With the exception of a small percentage of children who learn about money at an early age, most kids have a fairly limited view of what money is, how it works, and why—despite the number of times you’ve told them—it simply does not grow on the oak tree in the front yard.
After all, maybe they learned about cash via Monopoly money, where the stakes are low and your paycheck comes when you roll the dice and Advance to Go. Or maybe they learned that money was a piece of plastic in mommy or daddy’s wallet with no idea about what a credit card meant. Or maybe they just thought of money as the coins they found inside the couch, the dollar they get for doing chores, or that fifty-dollar bill grandma slips into a birthday card every year.
There’s also a good chance that kids grow up on either side of the extremes. Either their parents are very frugal, so kids learn to never spend money, or their buy-anything parents show their kids that they can afford whatever they want. As is the case with any extreme, both have their downsides—that is, kids don’t really learn what money is, or more importantly how to create wealth. They don’t learn how to think about their financial future and the outcomes they desire until they’re well out of the house and on their own.
The truth is, you have a great opportunity to teach your kids about wealth, to instill good habits, and to reinforce your own family values by teaching them about what money really is—and how it should be treated. And that’s something that, no matter how many times you get out of jail for free, Monopoly can never do.
I’m lucky in that my parents taught me the value of money early on. In fact, one of my earliest memories was receiving several silver dollars as gifts from my father. I treasured them, and I still have them. I learned that not only were they valuable because they were worth more than the face value of the coin, but there was also an emotional attachment since they were from my father.
This blog post is really for anyone who has kids—no matter their age—to help you navigate the often tricky waters of introducing your kids to money in a meaningful way. The reason it can feel awkward is because many of us were taught that finances were private—and they are. But sometimes we mistake privacy for secrecy. Just because our kids don’t have to know the amount of money in our bank accounts or what our salaries are doesn’t mean they should be shielded from financial principles—the major one being that money is more than just an earn-it-spend-it proposition.
One of the reasons it’s so important is because kids, quite frankly, won’t get this education unless it comes from you. According to information gathered by the Council for Economic Education, while 90 percent of people believe that financial education should be offered in schools, only 19 states require that a personal finance course be offered–and that doesn’t necessarily mean that everyone takes it.
Simply put, many children will not learn basic financial fundamentals unless their parents do the teaching. If parents don’t take a leadership role, their kids will grow up without a clue about the proper techniques and strategies to follow.
As I have done with my three kids, I would encourage you to integrate some financial lessons into your already full parenting plate. Yes, I know there’s so much to cover. You’re dealing with trying to teach your kids to be good students and good citizens, to share toys and drive safely, and so many other lessons. But I can assure you that the habits aren’t hard to establish, and the payoff is great. It will give them the foundation for being smart custodians of their own fortune—starting it, growing it, and cultivating it as they become adults. If we as parents view one of our jobs as the protectors of our children, this early financial education is certainly one very good (and often ignored) way to do it.
Ultimately what you’re trying to do is teach your kids that money, if used properly, is a tool they can use to open up opportunities for themselves.
With wealth, they will have more freedom to seek what they want in life. Of course, that’s a difficult concept to explain to a child (especially a young one whose main focus might be trying to convince you to buy the new Barbie or Nerf toy). But the way you do it is not by using phrases like “leverage opportunity;” it’s by using very small, relatable tactics that teach them lessons about how money works.
Though different ages require different strategies, it’s never too late to start, even if your children are nearing their flight from the home quarters. These are my guidelines for teaching them the financial lessons that will stay with them—and their families—for their whole lives.
Lesson 1: Use the Rule of Thirds
Certainly, part of the trick to teaching your kids anything, whether it be manners or why they should always root for your hometown team, is establishing those habits early on. For almost all of these strategies, the earlier you start, the better shot you’ll have of the lesson sticking (early, being about seven years old, since that’s the approximate age when they can grasp basic money concepts). That said, the very first habit you should instill is that any income your children receive—from gifts, allowances, jobs, whatever—should be divided into thirds.
This is how I did it for my children:
- 1/3 to save for something long-term, like that car in ten years
- 1/3 to give to others in an area of particular interest to the child, like a church or charity
- 1/3 for fun, to spend as they wish
I do these ratios for a couple of reasons. For one, that second category is extremely important in teaching kids that there’s a bigger world around them—one that involves more than just them. That’s an important family value my wife and I have, and we think it helps teach kids to be kind, compassionate, well-meaning adults. And two, I like to establish early on that they can start budgeting between what they want right now and what they might want in the future. It teaches them how to balance short-term and long-term thinking.
