those things that were given to them.
3. Financial Consequences
Show your kids that their money decisions can have financial consequences. The simplest form of this is showing that if they buy this toy now, they won’t have the money for that one later.
For example, your kid decided to save long term to get a Jurassic World Roarivores Triceratops priced at $28 but spies a Lego Mighty Dinosaur kit for $12. You’ll need to explain if he got the Lego set now, he’ll need to wait longer and work again for the Triceratops one. Another lesson is to decide on one or the other – not both, they learn how to prioritize what they want.
4. How to Spend Money Smartly
Show your kids how to be frugal from a young age and the habit will carry over into adulthood.
Take them grocery shopping with you and when you are getting things on the list, show them how to comparison shop. Ask which salad dressing is cheaper and compare their sizes too.
My kids learned from a young age where all the consignments shops are in town and where the clothes in their sizes were located. The only clothing we buy brand new are undergarments, shoes, and the occasional outfit that we couldn’t find elsewhere. Now they’re in their late teens, they’re accustomed to asking “Is there enough money in the budget to cover new Band shoes?”
My son has carried this habit into University and dropped his food plan and shopped from Amazon instead and saved $3,350.
5. Make them Responsible for a Bank Account
Once they’re old enough to move past the savings jar, pre-teens to early teens, open a bank account in their name and teach them about savings and how interest works.
This is a step up in money management and ask them to aim for bigger goals – their own used car, a college fund, or a graduation trip.
Hopefully, by the time they graduate high school, they’ll have a nice amount set aside to manage on their own.
6. The Difference between Needs & Wants
Sadly, some adults have not learned this lesson, hence the “keeping up with the Joneses” and upgrading to newer things before the old one is even worn out.
A basic explanation of needs are necessities to survive – shelter, food, clothing, employment, health; wants are not necessary but what we want or desire. A good example of the difference – you need clothes, but you don’t need designer clothes.
This really isn’t a financial lesson, but an attitude and mental lesson, but it affects your money negatively and usually leaves you in more debt. Everyone will benefit from the right money mindset.
7. Teach them the Proper Use of Credit Cards
Did you know that the average American between the ages of 18 and 65 has $4,717 of credit card debt? This may not seem like much, but the average credit card’s interest rate is 15%. With the minimum payment of $189, it’ll take just over 10 years pay off that $4,717 and the total paid would be $22,869!
So, teach your kids the proper way of using credit cards by paying them off in full each month, picking a low-interest card, and with cash-back rewards for more savings.
8. Budgeting, Paperwork & Taxes
The number one reason why people are struggling financially is that they don’t know how much expenses they have or how much they’re actually spending every month. Don’t let your kids carry the struggle into the next generation and quit your bad money habits now.
Show your kids how to save receipts, and what taxes are. You don’t need to get specific about your own finances and your own income tax forms if it makes you uncomfortable, but you can use these lesson plans instead.
9. Teach them to Work for Themselves
Teach them how to start their own side hustle and earn money on the side while they’re at school or college.
Help them brainstorm ideas to match their talents and abilities and how they can make money from that and be happy doing it. If your kid is a great musician, let him busker on a busy corner on weekends (with the city’s permission of course), and some bars allow 18-year olds in to listen and play music and a music gig can earn about $300 for 4 hours.
If you taught them about budgeting and receipts and taxes, they’ll be set when it comes to claiming these earnings on their next income tax forms.
10. Teach them about Giving
Our children’s attitudes about money are formed when they are young, and a lesson on how giving their money makes a difference in the lives of others.
Teach them to set a little money they make aside into a savings jar to donate to a cause they feel is important, a gift for a friend or sibling, or for anything else that doesn’t benefit them directly. Now remember kids are more likely to follow your actions and not your words, so start a giving fund yourself.
Also, use this opportunity to teach them to be resourceful and think up other ways of giving. Would they rather donate their time instead by volunteering? Make things (like Christmas shoeboxes for Charities or Veterans), and other ideas they can come up with.
This is an important life lesson on gratitude, appreciation, and empathy for others. It’s also a satisfying feeling when you know you’ve done some good.
If you think about it, these financial lessons for our kids are good ones for us to learn too. Why not grow together as a family and set financial goals together?
If you rather have reading material the both of you can read together, here are some great books:
Just think of it, if you give them great money lessons when they’re young, they probably won’t be coming to you as young adults to borrow money – that’s a win-win!