I recently read in a popular parenting magazine that 75% of adults say it’s important to educate children about finances, but only 36% of those same parents actually do so.
While the difference in those two statistics is somewhat humorous, I find it quite disturbing that 25% of adults DON’T feel it’s important to educate children about finances.
After all, if we as parents don’t do it… who will?
Obviously, I’m not an expert (we haven’t started teaching Nora about money management just yet!) However, Dave taught a personal finance class at his high school for the past 3 years and he sure had a bunch of crazy stories about kids who knew nothing about finances when they started his class.
I hope that as Nora (and any future children) get a bit older, we’ll be able to instill sound financial advice that they can take with them throughout their lives.
There are so many things I want to teach my children about saving, spending, investing, money management, etc. but in an effort to keep things simple, here are 5 financial lessons I want my children to learn.
1. It’s OK to make mistakes.
I read many emails from parents who explain that they aren’t great at money management so they don’t know how they can teach their children. I completely understand… and think it’s totally awesome that these parents are trying to be proactive so their children will grow up with a greater knowledge of money management.
I always respond by telling them that it’s OK if you sometimes feel like you’re learning along with your kids — and it’s definitely OK if you make mistakes.
Personally, I think it would speak volumes to your children if you explained that you have made an unwise financial choice, and then outline the steps you are taking to dig yourself out of that debt. Most children, especially young children, won’t know if you are or are not the best money manager — the point is you’re starting the conversation at a young age.
That said, if you ARE already a very good money manager, remember that your children are not — and they will most likely make a mistake at some point or another. Don’t get all bent out of shape, don’t shame them, and don’t take away their financial independence (at least not after one mishap).
Kids NEED to know it’s OK if they mess up… and wouldn’t you rather have them mess up with a $10 allowance now than a $1000 paycheck later on?
2. Saving is good, but so is spending.
Often times, I think we get too caught up preaching “save, save, save” that we forget to talk about appropriate ways to actually spend the money we’ve worked so hard to save. And what’s the point of continually saving if you never, ever get to spend anything?
If we don’t teach our children HOW to spend, there’s a pretty good chance they will make costly mistakes down the road — yes, I know I just said mistakes are OK (and they are) but it’s still good to try and prevent as many mistakes as we can. 🙂
Teach them how to hunt for a good deal, how to weigh the pros and cons of a purchase, how to set goals for saving and spending, how to wait 24 hours to avoid impulse purchases, etc. etc. Teach them that it really is OK to spend their money on something if they need it (and sometimes if they just want it) as long as they have the money to spend.
Teach them to calculate the cost of an item in terms of how long it would take them to save up the money. For example, if they have a babysitting job and make $5 an hour, it would take them 5 hours to make enough to buy a $25 shirt. Is it worth 5 hours of their time, or would they rather shop around and look for a less expensive option?
3. Giving is fun.
Giving often gets a bad reputation as something we SHOULD do and something we feel obligated or guilted into doing. I get it, I’ve received my share of pledge-drive phone calls, door-to-door fundraisers, and non-profit donation requests.
I don’t think we need to give to every single charity and organization… but I absolutely think we must teach our children that giving is good, AND it can also be fun.
Teach them that along with financial giving, they can also give their stuff (toys, clothing, games), their time (volunteer work, helping an elderly relative or neighbor, helping around the house), and their actions (a kind word, a friendly smile, a nice gesture, a polite conversation).
Even if they don’t have any money to give, we should still encourage our children to give back in any way they see fit.
Encourage them to donate used toys and clothing before birthdays and other holidays. Spend time together volunteering for church, school, or community events. Suggest ways they might help out a neighbor, family member, or friend.
Children are never too young to give and there really is no lack of giving opportunities (at least not in our area).
4. We trust them, but we are also the “final say”.
At the beginning, I suppose we might not trust them… but we don’t necessarily need to tell them that. If we start teaching them about money management when they are young, the idea is that as they get older and acquire more financial freedom, they will also have more knowledge and experience to (hopefully) make the right choices.
I realize this will not always work (don’t worry, I’m not that naive) BUT, I think it’s good for kids to know that their parents trust them to make some of their own (age-appropriate) financial decisions.
