We raise our kids and we try to teach them empathy, show them love. We encourage them to be physically active and eat healthy. We teach them about religion and spirituality. We also need to teach our kids about money.
Raising our children to be financially savvy is one of the greatest gifts we can give them and give ourselves. By raising our children to be comfortable with saving and investing we are gifting them time to grow wealth. By teaching our children to live within their means we give them peace of mind.
When our children feel financially secure because they know they can fund their life, we are giving them peace of mind. They will have confidence and experience to rely on to make good decisions for themself.
It’s good for them and it’s essential for your financial future, too. Your finances will not be secure if you have 30, 40, 50 year old financial children siphoning off what you need to live on.
But where does a parent start? What do we need to do to teach kids about money?
1. Set An Example
Kids learn from those they are around. Hearing how you talk (keyword being talk and not argue!) about money and seeing how you make financial choices will resonate with them more than anything else.
If you feel like your finances are unorganized. If you feel like you are living paycheck to paycheck. It’s time to work on it. Not only for yourself, but to set an example for you children. Not sure where to start? Look into our financial education courses.
2. Involve Your Kids
Bring them into conversations about money. With young children, talk with them about money and help them understand the value of a dollar. At the grocery store for instance, talk about the cost of products, compare products and talk about the economics of it. Do what you do in your head, but just do it out loud.
Talk about tradeoffs with your children. If you go out shopping, give them choices of eating out or buying something that you think they could use and then eating at home. Also, when you take them shopping for clothes, talk with them about the cost of the items. You can either break it down into how much time you had to spend to earn the money to buy the item.
You can also talk about the rule of the amount of money per wear. Let me explain that a little further! We have a rule in our house that for every-day clothing items (i.e. shoes or jeans), we don’t spend more on them than $1 per wear. So if something would last only 10 wears, we wouldn’t be willing to pay more than $10 for it. However, if your kids wear jeans every day to school, you may be willing to pay $30 per pair, because economically speaking the cost per wear would likely be very low. You may have a different rule you live by, but talk with them about it.
As they get older, let them be part of the financial discussions and decisions of the family. Only do this when you know they understand confidentiality and when you are ready to heed their opinions! Take them to the bank with you (or let them deposit checks on your phone app).
As they become closer to being adults, let them know about all of it. Talk with them about your estate plan and let them listen when you need to talk with your insurance agent about a claim or adjusting coverage. These last couple of items are certainly things to include them once you are certain they understand confidentiality.
3. Financial Literacy Makes a Difference
Just like you don’t have to be the only one to help your children learn about emotions, religion, etc., you don’t have to be the only resource for your children when it comes to personal finance. There are finance books and games for all different ages. We’ve all played Monopoly, right?!
Help your child get a Library card at your local library. Ask the librarian what age appropriate personal finance books they have in stock. Read to your child, let your child read on their own. Let them talk about what they’re learning from the books and foster their curiosity.
4. Help Your Children Implement Personal Financial Practices
Just like your 10 or 12 year old can’t drive themselves to soccer or baseball practice, they can’t drive themselves to the library, a financial institution, etc. They also likely don’t have the confidence to print out paperwork and complete it accurately.
Help them. Don’t leave it up to them to do. They are not adults and cannot understand the magnitude of what they are doing for themselves by learning about money and personal finance at such an early age. They will; however, thank you for it at some point in adulthood.
When I was 13 I got a small administrative job at my dad’s office where I was making money doing filing. I never would have said at 13, man it’s time to set up a retirement account. But with earned income, I had the ability to invest in an Individual Retirement Account. My mom sat down with me, talked with me about what it meant to set aside money for retirement.
She then walked me through filling out appropriate paperwork and establishing the account. She then also helped me get contributions to the account. I remember her walking with me to the mailbox to send off the checks (this was WAY before direct deposits). Without her guidance, help, and prioritization to make it happen, I wouldn’t be 20 years into investing for retirement.
5. Have Financial Oversight
The worst thing we can do is give our children financial tools when they aren’t at a maturity level to use them correctly. For instance, if you put aside money for your child’s education, you wouldn’t let them spend it on a fancy car. So, if you help them put aside money for retirement, help them make choices so they don’t access it at a young age.
The best place to start is with cash. If your child doesn’t have cash to spend, they can’t overdraw an account. They are forced to stop spending.
By having oversight, parents are ensuring their children really are able to manage the responsibility of money. It can also point out to us teachable moments.
6. Set Boundaries
When we see our children we want to give them the world. It’s hard to say no. They are adorable and persuasive. We rationalize why what they’re saying makes sense.
There are ways to support and educate our children about finances without putting ourselves and our financial future at risk. When it comes to our children, just as we may set curfews, require them to do their chores, we must have boundaries and expectations with respect to money.
