What are some of the biggest lessons you received about money growing up? For me, a few things stand out. We didn’t get too many formal lectures about money, but from time to time, I’d get a lesson sprinkled in here and there. If I spent my allowance too fast, then I’d hear about why it’s important to budget. If I wanted a video game, I’d get suggestions on how to earn extra cash for it. When it came time for a car, I got a crash course on saving and negotiating. I’m grateful for those lessons.
I’m also aware that were certain gaps in my financial knowledge growing up that I didn’t learn until many years (and mistakes) later.
Now that we’re parents, we want our kids not only to be savvy with their money but also generous and wise.
Crucial Money Lessons to Pass on to Your Kids
Teaching our kids about money doesn’t have to be a difficult thing. Kids are naturally inclined to learn and that includes finances. When I spoke to Paul Vasey, the creator of Cash Crunch Games, he emphasized how the key is approaching things on their level. Lots of smaller conversations can have a bigger impact than a few big ones. Where do you start though? And what are the big topics you need to cover?
Today, I want to share tips from some of the best financial experts in the space on the essential money lessons your kids need to know from starting from pre-school to when they graduate high school.
Defining Needs vs Wants
You may not believe it, but pre-schoolers can start picking up on some key money lessons. The Opposite of Spoiled author and NY Times columnist Ron Lieber noted how programs like Sesame Street have introduced essential money concepts to kids.
They skip the numbers and instead focus on key concepts like identifying needs vs wants. Being able to tell and understand the difference between the two is something that they’ll need as they grow up. It’s also important to let them know that wants aren’t bad, they just have to be kept in check.
You can make it a game, going through the groceries or exploring around the house. Talk about which things are needs and which are nice to have items. It’ll also give them a chance to see that some items fall somewhere in the middle.
Speaking of games, there are wonderful options like Cash Crunch Jr that are specifically designed for kids to learn about money.
Save, Spend, and Share
Another crucial concept kids can pick fairly early is the choices you have with money. No, I’m not talking about picking stocks or finding the best rates for savings. What you can pass on to your kids is how they can spend, save, or share their money.
Spending tends to be the easiest one for them to get. If they have the money for the toy, snack, or game, they can spend the money then. Saving is a bit more advanced as you’re helping them see that they have to wait a bit and grow their money before they purchase it.
Use visuals like a chart to track how much they’re saving. Every time they make a ‘deposit’ they can color it in or put a sticker on. Sharing can actually be something they catch on based on our example. Talking about where and why we donate or volunteer is a fantastic opportunity for us to explain to our kids what we value.
Our daughters have to set aside a certain percentage of their allowance to share, but they have a say on what they spend it on. Our oldest likes to buy flowers for neighbors and our youngest makes cards. Giving them some choice with this makes it more personal and hopefully will become a habit throughout their lives.
Understanding Budgets are About Priorities
When I chat with new members of the Couple Money community, one of the first things I notice is how they view budgets. For many of them, they see them as a restriction. They feel like a budget is something that tells you what you can’t spend on. Honestly, if that’s how you see budgets, then it makes sense why you’d want to skip out on them altogether. Who wants deprivation?
However, when I interviewed couples who’ve done some incredible things like wipe out over $100,000 of debt together or pivoted their careers and lives for their dreams, I noticed that their take on budgets was completely different.
They saw budgets as a way to prioritize what was important to them. And that’s something we can pass on to our kids. Let them see you put together the family. Open up your Mint app or glance at it on the desktop so they can visualize what’s going on. Talk about not just the bills, but how you’re saving up for things you enjoy like a family trip. These conversations can help them see that you may cut back on spending in one area because you’d rather spend it elsewhere.
As they get older, they can also offer suggestions and ideas on how to save more, which helps them put into practice prioritizing goals.
Allow Them to Handle Back to School Shopping
As they (and you) gain more confidence with how they’re handling money, allowing them to manage back to school shopping can give me a chance to plan and budget for their supplies and clothes. Sit down with them and create a basic budget with an app like Mint so they have a plan for how they’re spending their money. Depending on their maturity, you can decide how much to step back and when you need to budge them in a better direction.
Have Kids Chip in with the Bills
Bill Dwight, the creator of award-winning family finance app FamZoo, suggested that teens should start accepting responsibility for some of the bills around the house. Taking care of their portion of the cell phone bill, for example, can give them some practice on what it means to stay on budget. Even a small bill like $15- $20 a month depending on how much they use and their income can teach them about everyday costs and how to allocate their bills. And if you feel bad about charging them, you can always accept their payment and then stash it away in a high yield savings account. When they graduate high school, they now have some extra savings they can use.
One of my favorite jobs, when I was working through college, was at a family-owned Italian iccee shop. I remember one of the managers, a guy maybe a few years older than us. We had a slow period and the shop was already prepped so he used the time to go over some of his investments. To the rest of us, we were a bit skeptical that this guy would have any portfolio (again, he was maybe early twenties at most), but he showed us his statement. He explained that he started investing as a teen around the time he got his first job. Small contributions at first, but his parents walked him through the basics of investing.
You can do the same with your teen as they work – have them set aside a certain percentage for investing (and possibly offer to match it) so they can become comfortable. Using Mint can be handy because they can link their accounts and get a clear view of how they’re doing.
Having hands-on experience along with conversations about the differences between stocks and bonds, how mutual funds work, and asset allocation will give them a big leg up later when they’re signing up for their company’s 401(k).
Teaching Money is More Than Lectures
As your kids are learning about money, expect them to make mistakes. It’s normal and actually a good thing. Typically the mistakes they make at home are going to be smaller in scale compared to trouble they may get into as adults who can now sign loans and open credit cards. If they’ve had some fails under their belt, they’re more likely not to repeat them.
Speaking of money fails, there are some great teaching moments you can have with your kids about your own. As Holly Reid Toodle, CPA and author of Teach Your Child to Fish, told me, parents have to be willing to sharing our money fails as well as the wins. “As parents, be vulnerable and actively share how you haven’t always had perfect credit or made the best decisions financially.
Some of our most meaningful lessons come from observing or hearing about the mistakes or missed opportunities of others, so don’t overlook the value of those stories and moments with your child.” So take time to share your experiences of being in debt and the downsides of not having a budget. It’ can be a real asset to your child’s financial well-being.
Your Take on Kids and Money
We can’t cover all the money lessons to pass on to your kids, but we hit the major ones.
I’d love to get your take. What lessons are you passing on to your kids?