If they mess up, refer back to #1, take a deep breath, and prepare to do a little more teaching.
If they continue to mess up or make bad financial choices, we as the parents can then step in and say no or take away financial privileges as we see fit (at least while they’re young).
5. We are here to help.
I want our kids to feel comfortable coming to us with questions about anything — including financial questions. I don’t want them to feel stupid, silly, or shameful about any questions they have (or admitting any mistakes they’ve made).
While I don’t think we would flippantly give our children money, I’m not opposed to paying them a weekly or monthly allowance. I also think I would be open to the idea of loaning them money as long as they have a plan as to how and when they would pay it back. If they have something I feel they want or need badly enough to take out a “loan” from mom and dad, I’d at least hear them out and consider it.
That said, we’re still the “final say” (see #4 above) and if I feel a certain financial choice is completely wrong, I will voice my opinion. Depending on how old the child is, I will either put my foot down and say “no”, or share my point of view and then let them make their own choice.
I know there are so many other financial lessons to teach our children, but I think these 5 lessons are a really good place to start. Not too overwhelming but still a bunch of basic principles and ground rules.
In fact, lessons 1-3 could apply to adults too 🙂
I feel that both Dave and my parents did a pretty good job of teaching (and showing) us how to manage our money… and I’m certain their efforts have only benefited us as we moved out on our own, went to college, got married, purchased a house, started a business, etc. I hope our children can say the same thing in 25 years 🙂
Of course, there is no one “right way” to teach our children about finances… so I’d love to hear from some more experienced parents out there.
Do you have any tips, tricks, ideas, or lessons you used to teach your children about money management?
Arin says
I can’t say that I really learned much about finances from my parents and my husband and I have relatively different views on money (taking the Dave Ramsey Financial Peace helped us communicate better about finances); however, we are ‘\ both in agreement about teaching children at an early age about “managing” their finances.
Recently I saw on Pinterest where a mother started teaching her children about finances while they were quite young by giving them a monthly allowance based on their age .. meaning that if the child is 4 then s/he would get $4 and if the other child was 9 then s/he would get $9 .. and on top of that they had to divide their allowance 3 ways: 10% save, 10% give and the remainder was for spending. In addition, they had to keep a “register” of their allowance to balance what they had for spending money. I have gone back and forth about giving an allowance but when I saw this I was super excited because the idea was so simple .. and affordable!! I have only been doing this with my 2 children for about 3 months but WOW what a great tool.
For example, my 9 year old son has been wanting to get an Ipod in the worst way because ALL of his friends have one, but my husband and I were not willing to buy it for him as they are expensive and we just bough an Ipad at Christmastime; however, we told him that if he could save up enough money that he could buy one (we did the same thing when he was begging for a 3DS player). Our parameters were that he needed enough money to get the Ipod, a case, extended service and the ITunes to put on it. We had gone to the store with him and calculated about how much he would need. Needless to say, he had been saving all of his money since this past Christmas along with gift cards and just after his birthday a couple weeks ago he had saved up enough to get everything he needed ;D He was absolutely thrilled when the balance in his “register” was above his goal!! I have to admit that it was harder on me to have to subtract that total .. but now we start all over again and he knows that he cannot buy anything further until he has the money saved up. Our hope is that since he has so much invested into it that he will better appreciate it and take good care of it .. because he knows that once it is gone or something happens to it .. it’s done.
One thing I find amazing while doing this with our children is how different they each are about money because our 4 year old daughter just loves putting the money in her different envelopes and doesn’t ask for anything while our son feels the need to find something it spend it on right away. Now trying to figure out how to balance the 2 .. LOL!!
Jennifer says
I don’t have children yet, but I do remember what my parents did with me and my sister to teach us about money. As we got older, our allowances gradually increased, but so did the areas of expenditure for which we were responsible.
I particularly remember a time when we were both given an allowance raise, but with the rule that it wasn’t just spending money for ourselves anymore, but we also had to use it whenever we bought gifts for others – Christmas and birthday. I think they even asked us whether we would like the allowance increase if it came with that rule, and gave us the option to refuse! They gave us little notebooks to record our expenditures, too.
