As parents, we understand the importance of talking to our children about sex and drugs. We get them involved in sports early to teach them the value of teamwork and physical health. Yet how often do we discuss budgeting, compound interest or debt management?
When it comes to finances, we don’t want to stress them out, think talking about money is rude, or feel they don’t need to understand finance until they are older. Yet every step our kids take from college through retirement will be directly influenced by their ability to manage their finances: student loans, credit cards, jobs, mortgages, savings, etc. Some schools teach personal finances, but a financial literacy test given by the National Financial Educator’s Council found that test-takers from 15-18 years old scored an average of only 59.6%. So it’s up to the parents to make sure our children have a financial education before going out to the real world, where they will make financial decisions that will affect the rest of their lives.
Of course, no child big or small will respond well or retain a sit down lecture on finances, so you have to sneak in the education; make it fun, interactive and relevant. The more you integrate finances and money into their everyday life, the more comfortable they will be with personal finance as adults.
Babies – Ok, I’m not a miracle worker. The only words my 17 month old can say are ‘ball’ and ‘bye’; we are working on ‘fiscal responsibility’.
Toddlers – The goal with toddlers is to introduce them to the concept of money. ‘We need money to buy things, and we have to work to get money.’ We’ve all been there, in the Target toy aisle explaining this concept to our toddler who is lying on the floor screaming because you won’t buy her another Disney Princess (“Honey I can’t buy you a toy every time we leave the house” – Is this just me?) So the best way to communicate to them is by keeping it fun and simple.
- Pretend store: Use toys in the house to sell in a ‘store’. Give the toddler a few dollars to shop, and help her see what she can afford (and what she can’t). Pretend restaurant is another fun version.
- Lemonade stands: Always a hit with the kids and you get points with the neighbors (as long as you try the lemonade first). Make sure the kids help you buy the ingredients and make the lemonade. The stand doesn’t need to be anything elaborate and is a great way to teach toddlers about working and making money.
- Use money when they are learning to count.
- Let your toddler pay the cashier anytime you are at the store (except in Target if said angel is laying on floor screaming). It’s an easy way to show by example that you need money to buy things.
- Donations: You can start teaching your children the importance of giving back early by asking them to find old toys they don’t use, and donate them to local shelters or hospitals. We did this with our four-year-old daughter, who offered to donate her baby brother to a child who doesn’t have a baby brother. They catch on quick.
Elementary school – This is the prime time to teach them the importance of earning and saving money.
- Yard Sales: They can help price the items for sale, and work the cash register during the sale.
- Monopoly: Not only is it fun for adults, and little compares to the excitement of securing both Boardwalk and Park Place; it teaches some important finance concepts like managing cash, saving and prioritizing.
- Allowance: I don’t believe kids should get an allowance for things they should do, like cleaning their room. I recommend paying a regular weekly allowance (not tied to chores) so they can practice with it, and come up with ‘extra’ chores to earn additional money, like washing the windows or weeding the garden. They will learn first hand how to save and make smart decisions with their money.
- Save, Share, Spend: Label three mason jars as Save, Share and Spend. Divide any money your child receives through allowance and gifts into these three jars. I recommend putting 10% in the Share jar with each deposit. Split the rest between the other two based on their goals. Help them decide what they want to buy with the Save Jar proceeds, and track how much they have and how much they need. This will be their first budget.
- Use everyday errands as opportunities to explain price differences, and what you want vs. what you need.
- Volunteer: They are now at the age where they can help others by doing.
Teenagers – This is your last shot before they go off on their own, so make it real. They should earn real money and have real rewards and consequences.
- Stock market game: My mom became a financial planner when I was 10, and we played this game with our family and friends. Choose 10 stocks of companies they are familiar with, like Apple, Disney or Nike. Everyone gets $100 (pretend) and chooses one of those stocks to invest it in. For one month, check the stock prices each week and record how much money each person has. This can be a fun family dinner activity, and gives you a chance to explain investing. Make it a fun competition with a prize for whoever has the most money at the end.
- Get a job: Babysit, mow lawns, clean, help in the family business; this is the time to instill the value of hard work. Like the Save Jar from when they were in elementary school, identify a big ticket item they want and help them determine how many lawns they need to mow to save for it. Create a countdown thermometer to get to their goal.
- Let them make financial mistakes. This is the best time for them to learn from it, as the consequences are real but not permanent.
- Bring them to the bank, and help them open a checking account to deposit their wages.
- Explain cost of college, school loans, credit cards and credit scores. They will be dealing with this on their own before you know it!
More simple tips can be found in my book ‘Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids About Finance‘