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7 Ways to Teach Your Children About Money

Mike Earl, CFP®, CPWA®


My wife Krista told me a great story from her trip to Costco yesterday with our two sons, Ford (age 3 ½ ) and Teddy (age 2). Krista bought yogurt for each of the boys. Our younger son Teddy quickly finished his yogurt and immediately began to cry for more. Ford responded by feeding his own yogurt to Teddy, spoonful by spoonful. He did that without any prompting from Mom.

What an amazing picture of generosity. Rather than focus on his own desires, Ford thought it would be better to meet his younger brother’s desires. He must have received this gift of generosity from his mom’s genes, not mine. My wife is quick to give, and she doesn’t cling to money or possessions tightly. 

I recently finished reading a book called The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money. I do recommend this book, if only because this is a topic that few of us study or give much consideration. The book was not perfect, but it spurred me on toward thinking (and doing) more on the subject of teaching our children about money. 

In the spirit of sharing tips and tricks for teaching children about money, I’ll share some tips and tricks our team has picked up and created over the years:

1) Enable your children to experience the power of compounding first-hand. 

TWG team member Adam Colby helps his three children gain investment experience by allowing them to share in the upside of the U.S. stock market. Here are the logistics:

  • When the children earn money from work (either around the house or out on a job), they can invest a portion of their earnings in an “account” with Adam. This is not an actual account at a bank, but rather a spreadsheet-based account that Adam maintains for each child. 

  • Each child can pick an actual mutual fund or ETF in which to invest over 3-month or 6-month periods.

  • If the chosen fund is up over a given time period, Adam credits that growth to their account. If they want to cash out part of that growth, they can do so. Of course, Adam encourages them to always reinvest!

  • If a fund is down over a given time period, Adam gives them a 0% return for that period (i.e. he doesn’t force them to take losses).

2) Tangibly show your children what generosity looks like by handing out gift cards to strangers.

Austin recently took his two oldest sons (Luke and Jake, ages 12 and 11) to the Chanhassen Chick-fil-A. He bought a stack of Chick-fil-A gift cards and told his sons to hand them out to people walking into the restaurant. 

People typically assumed his boys were trying to sell them something or advertise something, so they were really taken aback to realize it was simply a gesture of kindness.

3) Engage your children in giving their own money away.

My 4-year-old daughter Evie has a glass mason jar piggy bank in her room. The glass jar enables her to see the money she collects. She earns money through basic work around the house (although really, most of her money comes from my dad giving her 20-dollar bills when he comes over…which only slightly subverts our goal of teaching her that money is earned through hard work). 

Every Sunday morning (well, some Sunday mornings), we have Evie take a bit of change or a dollar bill out of her piggy bank to bring to church. She puts her own money in the offering plate at church, where the money goes toward the Benevolence Fund – for people in need within our congregation of about 200 people.

4) Speak openly to your children about money.

When a child asks you to buy him something, instead of saying “we can’t afford that”, take the opportunity to say something like, “we choose to be careful about how we spend our money.” Or, “we have a plan for how we spend our money each month, so sometimes we choose not to buy things like that – so that we can save more to prepare for our family’s future.” 

I’ve already started to explain to our children (the oldest is age 4) that we buy used vehicles in order to save a lot of money. I show them how our minivan looks similar to the other minivans in various parking lots, but we spent much less money on it than other folks.

When a child asks you to buy him something, instead of saying “we can’t afford that”, take the opportunity to say something like, “we choose to be careful about how we spend our money.”

5) Save receipts from impulse purchases.

If your child uses her own money to buy an item at Target, save that receipt for her. Pull that receipt out two weeks later, and have a discussion with her about whether she is still finding joy in that item. Was it a worthwhile purchase? The goal is simply to increase mindfulness around spending decisions.

6) Encourage your children toward entrepreneurship.

About a month before my 14th birthday, I rode my bicycle over to McDonald’s in Chanhassen to apply for my first real job. I ended up working there for two years, making $5.50 - $5.60 per hour. In hindsight, I should have started my own business.

Thanks to technology, young people today have more opportunities for entrepreneurship than ever. In the “gig economy”, you can be an entrepreneur without actually starting a business from scratch. You can use infrastructures that are already built.

Just a handful of simple business ideas:

  • Dog boarding/walking through a site like rover.com.

  • Window washing.

  • Landscaping/lawn care/yard work.

  • Snow removal.

  • Academic tutor.

  • Child care.

  • Handmade shop owner (sell at sites like Etsy).

  • Car washing service (you can make it a mobile car wash).

  • Photographer.

7) Discuss large purchases with your children.

If your family is contemplating a home remodel, a vehicle purchase, or a vacation, involve the children in the conversation around that decision. Explain how long you are saving up for it, discuss the pros and cons of the decision, talk about alternative options.

The prospect of teaching our children about money can be daunting, since it seems like a monumental task. But remember that perfect is the enemy of good, and that implementing a few small ideas is far better than not implementing a single grand idea. You’re seeking progress in parenting, not perfection.

 

Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.