This actually gets them ready for the idea that later on, they’re going to have to pay taxes to Uncle Sam (at state, local, and federal levels)—not that taxes and charity are the same thing. But it still reinforces the concept that some of “their” money can go elsewhere.
Most importantly, though, it helps delay gratification. That is, it’s not healthy for kids to always get what they want when they want it; they have to work and save for what they want. And when they do, the item has more value. That’s a concept that we can reinforce with this rule of thirds.
I like the rule of thirds allocation because it’s simple math for even young minds to learn. You can create three different buckets, cans, or piggy banks to make it a fun weekly process. The key point to kickstart their learning is that you make those three categories the family value that becomes the standard by which all of their money travels. They will accept it, learn from it, and thank you for it, especially when they turn sixteen and have a bigger nest egg!
Lesson 2: Your Child Will Model Your Behavior
Make them eat the broccoli? Always read to them at night? Never tie their shoes together because you think it would be funny?
While yes, those things are all important, the rule that trumps all rules might just be “your child will model your behavior.” If you model spend-thrift behavior, your child will likely mirror those habits, as they will with saving, spending, giving to charity, and any other financial habits you have and they can see.
As the saying goes, you have to walk the walk, not just talk the talk. And if you want your child to grow up with good habits, you have to own it and really work at it. It’s not enough to just hope everything will work out. You have to behave in the way you want your kids to model. Then as they get older, you can talk about it and be explicitly clear about these concepts, which they will start to relate to as they become more and more aware of the value of wealth.
So no matter what you say, they will follow what you do and how you act. No matter what kind of ideal financial world you want to create for them, it won’t mean a thing if you spend it frivolously yourself. If you create the rule of thirds for your kids, then you should explain how that works in your household too; you don’t have to give the specifics, but you should show them that money is something to value and that you work very hard for it. Don’t make light decisions on how to spend it, and let them donate it to causes that you and your family think are important. Those lessons—even if the kids seem too young—are essential and you should start early because they see everything you do.
Lesson 3: Teach Your Children the True Value of Money
Part of this comes from establishing the flow of their money to charity as I described above. But I also think that part of teaching about money is instilling the worldly view that there are other people around them in different financial situations—and there are some people who are in great need. So what I want to show my kids is that when we think about our own wealth, we can also spend some time thinking about how we can contribute to the greater good.
So let’s say my daughter decides she wants to spend money on new clothes. We go through her closet and find clothes she doesn’t want anymore that she can donate, not only to make room for the new clothes but also to show that there’s still value in what we have and that others may benefit from it. This applies to toys, games, books, and anything that others in need could use. It’s a lesson on charity and helping others, yes, but it’s also a lesson on valuing what you have.
Lesson 4: Give Them the Gift of Ownership
Oh, the birthday gifts, Christmas gifts, Hanukah gifts, Easter gifts. They want the truck, the jewelry, the toys, the animals (stuffed or live), the games, the balls, the dolls, the trampoline. They want what’s fun.
All parents will likely agree that there is a certain joy in watching a child open a gift that he or she really wanted; we love the way their eyes and mouths open and the pure innocence that enjoys whatever is under the wrapping paper. Wonderful moments indeed.
While I don’t want to take that joy away from them (or you), I do want you to consider less commercial gifts and substitute another kind of gift that you can give your children—a piece of the pie. Not in the grandmother’s-apple-pie kind of way, but in the you-own-some-of-the-company kind of way.
That’s right, I want you to consider giving your child one or several shares of stock in a company that he or she really likes. For example, my kids have stock in Disney, General Mills (because my son loves Green Giant frozen peas), and Kraft (because my daughter loves Kraft macaroni and cheese). I even told my daughter that I was giving her a share in Kraft mac-and-cheese. That’s not accurate, of course, because you can’t buy stock in one single food item, but I did it on purpose because that’s how she relates to it—and that makes it more meaningful.
Simultaneously, I deposited the real share of Kraft in her custodial account. If we as parents can create those connections with the things our children love, the ideas that we want to teach them become real, become relatable, and become the foundation for the habits and values they will have as they grow up.
I bought my children stocks as gifts for a few reasons. One, it gives them their first lesson in the way the market works. We can watch it together, look at the numbers, talk about the growth, and they can see their money earn (or lose) value over time. I observed my daughter as she accompanied my wife and me to the supermarket. We selected a box of her Kraft mac-and-cheese off the shelf and placed it in our shopping cart. You should have seen the excitement in her eyes knowing that a piece of the company she owned was going into our shopping cart. Because it’s in a company that children like, they’re interested and they can relate to it, it’s not some abstract conversation about the market.