My parents had a coin jar. My parents would put their random change in it. My brother and I knew we could use the coin money for miscellaneous wants (i.e. a run to Sonic for a drink or a taco at the local taco place). But we knew if we got into mom or dad’s wallet, we needed to have permission ahead of time.
As we got older, we knew our parents would help us out here and there, but our requests needed to be reasonable and infrequent. If we were asking for money from our parents we needed to display we were being otherwise responsible.
By having boundaries it shows your children that there are limits.
7. Limit Your Risk
As we teach kids about money, we need to also protect ourselves. When our kids open bank accounts, open it separateWhile our kids don’t need any or much credit, there may be instances as they get older that they need a co-signer.
Overall, about 40% of people who co-sign on a loan get stuck paying all or part of the loan. If you aren’t comfortable getting stuck with paying the entire bill, don’t co-sign. If you are concerned that your child will fail making payments on the loan. Say no, for their sake and for yours. This may seem harsh, but if you’ve worked years on building your financial future, you can’t afford to risk it.
Think of it this way. By saying no to your child you’re not only protecting your financial future, you can also teach them a lesson. You can teach them that perhaps it’s better to save and pay out-right for an item. Teaching financial patience and savings for goals is a gift. If you feel inclined you could put them to work and pay them for their time and efforts. This way your financial support is not free and your credit worthiness is not at risk.
8. Have Reasonable Expectations
Our kids are not going to always make perfect decisions when it comes to money. They are not going to save as much as they maybe could. Kids are at times going to spend their money on what we view as junk. What we would choose for them may not be what they would choose for themselves.
You can guide them and communicate with them, but at the end of the day we need to have reasonable expectations that our kids won’t do exactly what we think they should do. We need to remind ourselves that this is part of the learning process and part of them establishing who they are.
9. Let them Fail Without Always Bailing Them Out
Just like our kids won’t make perfect decisions every time, we need to release ourselves of the responsibility to ensure they don’t fail. Failing means opportunity to learn. I’d rather a 15 year old learn a good financial lesson on something that in the grand scheme of things is small.
Perhaps making a really poor purchasing decision when they are 15 on something small will save them a big financial mistake when they are 35. When they are 15 let them come up with a solution to get themselves out of whatever mistake it is.
Let me give you an example. When I began driving, it was my parents expectation that I pay for my car’s gas and all maintenance. If I didn’t have gas money I either had to have my parents drive me or find a friend to pick me up. If my parents would have handed me gas money every time I needed it, I wouldn’t have learned that I really did need to plan, save, and make sure I had money when I needed gas.
If our kids think that our words don’t match with our actions, they’re smart, and will exploit that. We don’t want them to think that we will always bail them out. They need to learn that the Bank of Mom and Dad is not going to bail them out every time.
10. Figure Out When There are Positive Teaching Moments
That leads into allowing kids to be kids. When they realize they made a bad financial choice, don’t berate or lecture them. Don’t give them advice and when they don’t follow it say “I told you so.” Simply, remind them that next time they will have the opportunity to make a different choice. Acknowledge that they have learned a powerful lesson for their future and let them tell you what they’ve learned.
Likewise, not every moment should be spent teaching kids about money. There are other valuable things in life (i.e. relationships, STEM, etc. are important to). So, look for windows where you think your child has an interest in something that you can turn into a finance lesson.
11. Celebrate Their Successes
Figure out a way to celebrate your children’s successes. When children set financial goals and they reach them, figure out a way to make it feel like a big win for them. A few ideas: let them choose what’s for dinner, have a special song that you play and sing along to, or go for a walk together and reminisce about what it took for them to reach their goal. You can also talk to another adult about their financial success (while your child is in earshot of the discussion).
When they put aside money for their education or for retirement, if you are able, match a percentage of their savings like a future employer might.
By celebrating their successes, it adds to the excitement of setting goals and reaching them. It can also give you quality bonding time and build your relationship with them.
12. Prioritize Organization
Push your kids to start organizing their financial life from the beginning. At first it may start with a couple of file folders. It can evolve into computer spreadsheets and a spot in your safe.
We need to teach our kids to protect their financial information (i.e. shredding items they don’t need to keep), and maintain a digital assets inventory. While their first systems for maintaining financial records may really be a mess or heavily guided by you, by prioritizing organization it will become a habit as they get older and more sophisticated with their finances.
About MPower Co
MPower Co is a financial education resource for individuals of all ages, backgrounds, and walks of life. It was created by a mother-daughter team, who value close family relationships and strong personal financial practices.
Want to learn more about MPower Co, visit our website. Please also follow us on social media on Facebook or Instagram for course information, blog posts, and up-to date information on personal finance and positive psychology.