(GCC: I recently asked Chief Mom Officer a very pointed question:
Winnie and I both grew up poor, and a big part of our money value system started from a place of deprivation. We ended up in the right place, but not in necessarily the healthiest way possible. Now we are raising our own family with an abundance of money and time… how to instill those same values about saving, delayed gratification, etc… in a positive and healthy way?
What recommendations would you make to families like ours?
Today’s post is the answer.)
How do you teach kids the important lessons about money, especially if you didn’t grow up with a great parental example?
Teaching your children important money lessons can be tricky. I would know. As the mother of three boys, ranging in age from 14 down to 3, I’ve had a lot of experience with teaching kids of different ages the basics of smart money management.
Hi all, I’m Liz and I write over at Chief Mom Officer helping people with money (theirs and their kids), work, and frugal family life all with the goal of reaching financial freedom. When Jeremy reached out to ask me to share tips on positive and healthy ways to teach your kids about money, I was very excited. This is one of my favorite topics – so much so that I have an entire page on my site dedicated to the topic!
The Two Key Parts to Money
There are two key parts to money that are both important to teach your kids:
- The Practical, Physical, Mathematical – What is money, how does it work, how do you invest it, what is compound interest – these are all examples of practical money information you want to pass down
- The Intangible – These are the skills your kids will need to navigate the world of wise spending, saving, and investing successfully. Skills like delayed gratification, value of money, goal setting, not being spoiled, and how to make wise purchasing decisions are key here.
Teaching intangible money skills to your children can be much trickier than the practical ones, at least in my experience. Why? Because most parents don’t think about it, and so impart those values to their children through their actions, rather than on purpose.
Since you’re here reading a site about financial freedom and traveling the world, if you have children, I assume you’re also interested in helping them achieve “second generation FI”. So how do you do that?
How to Teach Your Kids
Sitting down your children and lecturing them on the virtues of delayed gratification or how compound interest works is likely to get a glazed look. They’ll tune you right out and start thinking about dinosaurs, that TV show they want to watch, or the video game they want to get back to.
So how do you teach your kids in ways that make them sit up and pay attention? You make it:
- Age Appropriate
- Part of everyday life
I’ve found the best way is to simply make money part of your conversations at home. Answer their questions, discuss purchases, and share age-appropriate information about budgeting and investing.
Let’s take a closer look at how this might work with the two key kinds of skills.
The Practical, Physical, Mathematical Skills
Teaching practical money skills is important, because you can’t rely on schools to do so. Your kids will likely learn what money is and how much each bill and coin are worth in elementary school.
They may or may not get some kind of personal finance education in high school, depending on where you live. My experience is that my oldest son just wrapped up his freshman year and there was zero about personal finance so far.
When your kids are two and under, you teach them the most important money lesson of all. Don’t eat the money.
After that, you can start teaching them to count, and part of that can be counting money. Up through early elementary age, kids mostly focus on learning the different bills and coins.
Once they’ve mastered that, you progress to teaching them about simple and compound interest. I’ve found this video of a penny doubling every day is a good starting point to the wonders of compound interest.
Watch the video and pause at 32 seconds to find out whether your kids would choose to be paid a penny doubled every day for a month, or a million dollars. They’ll almost certainly pick the million dollars and be amazed at the real response. The video also covers simple vs. compound interest.
Another great resource my older boys enjoyed in elementary school was watching the Secret Millionaires Club videos. Warren Buffett himself stars in this series about a group of kids, covering money lessons from running a business to the cost of brand loyalty. My boys found them so much fun we watched them all in one sitting.
Before your kids finish high school, you’ll want to make sure you’ve schooled them on the basics of budgeting, saving and investing, emergency funds, retirement accounts, and the like. Since my oldest son is in high school now, we go through some of the investment statements so he can learn to read and understand them. Once he gets a job we’ll go through budgeting, saving, and retirement accounts.
And if paying for college is a goal of yours (totally fine if not) get your middle and high schooler involved in the process of saving and investing for it. Not only will they be clear on just what you will and won’t pay for, but it’s a great learning opportunity for them.
What about the intangible money lessons – concepts like delayed gratification, goal setting, discipline, and wise spending?
Intangible lessons can be trickier to teach to your kids than the practical ones. And I would argue that these just might be the more important lessons to learn. The method I use, which seems to work very well, is using everyday events and conversations to help my kids come to their own wise conclusions.
How does this play out in real life? Let’s look at a few examples from lessons I’m working on with my boys:
- Goal setting and delayed gratification – My oldest son badly wanted a Lego Death Star when he was younger. We looked up the cost together and talked about how he could save up for it. He saved for over a year to get this, and then “Santa” chipped in the rest. Now, almost a decade later, he still plays with this Lego set.
- Wise shopping and money mistakes– I let my kids make some small money mistakes, like spending their money on toys I know they won’t love in the long term (hoverballs and wizard chess, specifically). Making some small mistakes when they’re young, and not saving them from their mistakes, helps them avoid making big mistakes when they’re older
- Some things are more important than money – A big part of personal finance is imparting your own personal values into your spending. If you value travel, you spend on it. If education is a priority, you put your money there. My oldest son happens to treasure a watch handed down from his great-grandfather, so when it broke, I didn’t hesitate to spend $100 to fix a $50 watch
- Price doesn’t always mean quality – We buy a lot of our kids clothes, books, and toys secondhand, and we’ve been doing this since my 14 year old was a baby. Sharing in the excitement of scoring a good deal at a thrift store, consignment shop, or tag sales shows kids that good deals are out there and how to find them. My oldest son still brags about the time he spent $1 on a popcorn popper at a tag sale!
The important part here is the conversation – and not saving them from themselves. Whenever they ask you to buy them something, it’s an opening to talk about how to find a bargain. If they start talking about how everyone else has cooler stuff than they do, talk about aligning spending with your values, and why you don’t value the extra price that goes with the name brand. If they spend all their money on something that they stop playing with in a few days, talk about how that money could have gone towards a purchase that would have lasted longer.
Talking with your kids in an age-appropriate, conversational way about these kinds of money topics helps them learn without feeling lectured. Just make sure it’s a real two-way conversation, and ask them probing questions to help them come to their own conclusions
Positive, Healthy (and Wealthy) Money Mindset
Your kids will pick up on what you say and do – even when you think they’re not paying attention. So be sure to watch how you talk about money around your kids. Share your smart spending excitement, and how hard you’ve worked to reach your own goals. Your kids will absorb and internalize the lessons you’re teaching through your words and actions much more than they would any lecture.
Maybe your own parents brought you up with a scarcity mentality, lived beyond their means, or feared investing. It could be that money was a taboo topic in your house, or a source of stress. Too often the money script you grew up with drives how you raise your kids. But when you know better, you do better. And you can do better for your kids than your parents did for you.
It takes a number of different and varied conversations over many years, being extra careful to not pass stress or fear around money down, and a conscious effort to teach both the practical and intangible lessons. The more open you can be about money with your kids, and the more you share with them – the better equipped they’ll be to become money-smart adults.
Thanks again to Jeremy for inviting me over to talk with you about one of my favorite subjects. And I’d love to know –