Two, I do this because it’s a better long-term investment than the traditional way we used to invest our children’s money—in banks. Traditionally, we’d put money in a savings account, it would earn some interest, and they’d make a little money on the original investment. But that’s no longer a realistic option since banks currently pay you so little interest. So this lesson in investments teaches how money can grow.
Three, I like that it teaches them about how companies work—that public companies are owned by shareholders who can have a say in the way the company works. Unfortunately, most elementary and high schools in America today do not teach a personal finance or investment course. The responsibility to jumpstart your children’s financial learning process and curiosity about saving and investing rests squarely on your shoulders as parents or grandparents. Your very young kids may not fully grasp these concepts, but as they get older, your regular financial interactions will show them a bit of how the corporate world works. You will, in effect, bring them your own version of a personal finance course complete with financial benefits that they will enjoy as they take over the reins of their own financial future later in life.
Finally, I like this technique because these ongoing gifts have long-term benefits, not just financially but also educationally. A toy or doll is wonderful for many reasons (namely because of the emotional attachment it provides between parent and child in the way the coins my father gave me did). But the gift of stocks—or even better, shares of many different stocks over the course of an entire childhood—is something that can grow with them for a long time.
That has both tangible and emotional benefits for the kids. My older children have learned how the stock market works and are now making decisions about their own investments. That’s something that few high school kids do, but the experience they got as children provided them the foundation to do this on their own.
Incidentally, it has bolstered their self-confidence in an essential area to better take advantage of financial opportunities later in their adult life. Even better, this gifting technique is perfect for relatives to participate in because it can provide meaningful conversations and connections between your child and, say, his or her grandparents.
For example, if the stock is in a company with which they share a common bond (like, Disney, if you all took a trip there together, or maybe even Microsoft if they all enjoyed playing Xbox together) then they will have more in common to discuss in future family gatherings. I really believe that this is more than just a gift of a share of a public company. It’s really a gift of inspiration—to help your kids think, dream, learn, and develop their own sense of wealth and life satisfaction.
They will also observe (assuming I have selected strong growth companies) significant appreciation over their adolescent and young adult years, which will translate into appreciation due to the magic of compounding over time.
Lesson 5: Don’t Buy Them Everything
This may sound like a no-brainer. Of course, you’re not going to spend money on frivolous items just because your child wants a surfboard or roller skates or the latest and greatest in sparkly thingamadoodles. But it’s actually a lot trickier than it sounds. What happens when they want a piece of candy in the checkout aisle or that ninety-nine-cent toy in the clearance bin?
It’s easy to say, “Sure, you’ve been good. Why not? It’s only a couple of dollars.” But the lessons you teach them early will still hold true as they get older—and the little-ticket items become big-ticket items. After all, when it comes to money, patience really is a virtue, especially as we learn not to indulge in those immediate gratification items. So early on, you and your partner should decide what the essential items are, be they clothes, books, or anything else. Those are the things that you provide as parents. However, you also should try to think of things that belong in the nonessential category—things like that candy bar.
If you don’t keep candy in the house because you don’t believe it’s healthy, but you do think your kids can have those kinds of sweets every once in a while, that’s the perfect kind of item to start teaching them about money. Say, “If this is something you want, then you can take from your piggy bank to buy it.” This forces your child, even at the age of seven or eight—to start thinking about the value of money.
That ninety-nine cents may not seem like a lot to you, but it sure is to a child when they only have five bucks to spend.
Now, perhaps the most difficult part of this is that the line between essential and nonessential blurs a bit as they get older. Take sports equipment. Where does that fall? Perhaps you want them to participate in sports because of the values that they can instill (my daughter, for example, has gained a world of knowledge from the values and skills she learned by competing in lacrosse). But what happens if your child is just trying out a sport? How much equipment should you have to buy?
Those are the things you as a family need to decide.
For us, lacrosse was an important investment because of the values she has learned while competing—the values of hard work, diligence, and committing oneself individually and to a group activity. It helps give her a sense of identity and self-confidence, traits that will undoubtedly help her as she gets older. Those are the things that we, as parents, want to invest in because the benefits will come back in spades. And that, I believe, is one of the reasons why parents do choose to invest in those extracurricular activities.
So what about the smartphone that all of their friends have? Kids often need a phone these days to communicate with parents when they’re separated, but is a smartphone necessary for a nine-year-old? I have never believed that my children need that kind of luxury at a young age, even though their friends may have them (mainly because of the monumental distractions from society and family that they can cause).
This was our solution: Our youngest child has a regular phone and can borrow my smartphone when she wants to play games or use apps; that way, the time is limited and she can still enjoy the device without being obsessed about it. We don’t view the smartphone as an essential (though many selfie-obsessed kids would argue otherwise!), and we’ve told our daughter that she’ll get one when we believe it’s the appropriate time.
