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Every parent wants to raise a child to be a responsible adult.
One of the biggest challenges for parents is teaching kids how to use their money wisely. The ability to do this will determine if your child can:
- budget to get through college,
- provide for their family,
- get a house,
- stay out of unnecessary debt,
- if they are comfortable or stressed,
- and if they are in control of their lives.
The importance of teaching children about money cannot be over-stressed.
So how do you teach a child to be smart with his or her money?
Preparation For Parents: Get in the Right Mindset
First- Parents, let’s level with each other.
Money and kids are tough topics to discuss together. That’s because money is kind of a tough, unforgiving fact of life. And it’s your baby that we’re talking about!
It can be difficult for parents to ask their kids to do anything, well, difficult. Like deal with money.
Remember that you have a limited time to teach your child necessary skills before they are thrown to the cold, heartless world. Either you can teach them what they need to know, or life will teach them. And life is a B!*&#.
It’s much better for your child to learn from you, not from life. You love them, you’re patient, you can give them second chances. Life won’t show any love or patience. They might get second chances, but only with extreme consequences- like bankruptcy, bad credit, and debt.
Lots of people assume that teaching about money can wait until their kids are older. After all, who wants to think about money beyond the day to day grind of saving, earning, and spending?
But, don’t waste time! Research shows that children form money habits by 7 years old. (See ‘Habit Forming and Learning in Young Children’, Dr. David Whitebread and Dr. Sue Bingham)
Let me say that again…. 7 years old!!
That’s no time at all! And the impact is huge- it will affect the rest of their lives!
So let’s get started.
Click the image below for great resources by Dave Ramsey on teaching children about responsible finances!
Financial Peace Junior Kit: Teaching Kids How to Win With Money
Lesson 1: Money is Hard to Get
- Common Mistake #1: Many parents shell out money to their kids even when the child hasn’t earned it.
Allowances are the worst and most obvious example of this. From my point of view, an allowance is being paid just for living. No work necessary. Just stay at home, do nothing, and get paid. \
Is anyone going to pay you for inhaling and exhaling as an adult? Not at all! So don’t teach your kids that this is part of life. It’ll be confusing and frustrating when they get to the real world and realize that they have to work hard.
Some people might say that they’ll give an allowance now, and adjust to working hard for money as the child gets older. Here’s the problem with that:
- Kids are set in their money habits by age 7, according to research. (See ‘Habit Forming and Learning in Young Children’, Dr. David Whitebread and Dr. Sue Bingham)
- The child is going to resist that change, because it’s easier to get an allowance than to work hard. You’ll have an uphill battle ahead of you when you try to change a system that you created.
Instead, teach them to work hard now, in age appropriate ways.
- Common Mistake #2: Many parents give too much money for too little work.
Parents, how hard do you work for your money? Pretty darn hard!
Parents, how much time do you put in for your money? A lot!
Kids aren’t ready for an adult level of time and effort, but they do need to be prepared for the level of energy and time that they will be expected to invest into making a living as an adult.
Giving children a lot of money for an easy task isn’t helpful. It’s better than giving them money for doing nothing, but it still teaches kids that money is easy to get. And it isn’t. Your job isn’t easy, is it?
Don’t adults get paid less if the job requires less skill? Or less time? Flipping burgers pays less than being a doctor. And that’s ok. Mimic this concept in your child’s life.
Find an appropriate task that challenges your child.
Don’t pay based on the task that a child completes. Pay based on how difficult the task was for the child. More time and effort=more money. The greater the challenge, the greater the compensation.
On the flip side, the easier the task, the less he gets for it.
Teach new skills that the child will need to earn greater amounts of money.
The first lesson for a child to learn is that hard work pays.
Don’t trust your kids to keep track of real money yet? Try using these educational tools! Click the image below!
Melissa & Doug Classic Play Money Set, Developmental Toys, 50 of Each Denomination, Wooden Cash Drawer, 17.75″ H x 10.25″ W x 1.25″ L
Lesson 2: The Money You Have is Limited
- Common Mistake 3: If the child doesn’t have enough money for something they really want, I’ll just buy it for them.
Is anyone going to bail your child out as an adult every time he can’t afford something? No! So don’t do it now. Remember, we’re mimicking real life in a more loving environment.
Teach your child that he has to wait and save for purchases. If he doesn’t save, he can’t get things he wants.
- Common Mistake 4: If the child is going to make an impulse buy or is going to spend his money on something he’ll regret later, I’ll stop him from making the purchase in order to save him from the pain later on.
Let the child make choices and get excited about what they want to buy.
When they get distracted by potential impulse buys, remind them of their end goal. Remind them that if they purchase something now, they won’t have the money they need for the thing that they really want.
Talking through purchases like this makes your child conscious of the choices that he or she is making instead of simply responding to his own whims.
