“Mom or Dad, can I have $20 to go out with friends?”
If you’re a parent, you’ve probably heard this type of question asked before. My son is too young to ask me that, but I remember asking it as a child before realizing it was futile.
While $20 here or there might not drain your retirement savings, the truth is that as kids get older, their expenses go up too.
We know that school and athletics are important. But where do we draw the line between trying to balance our kid’s school, sports, working and teaching them about how to handle money?
Financial guru Dave Ramsey has a strong following but teenagers and children aren’t his target audience. You need to put the work in to teach them about money because schools and after-school programs don’t even cover the basics.
Let’s take a look at some of the best and most practical advice to help our kids become financially savvy.
Start With “Why”
In order to prepare our kids for financial success, it’s essential to start with the “why.” They should know that mom and dad get up and go to work every day to earn money. Money allows us to have the things that we both want and need. Explain to them that the water they drink, clothes they wear and electricity that lights up the house (and their video games) all cost money.
You’d be surprised to learn that most children don’t realize that the water pouring out of the tap is a utility that you pay for.
During the on-boarding process for new hires, many successfully businesses/companies start with telling their employees “why” they do what they do to encourage continued success. This is one of the main reasons that Walt Disney World is able to encourage their employees (cast members) to keep their parks spotless. It’s also one of the main reasons many families return year after year.
Work Is For Success
It’s also important that we teach our kids the importance of budgeting and saving at an early age. Whether you realize it or not, your children are watching the way you earn, spend and invest your time and money.
I started working as a teenager to afford the fees to play high school sports and apply to college. This was an incredible lesson about the value of money and I credit it for pushing me to graduate nearly debt free. Working isn’t the only way to learn these lessons, but I haven’t found a more reliable source of lessons. Work also helps to create discipline and structure in life.
As parents, it’s our job not to focus so much of what our kids want, but more on what they NEED. If they graduate from high school only knowing how to play video games, complain and have a sense of entitlement, then we’ve set them up to FAIL. It’s on us to NOT let that happen.
Unfortunately, too many parents allow their kids to sit in front of a computer instead of working. By doing this, they’re missing out on developing essential skills that’ll take them far in life. There’s nothing wrong with getting kids to perform good old fashion work. Watering plants, mowing the yard or washing cars creates a sense of accomplishment.
Growing up, I detailed cars at a car dealership and worked as a salesman at an electronics store. This taught me how to become proficient in customer service, marketing, sales and scheduling. At one point, I even tutored classmates for a fee. Encouraging kids to start a business and become entrepreneurs will give them greater control over their future.
Does Giving Your Kids An Allowance Make Sense?
In his book, Smart Money Smart Kids, Dave Ramsey states that he doesn’t believe in giving kids an allowance because it doesn’t teach them how life really works. There’s an entire generation growing up thinking that money is free.
“Handing out money and not teaching strong work habits create people who whine, who feel entitled, and who become perpetual victims.” – Dave Ramsey
What Should We Do Instead?
Per Ramsey’s recommendation, they should get to know the word “commission”.
Explain to them that money comes from working. The younger they learn this, the better understanding they’ll have regarding the relationship between work and money. Humans respond to incentives. So if your child needs $20, they’ll need to earn the commission by performing certain tasks.
6 Ways To Teach Kids About Money
1. Leverage A Savings Vehicle
Depending on your child’s age, the methods you use to teach them about money can vary. For younger kids, it’s important that parents make saving money as visual as possible. Consider using a jar or piggy bank as a place for them to save their commissions.
Older kids would benefit more by parents assisting them opening a savings account. The type of account isn’t as important as the act of physically doing it.
2. Give Them Small Chores Or Jobs
It’s important not to discourage and overwhelm younger kids. Keep their chores short and sweet and use a chore chart to track their progress.
- Picking up toys
- Finishing their serving of vegetables
- Putting their dirty clothes in a laundry basket
- Making their bed
- Helping to recycle used plastic
3. Show Them How To Spend Money
One of the best ways to reward your little one for doing work is to go shopping with some of their earnings. That’s right. By doing this, you’re teaching them that it takes MONEY to buy stuff.
If your child desires a game worth $50 but only has $30 worth of commissions, you’ll show them that there’s always financial trade-offs that need to be made. If they stress the importance of the $50 game, then they’ll need to save their money and earn more in order to afford it.
To incentivize savings, you may even decide to hold their money and offer a modest interest rate. Before long they might be ready to open an actual high interest savings account.
4. Teach Them The Different Uses Of Money
As kids get older, parents can begin to teaching the different things we can do with money:
- Give It Away
Show them examples for each use of money. The first two buckets are easy since you spend or save on a daily basis, but investing can be more complicated. A simple stock simulation (there are free options online), might be a good exercise to work on together. If they have a job you can help them open a Roth IRA and help them invest it.
For pre-teens, consider using their savings more for long-term spending. Examples include a higher-priced toy or video game that can take weeks or months to save for. The great thing about this method is it teaches:
- Delayed gratification (something most adults need to be taught too!)
5. Help Them Think Of Money-Making Ideas
It seems like every time I turn around kids are out of school for something whether it be:
- fall break
- summer break
- Christmas break
- spring break
If you don’t want your teen to constantly hound you for money then do them and yourself a favor – help them find a job. If your oldest loves sports, they might consider umpiring youth games.
Regardless of what they love doing, encourage them to pursue their interests. This will help them become interested in working.
You never know, they may realize that they don’t want to work for someone else which could help them become an entrepreneur.
6. Teach Them Contentment
In today’s world, your child is under constant attack by:
- relentless marketing
- tremendous peer pressure
In the US, we live in one of the MOST discontented cultures in history. Our children are under attack from constant marketing and peer pressure.
FOMO, or the fear of missing out, has now been around for years and it’s clear the phenomenon isn’t going away.
Studies show, the more advertising we’re exposed to, the more debt we are in. This confirms the correlation between the amount of TV watched and amount of debt we have. We’re constantly being sold more and more stuff!
As adults, we get this. But when it begins to affect our children, things can get really bad. Your child is assaulted with marketing from the time they learn to process information. The toy industry is out to make their profits which can lead to a discontentment for kids.
Marketers know that if they can plant the need or desire in a child’s mind, then they’ve just employed the world’s best salesman to sell their product to mom and dad.
This makes our children relentless at always wanting “the next latest & greatest thing.”
For teens, it’s extremely important to teach them that if they think the next best thing is going to make them happy, then they’re going to be on the hedonic treadmill the rest of their lives because there’s ALWAYS an upgrade! Lifestyle creep can start a lot earlier than you realize.
What Can You Do?
If you want to raise kids that are smart with money, teaching them to be content with what they have is crucial.
A content person can:
- avoid debt
- give more than someone that struggles with discontentment
Contentment isn’t based on an amount or how nice your stuff is. It happens on the inside.
Content people may not have the best of everything, but they make the best of everything.
Taking the time to teach your kids about money is going to take time and won’t be easy.
If you want your children to know how to manage money and be content with what they have, taking the time now will be well worth it.