Our solution—allowing her to pop on Instagram or whatever she likes a few times a day—has worked.
She can still indulge a little, but not obsess to the point where her nose would be stuck in the phone all day long. So we have done three things—instilled the values we want her to have about the importance of personal interactions (rather than technological ones), found a way to save some money for a few years, and taught her that valuable lesson about delayed gratification.
The answer, in these cases, differs for every family, and that’s why you have to articulate your family values. I can’t make your list of what’s essential and nonessential; the point is that you should make your own list so your kids have clear boundaries and can start thinking about this part of wealth: deciding what you want, what you need, and how to make those choices about buying what you want depending on how much money you have.
Lesson 6: Give Your Kids Opportunities to Earn
We all know that kids, even at a young age, will be integrated into the mix of doing household chores. Whether it’s taking out the garbage, clearing the table, or bringing the laundry from room to room, all children will have more everyday chores as they get older—not only to help out but also to instill the habits that it takes work to run a household–and everybody should contribute to that process. There are certain things everyone must do without the expectation of receiving anything in return.
That said, you can’t teach kids about money unless they have a little of their own. After all, it is important that they have fun and enjoy the pleasure of buying what they want, whether it’s candy, a stuffed animal, a video game, headphones, or whatever. You do need to give them the opportunity to experience that pleasure, and you can help them do that (and value their purchases more) by showing them how they can make their own money.
Before they’re of legal working age, it’s difficult for them to earn any money short of collecting for birthdays or setting up lemonade stands. So I’ve always believed that we should give our kids the opportunity to make money—and that’s how they learn to treat it with respect (following the rule of thirds I outlined above). So especially as they get older, you should think of ways that they can earn money, which can potentially save you some in the process.
Maybe it’s spreading the mulch, moving some boxes, or even doing some computer research work as they get older. This work-for-pay system can work well in families because it’s a win-win for both sides. The kids get to earn some cash, and you get more help around the house and potentially save money by not having to hire professionals to do tasks that your kids could do. I believe you should treat these jobs as professionally as you can—outline the expectations and the rate, and offer supervision and guidance as necessary. Heck, you can even write them their paychecks on Fridays if you want.
Treating it professionally helps instill a good work ethic and makes expectations clear—habits that will carry over to their first and (hopefully) all jobs.
Lesson 7: Send Your Kids Into the Neighborhood
When your kids get to be preteen age, they will be ready to take their talents outside the house. Be it by babysitting, yard work, dog walking, pet sitting, carrying groceries for older neighbors, or maybe even some tech talent, your kids can start to make some money. Besides the fact that these jobs pay pretty well per hour (and the money won’t come out of your own pocket), your kids will help save money for the neighbors for the same reason: kids are cheaper than the pros.
I also really like this method because it will force your kids to go out of their comfort zone of working for their own parents, teaching them a different kind of responsibility and also giving them lifelong skills such as confidence (and even marketing, as perhaps they try to drum up their own work with fliers or whatnot). Our goal here is to help them develop strong work habits as well as start growing that nest egg. And remember, when it’s all divided into thirds, the savings will add up.
Don’t underestimate the power of their tech talents, especially compared to those of your generation. There will be things that your kids can do with a computer, phone, tablet, or other gadget that we might not even be able to dream of doing. All it takes is a little networking to find out what your neighbors might need, and your kid could make a nice little chunk of change by helping out with some of those areas.
Whether it’s uploading videos to YouTube or creating a website, your child might be able to offer high-quality services for a fraction of the professional price. You can help your child use his or her talents to think creatively about ways to earn money. As they get older, they may even find professional ways to use those tech talents; some firms hire younger folks after hours to help with IT support. What a great entry into the real world—solving real-world issues with the flexibility of being able to work after school.
Lesson 8: Don’t Buy Them a Car Outright
Oh, the car. For the kids, it’s the symbol of freedom. For the parents, it’s the source of worry. But you take away those two aspects of what driving means and just make it about the money for our purposes. Then at some point, you’ll probably have to make a decision about what wheels the kids get. Do they get to borrow yours? Do they get a car of their own?
Here’s my recommendation.
Even if you have the means, do not buy them the car and just hand it over. This will be the greatest expense of a kid’s early life, and this is one of the reasons why you set up the rule of thirds to begin with—to give them that pot of money that could be put toward a car as they get older. The chances of them taking care of the car responsibly greatly increase if they’re involved in the financing of it.