BUT- if a child insists on purchasing something impulsively, allow this to be a learning opportunity. Don’t just save him from making a mistake. This will reinforce your teaching about saving money when the child realizes that he can’t afford something he wants later because he spent the money now.
Money hurts sometimes. It’s much better for a child to feel it buying Legos rather than experiencing this pain for the first time when he’s upside-down in a home loan.
Let a little pain happen now to avoid big pain later.
Don’t bail out your child because he’s a little sad right now. Let him learn.
Click the image below for a great resource to teach your kids about money!
Learning Resources Money Bags Coin Value Game
Lesson 3: Money is not Guaranteed
- Common Mistake 5: Money just keeps flowing from mom and dad with no end. Even if the kid is working for it, he assumes that he has hit a bottomless well that he can dip into at any time that he wants.
A while back, I heard this story about a young family.
The oldest 3 children wanted to participate in swimming lessons during the summer. It is a great goal, and something the family had done previously.
The only problem is that swimming lessons cost $50 per child, and the family was in a tougher financial position then they had been in previous years. They simply did not have $150 to send all 3 children to swim lessons.
When the parents tried to explain to the children that there was no money for swimming lessons, the kids quickly asked “Can we work for it? We can clean in the house, or we can do things in the yard!”
The parents had to explain that, although they would love to pay the children for doing jobs around the house, there really was no money. The parents could not pay them even for working.
It would be easy to end the story here. Sad kids, no swim lessons. Still a good lesson in finances. But these were good thoughtful parents who didn’t let things stop there.
Although the children were young, the parents talked to friends, family, and neighbors to see if the children could do odd jobs around their homes to earn a few bucks here and there.
With new avenues available to earn money, the parents and kids got to work. Thanks to a combined family effort, the kids were able to earn the money for their swim lessons even though their parents did not have the cash at the time.
This is a tough experience for everyone, but it taught the children that you can’t put your eggs in one basket.
Children who assume that money is an endless well turn into adults who make purchases before they can afford them, counting on that bonus that they’ll get next quarter. Of course, we know that that bonus might not come or it might be needed elsewhere by the time next quarter rolls around.
These are adults who get into massive credit card debt or who fail to save money for hard times.
They assume that because they have a job now, they will always have that income. Jobs come and go. Income is not for sure.
Help children learn to that they must have the cash in hand before they can make purchases. No parents’ credit for kids. No debt. And if they want to be able to buy things they will need in the future, they should have a glass jar or a piggy bank to put money aside in.
Lesson 3 to teach children- Money is no guarantee. Have savings. Don’t buy until you have cash. Avoid debt.
Lesson 4: Money can be Used for Good or Bad
- Common Mistake 6: Teach kids the nitty gritty about money and forget about the ethics.
Once you become a responsible adult, you have responsibilities to your community.
Give back. Help others out. Serve your community. Be a friend and a neighbor.
Do good things with your money.
That’s the only way to have a positive focus about your money. People who are focused on what their money can do for them become greedy and desensitized to others’ needs.
Teach your kids to be generous by finding a reasonable way for them to share what they have. They can give a dollar to a charity or a church, they can donate to a hospital, they can buy a small gift for someone else at Christmas.
Teach children to be giving.
Click the image below for great resources on teaching your child to save, share, and invest!
Colorful Stacking Block Coin Bank For Kids – Helps Kids Save, Share, Give and Invest – Transparent Plastic Bank Shows Cash Inside – Teaches Good Money Habits – Perfect As Kids Birthday Presents
Lesson 5: Show Kids What it Looks Like
- Common Mistake 7: Try to teach my kid to be better than I am willing to become myself.
None of this works without a good example to look up to.
If parents aren’t willing to do all these things for themselves- avoid debt, save money, avoid impulse buys, be generous to others, wait for things you want- then the kids won’t internalize it.
Show your child what these habits look like in daily life.
Point out when you do something right and why you made that choice. Don’t be afraid to teach them when you make a mistake too. We don’t need to hide our failures from our kids. If kids are allowed to see us mess up and fix our mistakes, they won’t have unrealistic expectations for themselves to be perfect, and hopefully they will learn from your mistake rather than making the same mistake themselves.
Teach the ultimate lesson on finances by being in control of your own money.
Keeping It Age Appropriate
One of the greatest challenges about teaching finances is approaching an adult topic in a child-friendly and age-appropriate way.
Those things might seem contradictory. You can accomplish both by thinking a real life adult situation that you want to teach (like money) and simplifying it.
It’s like instead of baking a cake from scratch, you are giving your kid a cake mix in a box. It’s simpler, it fits their level of understanding, but it also gets the job done in a real way.
Still have questions? Take advantage of one of these great books that will help you teach your child about money! Click the image below!
Have fun with your little entrepreneurs as they earn their first money and make their first purchases!!!
Share this post with any parent who is trying to raise a child to be a responsible adult!
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