Kids are, like they saying goes, little broke best friends who think you are wealthy. Our kids certainly have no problem sending us links, filling their online carts and asking us to click the order button, and assuming anything and everything they want is theirs with a smile and a ‘please, mommy and daddy’. The point is not whether or not you are wealthy, it’s the fact that kids need to learn the concept of smart money.
Schools don’t teach money awareness, and life shouldn’t end up being your child’s teacher of money awareness. Let them learn young so they can understand on their own where their money goes, how it works, and what it’s like to use it wisely and correctly. Here are the best tips for raising money-smart kiddos.
1. Make Goals With Your Kids
The number one way to teach kids to become money-smart is to have them make some goals. Don’t worry about age right away – kids as young as four and five can make some goals. Perhaps your kindergartener wants a new toy or your teen wants an expensive handbag. Make goals. Sit them down, talk about the overall price of the item, figure out a savings plan, a timeline, and then how they can work to save enough to earn the money for their goals. It’s beyond helpful, and it teaches wise lessons.
2. Let The Kids Pay
When you go to dinner, let the kids pay. They don’t need to use their own money. Just let them take your card, pay the bill, leave the tip, etc. This is a great way for them to learn a few things. Number one, they learn about the charges associated with eating a meal in a restaurant, tipping, and how to pay appropriately.
3. Provide an Allowance
You can do this however you want, but here’s my advice. Don’t pay kids for basic life items. For example, being neat and tidy and caring for your things and your home is not a job to be rewarded for doing. It’s a life skill that needs to be done regardless, so don’t pay your kids to make their beds. Pay them to do extras around the house. Pulling weeds, gardening, babysitting, etc. Come up with a payment amount for each extra item, and let the kids choose what they want to do to earn extra money. On payday – you get to choose what payday is for you – you give them what they earn.
Here’s how we do it. We pay our oldest daughter to babysit. Of course, we are very careful not to use her often because we never want her to feel as if she is raising her three younger siblings, but we will ‘book’ her services in advance. She’s paid for babysitting each and every time. She’s also paid for helping the little kids with their homework if they need help (we are at the age where a lot of the math no longer makes sense to us because they’re taught a much different way than we were, so she’s our go-to math homework helper). Each of the kids is paid for making good grades because in my opinion, school is their job. They should be paid for doing their job.
4. Require Savings
For every dollar your child earns, require that a percentage of it goes into their savings account. For example, require 20 percent of every dollar is put into savings. This teaches them to save, and it teaches them the value of a dollar.
5. Give Them A Debit Card
We gave our oldest daughter a Greenlight debit card when she turned 13. She is paid via her debit card every Friday for the things she does. Twenty percent of every deposit that goes into her debit card account is automatically moved into her savings account, and she knows this.
6. Teach Them to Balance A Checkbook
With our daughter’s debit cards comes the concept of balancing a checkbook. We gave her a register, and she’s required to balance her own book on a weekly basis – daily is good, too, depending on the budget and money habits. She knows how to deduct her money, keep track, and understand what she’s got available to her.
7. Set A Good Example
The best way to teach kids to become money-smart is to be money-smart yourself. Leading by example is something kids notice whether you realize it or not.
8. Let Them Learn the Value of Taking Care of Things
One of the most important things you can do in life is be sure your kids understand the value of caring for their items. If they aren’t paying for it and it’s being handed to them, they don’t understand the value. For example, if your child has an iPad you paid for and they break it, don’t replace it for them in a second. Make them earn the money to pay for repair or replacement. They’ll see how long it takes to save for it, how much it costs, and I promise they’ll take much better care of it when they know how much went into it – especially when they know how much of their own money just went into that.
9. Set A Budget With the Kids
Kids learn about money based on a budget. So, set a budget for them. Let them see what they earn on a weekly basis, what they can afford to spend after savings, and teach them the art of budgeting. They want to go to a theme park with a friend at the end of the month and having spending money? How can they work their budget to fit that need?
