10 Ways to Raise Money-Savvy Kids

Posted on 02. Mar, 2006 by in Saving & Investing

As my own children get older I find myself thinking more and more about how to teach them to be more financially savvy than I am. The reason is not because I have made huge financial mistakes but simply because I think that if I had been taught financial principals such as budgeting at an earlier age I wouldn’t have had to work so hard at developing those habits later in life – and as we all know, establishing those habits become harder and harder as we get older.

I’ve decided to sit down and write out my thoughts on the subject in the form of a “top-ten” list of ways to raise money-savvy kids. If you have other ideas please let me know – if I get enough responses I’ll post again with a list of them!

  1. Respect for Money: money should be regarded like a handgun that you keep in your home. When used correctly it can be fun to shoot at the range or save your life from an intruder. On the other hand, if a child finds it in the closet and is not sure how to use it, he could harm himself or others. Because money can be just as useful or just as harmful as a gun, you should help your child develop a great respect for it. With a gun you might take your child to the shooting range to teach him about gun safety, how to aim and shoot, and how to protect himself with the right eyewear or clothing. With a gun you might also sit down with your child and explain that guns can hurt people and even kill them if not used properly. Likewise, you should take your child out and teach him about money – how it works, how to protect yourself from overspending, how a credit card works, etc. You should also sit down and explain to your child what happens if money is used in the wrong way – both in the sense of stealing it and misusing it in the form of bad checks, credit card debt, etc. Whatever you do, teach your child that money is a powerful thing and that disrespecting it can lead to disastrous results.
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  3. Teach Saving First: before you begin to teach your children about spending their allowance money on that Power Ranger action figure they’ve had their eyes on, teach them the importance of saving. Teach them not only to save for short-term goals but also for long-term aspirations. A piggy bank with multiple slots will help with this concept. Set aside one slot for that Power Ranger, another for charity, another for college, and yet another for savings. This will allow you not only to teach your child about saving for both the long and the short-term, but it will also help you reinforce the importance of charity work or going to college.
  4. Difference Between Needs and Wants: small children – as well as many adults – have a tough time distinguishing between needs and wants. Admittedly, sometimes the line is blurry. I might need a new computer in order to check email faster, make better Excel spreadsheets, and post my last-minute bid on eBay faster – but I have a sneaking suspicion that my need is more of a want. So if it’s tough for you and me to decide what is a need and what is a want, how do you teach your child this important principle? There are a few ideas that I’ve come up with. First, teach your child how to “sleep on it.” If your child really, really wants that Polly Pocket Toy Cell Phone then have her wait a few days to see if she still wants it. Some of the worst financial decisions are made on the spur of the moment. Second, teach your child how to say “no”. By reinforcing that some things are just too expensive or take time to save up for you child will begin to learn that great things come to those who wait. This principle will not only come in handy when telemarketers call but will also help them develop independence and self-discipline. This principle will also help in saying “no” to other things such as drugs and alcohol.
  5. Information is Power: this might seem like an odd thing to teach children, but information is becoming more and more powerful in making wise financial decisions. Teaching this principle might be as easy as helping your child look up several different stores’ prices online or having them call around to see where that Bratz Pack doll is the cheapest. At this point it may not be a bad idea to introduce the idea of coupons as well. Many coupons and coupon codes for online purchases can be found easily by typing the name of the store and “coupon code” into Google.
  6. Bills and the Value of Money: by starting early you can help your child develop a sense for a “good price.” I have met too many adults that walk into a store and buy the salesman’s pitch hook, line, and sinker without ever questioning the fact that the big screen TV is selling for $400 more than most do. As bills come in the mail, share with your child how much the bill is for, what it bought, and whether it was a good purchase. For example, you could show your child the electric bill for the month and explain that bills are expenses that happen every month. In addition, the bill for $45 included all of the electricity to run the TV, lights, etc. for an entire month. You could also take this time to review with your child why the bill is so high/low and have him/her brainstorm ways to help conserve energy. I specifically remember my father paying bills each month as I grew up but being shocked at my first electric bill because I had no idea what to expect.
  7. Relationship Between Work and Payday: this point could be best demonstrated by a topic that has been in debate as long as I can remember: allowance. If you have chosen not to give your child an allowance you should come up with some other way to explain the relationship between hard work and a paycheck. One way might be to show them a copy of a pay stub and explain that after 2 weeks of work you received a check to compensate you for your time and effort. This is also the perfect opportunity to teach them about taxes; however, explaining taxes in a positive light might help them to have a positive attitude later in life. Taxes can also be demonstrated during the allowance process by taking a small portion from their allowance as taxes to demonstrate the effect.