I always remember this as a good way of doing things. We were excited about the increased money and control, but it came in small steps appropriate to our maturity. It made it clear that with an increase in income comes an increase in responsibility!
I continued doing a similar thing in college, once I had a part-time job. It wasn’t enough to support myself, but some of my expenses, like clothes and eating out, shifted from my parents’ budget to mine, according to my own increase in income.
ann says
“Master Your Money” by Ron Blue was a book my husband read when our children were about 10 & 12. (not sure I remember their ages??) He decided we should be pro-active instead of reactive on the $$ issue. He gave them $50 each month, ( this was in the 90’s)and they had six envelopes to “manage” their money: If I remember correctly, it was like this:
1. Saving 2. Giving 3. Spending 4. School supplies 5. Clothing 6. vacation spending
Of course, there were exceptions, where we helped out if needed, but it
worked very well, and they had to THINK about the purchase! If I buy this, will I have enough
left for school supplies? Also, he taught them to think through the purchase as they were standing in line waiting to pay…If this item is about $5, and I give the clerk a $20, I should get $15 back in change. Both of them do well with the finances they manage as adults.
One more point: All we have has been given to us by God, and we are His stewards,
hopefully, wise stewards. Thanks for your great blog!!
Cheryl says
I got student Paypal debit cards for our teenagers….they are great! You can see where they spend the money, you can take the money away if necessary, and they don’t have to carry cash around. Also, they are great for college…you can put a little spending money on it on occasion, or if they NEED money for something, it is instantly on their card from my checking account as soon as you click it. There is no need to mail a check. I think it has helped them learn to manage money in a small way, by keeping track of how much they have left on their card and using it only when necessary so they don’t run out. (I should add that they all have jobs, checking accounts, etc of their own…this is just for spending money or emergencies.) Oh yea, it is a free service, too! And….it is good when they are already out and you want them to pick something up for you on the way home!! 🙂
debbie says
My husband and I have talked about this before that children should be taught about finances as soon as they are old enough. I think you and your husband are so wise to do this and your children should appreciate it very much as they get older. The credit card debt is so out of hand and the best feeling in the world is to be free of it. It is one of the most rewarding things you could do for your children. When you teach them; hopefully, they will never have the stress of major debt hanging over their heads. Unsecured debt can become a nightmare and I have read debt, death and divorce are 3 of the biggest stressors (the big d’s).
Ree Klein says
I learned nothing from my parents about money, but I did have the good fortune of having a mentor from a young age. I still made plenty of mistakes but once I started to pay attention and practice the lessons I learned, my world became much better.
I love your list, Andrea, your children will have a wonderful head start. I wish more parents were like you. I agree that the stats you mentioned at the beginning of the post are absurd!
Aa. says
This is a very interesting post and eventhough i don’t have children yet, I saved this article for when I will. My parents didn’t include me in all their finances decisions, but I learned some important things: anything large you buy (TV, car) should be planned before and not bought on a debt (although in our economy and in our country is hard to do so) and I also learned from them the envelope method of classifying your money: 4envelopes for food (one envelop for week), one for utilities, one for next events (weddings & co) and one for savings. Although now as an adult I learned more on my own, I think that it will take a while untill my husband and I will be as good as we want at financial planning.
Here in Romania life gets harder and harder, food is more expensive day by day and I have to get more and more organized in order to resist. I also buy cloths second hand and not only, Ithink twice when I buy something, I cook from scratch, we even bake our own bread, we try to menu plan as much as we can, but there is hardly any room left for savings.
I thing that there will come times when life will get better financially speaking, because in the other aspects of life, we learned to be apreciate what we have, to have fun without money, we learned to compromise and prioritize. We learned there is no better moment to be happy but now!
I am sorry for such a long comment and for the eventual spelling mistakes, I haven’t written so much since last english class (almost three years ago in college) and I want to tell you that your blog is a remarcable source of inspiration and ideas and it gives me hope for applying them in my own life. Thank you for all the lessons!
Bonnie says
We have used Financial Peace Jr. by Dave Ramsey and had good success with our children. They have weekly chores in which they earn money and have a give, save and spend envelope. They know what a budget is and the pitfalls of borrowing money. They both have disabilities too.
