Occasionally a client that I work with will introduce me to their kids. I welcome these meetings, and find joy in being part of helping these kids to get started down the right path.
Often times these kids are actually young adults, earning their own money, and preparing for the years ahead when they leave the nest. But you can start conversations with your kids about money much earlier in their life. The best time to begin teaching kids about money is as soon as they are old enough to understand what it is. The following ideas can help you start the conversation around handling money (before your kids decide they know more than you do!):
Pay your kids per job instead of giving them an “allowance”.
Paying your kids per job, or chore, allows you to differentiate how much a child earns per job. Paying your kids this way teaches your child the two ways they can move the economic needle in their favor; they can do more work, or they can do the work that earns them more money. Consider having a list of chores to do with varying pay based on how helpful the chore is to you, the parent. Then allow the kids to have some choice in which chores they will do.
Divide their income into three “buckets”.
As soon as kids are able to earn money for simple chores, they should learn not to spend everything they earn. When our kids receive their pay, we make them divide their income into three buckets (Ziplock bags, actually): spend, save, and give. They are empowered to spend the “spend bucket” on anything they would like, but a portion of their income is saved for the future, and a portion goes towards being generous to others.
Help your kids make and sell something.
This could be as simple as the old fashioned lemonade stand, but it could also be vegetables from a garden, or home made crafts. Entrepreneurship can be a rewarding career choice, and a path to financial well-being. It’s good for kids to learn that it’s possible to create their own income. It's also good for them to see that it doesn’t always work. Days when lemonade sales are low are good opportunities to solve problems and learn persistence. You can help them brainstorm ways to get better results, and try again.
Borrow money from your kids and pay them interest. Have them borrow money from you and pay you interest.
Some might find this idea a little odd, but there aren't many opportunities for kids to start learning about the consequences of debt. Realistically, this simple math lesson will be more useful than much of the complicated math they will learn in school.
There was a day when we ordered pizza to be delivered to our house, only to realize we didn’t have many small bills by which to give the driver a tip. I used the opportunity to teach our kids about borrowing and lending money. I told them we would borrow a few dollars from their save buckets, but would return the money the next day. We would add an additional quarter as payment for using their money. They thought this was a pretty good deal, and I was happy to spend 75 cents to give teach them a lesson about money.
Share some of your financial decisions with your kids.
Many parents view financial matters as private conversations. There’s definitely some financial information that kids don’t need to know, but there are also opportunities to share some of your decisions with them so they can learn. If you’re delaying a purchase so you can save money and avoid debt, that’s an excellent opportunity to help kids see good financial decisions in action.
This could be as simple as explaining why you chose the $1 bottle of water at the gas station instead of the $2 bottle. Or better yet, why you filled a water bottle at home so you didn’t need to spend extra money on water at the gas station.
Most of us would have benefited from a more hands on approach to learning about money when we were young. Teaching kids about money can be fun, and offer opportunities to spend quality time together. When your kids are able to be financially independent as adults someday, the extra effort you put forth in their youth will be well worth it.