According to a 2012 survey by DoughMain, “81% of parents feel it is their responsibility to teach their kids about money and savings.”
When you see “81%” in a statistic, it’s usually a high number, but in this case it’s hard not to ask: How is the number so low?
If our kids don’t learn how to handle from us, how will they learn? If we’re lucky, they’ll listen to the sparsely offered advice of a few teachers. At worst, they’ll learn aimlessly from their peers, make major mistakes, and have no idea how to dig themselves out of the holes they enter.
Whether or not parents believe it’s their job to teach their children financial responsibility, kids are watching. They pick up far more than we realize. Therefore, the most important way to teach our children is to be the examples of responsibility that we want to convey.
Beyond that, here are five ways you can teach valuable money lessons to your children.
1) Give Them Money—Somehow
No matter which camp you belong to in the “allowance or nah” debate, you can actually still use a form of allowance to teach financial responsibility. If you decide to give a set amount of money to your children each week or month, great. You’ll be able to teach them valuable lessons when they overspend or buy on impulse and regret the purchase later, since there won’t be any more money coming during that period.
If you don’t want to give your child a regular, recurring allowance, set an expected chore amount for him or her, then agree to pay for any work above and beyond that. Make the terms crystal clear so your child knows exactly what to expect for different levels of effort.
Granted, this is more of a lesson in hard work, but it translates easily to finances. In general life, we generate more income as we increase our workload. On the other hand, this is also a great opportunity to help your child understand how much work is too much, since it may force them to sacrifice relationships and activities in the pursuit of more money.
2) Invite Them Into Your Decision-Making
All words and no actions is a formula that rings hollow. Not only that, but it’s also much harder to effectively teach children about concepts that remain abstract. They need something tangible to look at—something like you.
You don’t need to share all of your spending, although depending on the child and their age, that could be a great idea. The real point is to give them a glimpse “behind the curtain.” They only see the show on stage, but you can reveal how you make it happen.
Practically, this means sharing a colorful, easy-to-understand version of your budget, explaining the money that comes into the family versus where and how it goes out. Then later, as your child watches your spending, you can constantly point back to the budget and update them on why you made a particular spending choice.
Warning: this will expose you to a little extra scrutiny. But remember that it’s OK to admit that sometimes mommy or daddy spends a little more than they wanted to, and they have to balance the budget in other areas when they make those kinds of choices.
3) Give Them a Charity Budget
Even if you’re not a fan of allowances in the traditional sense, consider doling out regular money to your child for charity and giving.
This may mean they actively give money to a local organization helping less privileged children or one that’s involved in some other cause your child believes in. But give them the option to give the money out closer to home as well. They can find a friend who’s selling candy for a fundraiser and give them more than the typical prices, or tell them to listen to their siblings to hear gift ideas that they would appreciate receiving.
This practice helps generosity flow naturally from your children. It places philanthropy and goodwill out of the realm of foreign, atypical practices and normalizes the use of money for good. It also reduces the “dollar death grip” that so often snags American adults.
4) Making Saving a Requirement
According to DoughMain’s 2012 survey, “51% of parents give their children allowance, but only 4% require them to deposit that money into a bank account.”
While there are plenty of important lessons to be learned for children through the way in which they spend money, they miss out on a central part of financial responsibility if we don’t teach them about saving. As you can imagine, this is pretty easy to break down: “You can buy one video game now, or you can buy the newest system if you save for a few months.” Delayed gratification will be hard, but the child can tangibly understand that keeping some money aside can have big benefits down the road.
You may even want to require saving; include it in the terms of your allowance or however else they receive money. It helps to have something specific in mind that the money is being saved for, such as an upcoming concert or the latest toy, or longer-term goals such as a car for when they get a license or college.
5) Don’t Neglect Teaching Very Young Children
Parents.com has several creative ideas for teaching money lessons to kids who are less than 10. These include teaching kids that money doesn’t grow on trees, and that homemade pizza tastes better than frozen pizza (even though it takes longer—like saving up your money).
You may not be able to teach a four-year-old about accounts payable and receivable, but you can teach them that banks don’t give out unlimited amounts of cash to whoever wants it. Anything you can do to demystify the world of finance will pay off as your child grows to face money with confident understanding rather than fear of the unknown.
You probably make purchases every day. At the very least, you take some sort of action that affects your financial standing (e.g., using up gas by driving or turning on a light in your house).
This means that you have everyday opportunities to teach your children financial responsibility, pointing out how various decisions affect income, spending, and cash flow.
They’re watching you whether you intentionally teach them or not, so why not take an active role in what they’re learning?
By: Ryan Drawdy
June 7, 2017