Now does that mean you can’t help them out? Of course not. But you can set up some kind of system, be it that the child pays half and you loan the other half. Or you can do something like I did. I bought a car (that I deemed as safe and appropriate) and set up a system where my son would pay for expenses, such as gas, and then have the option to buy the car when he moves out of the house if he cared for it well.
So, while I paid the initial expense to get him going as a sixteen-year-old if he wanted to keep that car when he moved out, he would have had to save enough money to buy it at the depreciated value—and be able to pay the expenses. That kind of partnership, I think, is an important one for helping establish financial responsibility.
Lesson 9: Think Partnership
Just as I described in the case above, splitting expenses can be an excellent system for how you treat some expenses in your household, both at an early age and as kids grow older. This certainly could apply to college expenses. Perhaps you make a deal where you pay for the tuition, but they must cover living expenses, which would encourage them to get a job, save, etc.
It could also apply to texting and data plans with phones, the costs of which have soared with the speed of rocket boosters. Does your child get a free ride on your phone plan? Perhaps, but maybe you make a deal where your child has to pay a certain amount per month if he or she wants unlimited data because all those Instagram and Snapchat photos and other videos can add up!
It doesn’t have to break the bank, but again, this helps teach them about bills and reinforces that all the money they earn should not go just toward fun stuff. This is one of the key values I’ve tried to instill in our kids—it’s not all about money earned and money spent.
Remember, the point isn’t for you to take a couple of bucks off your phone bill every month by having your kids pay some; it’s to teach them the true value of using, saving, and investing money.
Lesson 10: Get the Whole Family Involved
Finally, this may be the most important strategy of all when it comes to creating wealth for your children. Have grandparents, aunts, uncles, and extended family members all contribute to your children’s wealth. They can do it in a number of ways. Does every single birthday gift from a relative need to be a toy? Of course not.
If they ask, you could politely suggest the idea of a share of stock or a contribution to a college fund. It may not be very “birthday friendly” for a five-year-old, but it’s something that will help them immensely, and they will value and appreciate it as they get older.
But it doesn’t have to be just a financial contribution; it can be a “life lesson” contribution as well. I remember my uncle talking about investments all the time, and those lessons have stuck with me. If you have extended family members who are financially savvy, there’s no reason to discourage them from teaching your kids little lessons along the way. This is often a wonderful role for grandparents to play because they don’t come off as lecturing, disciplining, or enforcing rules; they’re simply sharing their wisdom and passing it down.
My father, for instance, had a one-word saying that he passed along to me and my own children. He explained it this way: If I had a flag flying over my house, it would say “today” on it, because tomorrow may never come. Today is the day to take action! In other words, make every day about making important decisive steps, like saving, because today really is about preparing yourself for tomorrow.
That’s a lesson—a simple, poignant one—that has stuck with me for half a century. And now it’s one that will stick with my children too.
Should I pay my kids for getting good grades on report cards?
I say yes–if the child needs a little extra motivation (or may have trouble focusing). And the reason is that kids have very little opportunity to make money at a young age, they need to have some sort of foundation to start saving and teaching them money lessons. So this is one technique to do that. The amount, of course, depends on your own wealth, but if you divide it properly with spending, saving, and charity, then it’s not as if they’re getting a frivolous $20 to spend on whatever they want.
Many people disagree with this, and I can see why. The thought is that parents should expect kids to do well in school. They want their kids to enjoy learning and not do their work just because they’re going to get a bonus for doing well. But to me, the important point isn’t that you’re paying for the grade; it’s the lessons with what you do after that.
How do I help my child find and prepare for his or her first real job?
Besides having documents in order (such as a resume of school activities and tax forms), you should network to see what places might be looking for a kid for part-time work, besides taking the usual routes of Craigslist, classified, and job posting on websites and in stores.
Perhaps the greatest thing you can do is help prepare kids with a mock interview of questions that might be asked and help them with your connections to find initial temporary jobs.
Final Thoughts
You are your child’s first teacher. They look to you, model your behavior, and lean on your guidance as they make their way into the adult world. Financial literacy is part of the education you need to instill in your children at home to ensure they are able to get a grasp on the importance of earning money, saving money, and spending money wisely.
As adults, we know not everything in life is free–and your kids shouldn’t grow up thinking that’s true, either. While it’s important to approach this topic in a way they’ll be able to understand at any age–and should be done as a family–you have to set realistic expectations. Try to find age-appropriate ways to talk about finances with your kids.
Money doesn’t have to be your best-kept secret, and in a close-knit family unit, it shouldn’t be. Now, that doesn’t mean your kids need to know every dollar and cent in your bank account, but if you can get them excited about the prospects of investing, saving, earning, and working to make money, that’s a major head start that will prepare them for a bright future.