I’m only now learning habits that I wish I had when I was entering
adulthood. I think I’m not alone here, but if I had these habits when I
was young, I’d be pretty well off now.
Photo by Iadnlins
Because of that, I plan to teach my kids about money, to give them
the value of money, to teach them skills and habits that will get them
off to a good start, and to have them learn by doing, and from my
example.
As I’m late in learning some of these things myself, I’m also
starting late in teaching my kids these habits and skills. However,
it’s better late than never. What follows are some of the things I’m
trying or have planned.
Teaching kids about money is a controversial thing — no one argues
that you should teach them, but the how is a tougher question. In
general, I recommend four guiding principles:
- Educate yourself. You can’t teach something you
don’t know about yourself. Learn as much as possible about budgeting,
about saving, about investing, about cutting expenses, about reducing
debt. Armed with knowledge, you’ll be a good teacher.
- Set a good example yourself. It’s one thing to
tell your kids something, but if you are doing the complete opposite,
they’ll learn more from your actions than your words. To teach them
about controlling spending, you have to do so yourself. Lead by example.
- Teach them one habit at a time. Your kids are not
going to become skilled financial planners overnight, or in one month,
or even in a year. Your goal should be to teach them these lessons over
the course of their childhood and adolescence. So teach one thing at a
time, until they’ve learned the skill, and then move on to the next.
There’s no rush.
- Let them learn by doing. You can’t teach by
telling. You have to tell (briefly), then show, then let them do. Let
them make mistakes. And then talk about those mistakes. Soon enough,
they’ll learn why those mistakes were actually mistakes, and if you set
it up right, they’ll learn better habits on their own, by doing.
So with those principles to guide you, here are 10 valuable lessons you can teach your kids about money:
1. Give them control of money. If kids don’t have
control of money before adulthood, they learn that money will always be
provided for them, that they don’t have to be responsible for their
spending or their future. And when they finally get control of their
own money, they apply those lessons, by spending liberally and not
worrying about the future.
Instead, give your kids control of money. I suggest taking some
money that you already have in your budget, and giving them control of
it. For example, if you currently spend $200 a month on eating out (to
use a random figure), perhaps give your child control over $50 of that.
And do the same for clothing and toy spending — don’t add to your
budget, but allocate portions of your budget to them. Give them
complete control over that money.
The result will probably be that they spend too much on frivolous
stuff. At first. But when they want other things, they’ll have to learn
to save for them, and cut back on other areas. Eventually, they’ll
learn how to make decisions, through trial and error. It could take
awhile, but it’s better they learn now than when they’re adults.
2. Teach them to save for money goals. Once they
realize that there’s more to money than just spending on whatever their
latest impulse is, they’ll want to buy something larger than the amount
they have on hand. That’s when you teach them about savings goals.
“You want to buy an Xbox 360? Well, let’s find out how much that
costs. Now that’s how much you’ll need to save. If you take $40 from
your monthly budget, you could have that in 5 months. If you take $60
from your monthly budget, you could have it in a little over 3 months.
But either way, that will mean cutting back on McDonald’s and buying
little toys every weekend.”
You might also create a chart on the computer, that shows their
goal, and little savings milestones along the way. That way they can
get excited about watching their savings grow.
3. Teach them that reducing expenses makes goals come faster.
This goes hand-in-hand with the above lesson, and if you teach them
about savings goals, they’ll probably learn this lesson on their own.
It’s common sense, and kids are smart enough to figure it out: if I
want to get to a goal faster, I have to save more … which means
spending less on other stuff.
But it’s worth reinforcing with a discussion about spending and
saving, and by talking to them about the decision they’re making every
time they spend money.
4. Teach them how your money can make money. This
is the lesson on investing, and it’s a lesson many of us can learn.
It’s one thing to save, where you get perhaps 5% interest. But if your
kids are going for short-term goals, they probably won’t see much
compound interest happening. You’ll need them to make a longer-term
goal, such as a trip once they graduate, if you have a teen-ager, or a
down payment on a car, or even something a little smaller. Whatever the
goal, teach them about how they can put their money in certain
investments, and how those investments will grow over time.
That growth is their money earning money for them. It’s free money,
almost, but the cost is not spending on other stuff in the meantime,
and getting into the habit of investing the money. And it’ll help them
get to their goals faster.
5. Teach them about creating a budget. It doesn’t
have to be a complicated budget, but what you really want to teach them
is how to plan their spending, instead of having a big wad of cash that
keeps getting smaller with every impulse buy. Something simple, like
$30 for savings for a bike, $30 investing for a longer-term goal, $20
for a birthday gift for mom, and $30 for spending. Then teach them how
to split the money up and how to keep within those planned amounts.
Make it simple and easy, so they don’t grow up thinking that budgets
are hard and onerous (like many of us grew up thinking). If they get
into the habit now, it’ll pay off huge when they grow up.
6. Teach them to pay bills. Does your teen-ager
have a cell phone? Who pays the bill? Give them the amount in their
monthly budget, and allow them to pay the bill each month. If they’re
late, the service will be cut off. They’ll learn to pay the bill on
time. Other bills could include a car (when they’re of driving age),
cable TV, Internet. If you let them pay any of these bills, you’ll
probably want to monitor them to make sure they’re actually making the
bills.
7. Teach them about the dangers of debt. This
probably isn’t a lesson they can understand when they’re 6 years old,
but when they’re teen-agers, they can grasp the concept. You’ll need to
discuss things like loans, credit cards and other debts. If you want
them to learn by doing, you can have them take out a car loan or get a
very limited credit card (that they pay for). They’ll soon learn that
paying debt payments reduces how much they have to pay for other stuff,
and how the debt payments can get to be overwhelming.
8. Teach them that earning more money gets them closer to their goals.
If you have a savings goal, you can reduce your expenses to get there
faster … and you can also earn more money. They can start learning this
lesson at a young age, by earning extra money (not from chores, as they
need to learn to contribute to the household without expecting pay),
but from extra projects, such as doing yard work or babysitting for the
neighbors, washing people’s cars, etc. Later, they can get a part-time
job to pay for a car or any other goals.
9. Teach them about advertising and consumerism.
This is something that should be taught at home and in the school,
because most of us grow up without really being aware of the effects
that advertising, marketing and consumerism has on us, and on our
spending. This is often the root of our financial problems, whether
we’re young or old. Teach them about the goal of advertising: to get us
to buy their products or services, and to get us to spend our money.
And show how advertising affects us, and gets us to do that. And talk
about consumerism, and how it hurts us financially, how it’s not good
for the environment, and how it leads to a cluttered house full of
expensive and wasted stuff.
10. Teach them about impulse buying. Closely
related to #9 above, of course, impulse buying is the effect of
advertising and consumerism. Teach them about pausing before buying,
recognizing the signs of impulse buying (increased heart rate, heavy
breathing, other similar body signs), using a 30-day list before buying
anything that’s not completely necessary, avoiding shopping malls and
online shopping sites, and reducing your need to keep up with others
and buy prestige things (cars, clothes, shoes, gadgets, etc.) to look
good in the eyes of others.