10. Teach Giving
One of the most important things your kids will learn in life is the art of giving. Teach them that ten percent of what they earn should be given back to those in need. We have a few favorite organizations we like to donate to – specifically, we like to donate to All Children’s. When our son was born partially deaf in both ears and we had to have numerous hearing tests done, our health insurance did not cover it. We are fortunate that we could afford the cost of his tests, but the hospital told us they have programs in which they waive the fees for families who cannot afford it and the money given by donors is used to cover the cost of a child’s treatment.
Though we did not utilize that offer, the realization that there are many families whose children need medical care that is simply unaffordable did not go unnoticed and unappreciated, so we’ve donated to them regularly since. It makes us feel good knowing that our giving allows a family who is at rock bottom to have a little bit of love in their lives and it takes a little something off of their shoulders. So, our kids also donate to the hospital. Giving is a good thing, and it’s a necessary thing. Teach kids the art and the love that goes into it by asking them to choose a cause that is important to them.
11. Use the Bank
It’s easy to forget to take the kids to the bank considering the fact that no one really needs to go to the bank any longer. But, your kids need to learn how to use a bank account, how to keep it balanced, and how to deposit money, withdraw it, etc. Use the bank.
12. Have Your Own Fake Stock Market Project
In middle school, we had a fake stock market project in my honors math class. We each got to pick three stocks and invest fake money into it for a month. We kept track of our earnings, our losses, and the fluctuations in the market, and guess what? I chose Disney, Coca-Cola, and one I cannot remember, and I had the most money at the end of the project. We learned so much about stocks, how they work, and how our money is invested. Do the same with your kids. It was a lot of fun, and it provided some real-world understanding and education.
13. Allow Room for Mistakes
Kids are imperfect, just like you and me. Let them make their money mistakes now because this is the age where it does not hurt them. Making mistakes is the best teaching tool, so utilize that teaching tool.
14. Set Up Fake Bills for Your Kids
Kids should learn to pay bills. You don’t have to really pay bills with them, but it is helpful to have them set up their own bills in their budget. For example, have them put aside money for their mortgage, insurance, and phones. They won’t use this money, of course, but you can add it to their savings at the moment to watch it grow. It helps them understand that money from every check is allotted toward different obligations, and it helps them learn.
15. Teach Kids About Taxes
Now, how about tax? We like to do this with our kids and their M&Ms. We give them M&Ms, and then we take 40 percent of them from the kids. They are always horrified by that, but it helps them learn that they’re giving away the vast majority of everything they have toward taxes, and the more they have, the more they give. We give the M&Ms back, but it’s a teaching tool.
16. Teach Kids About Sales Tax
Sales tax is yet another thing kids need to learn. That game they want? It’s not $99. It’s $99 plus sales tax, and learning that everything has to cost more for sales tax teaches them to better understand where their money is going and how it works.
17. Help Them Understand Debt
You can be a lender to your kids. If they want something bad enough and right now, lend them the money. Then require them to repay you, with interest, over a period of time with their own allowance. This is a wonderful way to teach them that if they buy something without using cash to pay, they are going to spend a long time making less money than they did before.
18. Be Open About Money
One of the simplest ways to teach your children to become money-smart is to be open about it. Talk to them about what you make, what you spend, and why you spent it. For example, when you build a home or buy a home, make sure they know that just because the bank said you can afford $750k doesn’t mean that you need to spend that much money. In fact, it’s always better not to because then you’ll have room for extras and less debt. Talk to them about the cost of your vehicles, maintenance, gas, insurance, utilities, etc. They need to know these things.
19. Keep An Open Line of Communication
If your kids are afraid to talk to you about things, they won’t talk to you about things. They won’t come to you with questions and concerns about money, and they won’t ask for your advice if they feel you are not open to providing it without judgment, frustration, or annoyance. Talk to the kids openly and honestly, and always leave a line of communication open for them.
20. Utilize Apps
Banking apps are a great resource for children when it comes to learning how to balance a budget, pay for things, and make money work for them. Try teaching them to use banking apps with their accounts, too. While paper budgeting and balancing are the key to good money habits, utilizing banking apps and the features they provide is another great tool for kids.