  8. Importance and Love of Work: I realize this overlaps the point I was trying to make above but I wanted to reinforce the fact that work ethic is something I think many people are lacking these days. Every day I read articles in the news about unions and other organizations demanding more money in exchange for less hours worked. Fewer children (teens) find a job during high school or college. These signs are detrimental to a child’s financial success. You should teach your child that hard work is rewarded and that you can take pride in your work. This point might be best taught by being an example to your child. Coming home from work and complaining for the rest of the evening will only teach your child that work is evil and is not worth it. Instead, help your child understand the importance of choosing a profession that they love and then to work as hard as they can at that job to produce the best product that they can. I have been blessed with a love of the process of work and achieve no greater satisfaction then seeing the fruits of my labor at the end of a hard days’ work. That doesn’t mean working 80+ weeks, but it does mean putting in an honest 8 hours each day and keeping a positive attitude about it.
  9. Investment Opportunities: It’s great when you teach your child to save, but as your child gets older it becomes more important to teach them that that money in savings can also generate a return. There are many ways to do this with no way being “better” than the next. However, the Internet could be a valuable tool here. There are many sites, such as Yahoo! Finance that allow you to create a “mock” portfolio in which you can buy and sell stocks and bonds. The most important point is to teach your child that many options exist. Stocks are not the only way to invest – and neither is a savings account. Encourage your child to put some of their real money that they in their “savings” portion of their piggy bank into something like a CD. 5 years down the road you can take them there to cash in the CD and talk about the concept of interest.
  10. Credit and Credit Cards: at some point when your child has mastered other financial concepts, you should begin to teach them about credit, credit scores, and credit cards. How do you teach the concept of the maintaining good credit? You can get your child a plain debit card and see what happens – but I wouldn’t recommend it. Instead, you can also get a “secured” card, which is a debit card that you can keep an eye on. One version of a card with parental involvement isVisa Buxx, offered by Visa. Not only do they let parents track spending, but they’re also reloadable online. However, when teaching a child about credit cards it is also important to emphasize the importance of paying the bills on time. One way to do this is to give them a pre-loaded credit card to use the month with the instructions to use it for things they already have the money for (good advice for adults too). Then, at the end of the month you could send your child a “bill” for the amount that they spent. That way, they can pay you back in cash for what you originally put on the credit card. Finally, when teaching children about credit cards it’s important to teach them about credit scores as well. Paying a credit card bill late or other mistakes done on credit can hurt your child’s chances of buying a car or even purchasing a home in the future. Unfortunately, early credit mistakes take a long time to be erased from lenders’ memories – and it’s important that your children realize that.
  11. Budgeting: when your child is in middle or high school is the perfect time to teach him/her about budgeting. Not budgeting is probably the biggest financial mistake that adults make today. It is therefore imperative that children learn about the importance of budgeting early on. This point can be taught in a very simple matter – or in a complex one. In fact, by the time your child is in high school he/she is probably capable of creating a better electronic budget in Excel than you ever could on paper! In any case, sitting down and creating a weekly, monthly, or yearly budget is something that your kids can actively participate in. For example, they can calculate how much allowance or money from a part-time job they will get each week and then determine how much money they have left over after setting aside a portion for charities and/or savings. Of that money left over they can then begin to practice making decision about what is financially important to them – saving for a new baseball glove or eating out with friends? Hopefully the earlier lessons on wants vs. needs and self-dependence will shine through here and your child will make wise financial decisions. He/she may even want to invest some of that money for later! (One can only hope, right?)

Had enough? There are many more things that you can do to help teach your child to be financially savvy – but there are principles that I think are the most important – and ones that will help them avoid the common pitfalls that we as adults make. Now, if only my parents had taught me these things when I was a kid…

2 Responses to “10 Ways to Raise Money-Savvy Kids”

  1. sfb

    03. Mar, 2006

    Really great tips.. have read a lot of articles over time and this makes the most sense. Thaks for the great ideas and info.. wish more people would take this kind of advice!

    Bratz World


  1. BeancounterBlog.com » Blog Archive » How Much Should You Tell Your Kids About Money? - April 4, 2006

    […] I’ve written a few posts on kids and money but I have never really covered this question before. Luckily, another journalist has. Over the past few weeks, Jeff Opdyke has written a few articles on kids and money from various angles. As he has written these articles, he has received a fair amount of response from parents voicing their opinion on how much information a parent should share with children. I invite you to add your own two cents here and let us know how you feel about sharing financial information with your kids. […]

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