Kids learn from experience. We know this. That’s why schools spend so much money on programs that give kids “authentic,” “hands-on” lessons. One of the most important things that children will learn as they grow up is how to handle money, but for the most part, schools don’t teach it, let alone provide “hands-on” activities to kids. Money just doesn’t have a high priority in the curriculum. So that leaves you, as a parent, wondering, “How am I going to teach my children to be responsible with money?” It’s actually pretty easy, but first you have to let go a little bit. I’ll explain…
A common way that parents handle money is by establishing guidelines and rules, or giving kids money only after they earn it, and then letting them spend it on whatever they choose. They are learning all the time by watching how we handle these financial issues. With that in mind, here are some tips for what works when kids learn money.
- It’s having and using money that will teach them the most about it. Transfer responsibility for certain financial obligations to our kids when they are young.
- Give kids age appropriate amounts of money that is matched to a category of spending. Examples of this might be friends gifts for elementary kids, entertainment money for pre-teens, clothing money for High schoolers.
- Give them the amount of money your family has decided is available for the category and let the young person figure out how to use it to get what they need.
- Let them make real choices with their money, and don’t manage their choices or come to the rescue. Let kids learn from their mistakes with money.
- If (and likely when) they run short, offer them an advance or loan, and be sure to charge interest. This is the best lesson on the reality of credit card debt. Remember that they are learning and will likely make mistakes. Be patient and supportive, but keep it real.
- Do have your kids save 10% of all the money they acquire, and create a separate account for investment savings. Most kids (and adults for that matter) save to spend, but saving to invest makes a lot more sense.
- Begin exploring ways that they can use the “saving to invest” money to make more money. Since your children will not be touching the money anytime soon, take advantage of time deposits for higher interest.
- Once they have enough seed money, help them start their business project or open an investment account through Sharebuilder, where they can buy portions of a stock based on their available funds.
The Money Academy was built from conversations I had with my daughter when she started asking about money at the age of nine. Thankfully, I went on the journey of discovery with her rather than just answer her questions. I found out that I was in my own work-spend cycle, and it was never going to change until I started saving and investing. We now have an in-school money curriculum, a summer camp and even a family money game! It’s amazing what you and your kids can create when you let yourself discover what money is all about.