Evie says
Great post, Andrea. You and Dave live compassionately and will raise your children to be compassionate, that’s long been clear to me, and I’m grateful that you are in the world. I wish all kids could learn compassion along side of money management. Your section on giving made me think of the Golden Rule, “Do unto others as you would have them do unto you.” Two other similar wise sayings are, “There, but for the grace of God, go I” and “Walk a mile in his shoes.”
Shay says
I think this is a great article. I find that we tend to feel like we have to be perfect when it comes to finances and that its taboo to talk about it.
I think that if we teach our kids these five steps and other simple rules that they will learn to be successful.
I know my son and daughter are still young but we love playing the penny game. We put some in their piggy banks (savings), we put some in the charity cup and we put some in the fun day bank for them. The fun day bank is for when they get older and know “how” to spend it.
Thanks for the awesome blog. I always love coming and reading your posts, so insightful!
Liz says
When our daughter turned 13, we got her a checking account and a debit card. A lot of our friends were shocked and appalled.
We’ve spent plenty of years showing her how to save and spend. Now we’re watching to see how much she actually heard and helping her apply all those lessons. Before she’s 18 and out on her own….
Sure she’s making mistakes. And we don’t agree with all her choices. But so far…we’ve been pleasantly surprised at how much she was listening.
Andrea says
I think it’s awesome that you got your daughter a debit card at a young age. I got a savings account when I was only 6 years old and regularly went to the bank to make “deposits”. Sometimes those deposits were only $3-$5 but it still made me feel really grown up and responsible 🙂
20 years later, I still love going to the bank to make deposits!
Carlen says
I think it’s also important to teach them that money doesn’t grow on trees. My almost-five-year old thinks that money comes from the bank, so when I say “We don’t have money for that right now”, she says “Just go to the bank!”.
I recently started doing a “chore chart” with her and giving her an allowance of $3/week if she completes everything. She has 3 envelopes: spend, save, give. We talk about what each one means and when we use the money in each envelope. So far she’s given to “the children in Oklahoma who lost their toys in the storm” and she’s purchased something she had really wanted for several months. She really enjoys doing her chores and counting her envelopes.
Andrea says
Yes yes Carlen! This a really important — maybe I should have added it at #6 on my list 🙂
Thanks for for the reminder!
Demaroge says
I noticed in number 5 you went to ‘collage’ rather than ‘college.’ I bet that was fun! 😉
Andrea says
haha — fixed 🙂
Debby says
Great post. My oldest daughter will be a senior this year in high school. Instead of having her get a job, I am paying to her to clean my house, cook, and grocery shop this summer while she also chaffeurs her sister and herself to athletic committments. I have made it very clear that this is a job and has to be done while I am at work during the day. I am also encouraging her to save part of her pay each week for college. I recently went back to work full time after being a SAHM for 16 years. I think the chores that she is doing over the summer for pay will also be great life lessons for living on her own in college next year. Some may or may not agree with this, but we feel this will work well for our family and she seems up to the challenge of having me for supervisor.:)
PS Your plants look gorgeous on facebook.
Andrea says
Wow — this is an awesome idea Debby, and I really think it will benefit your daughter once she’s living out on her own.
And thanks for the compliments on the plants — we’re working on planting some of them today!!
Kate says
Actually, Children can provide a real eye-opener.
My son was given money for his birthday and want to buy a computer game. I explained that he could buy it new or second-hand from Amazon. Together we calculated how much each option would cost and search the internet for the best deals. In the end he bought the second-hand one and had money left-over for something else. It didn’t bother him in the slightest that the game was previously own and used by someone else – he loved the idea of getting it cheaper.
I had always thought buying something new for a birthday was important as I had always had second-hand toys and longed for new stuff. I thought that he would be bothered by this too but he is not. I now buy second-hand stuff for birthdays too.
Please note I’m not against second-hand stuff – in the contrary most of my stuff is second-hand. I just thought it was important for him to have one toy that was new. I now realise it isn’t.
Andrea says
yes Kate, I couldn’t agree more. We buy always buy used gifts (for Nora, for ourselves, and sometimes, even for others). We save a ton of money and can either buy more or pair them with a gift card.