Your kids are learning from you all the time, no matter their age. We teach our young kids how to brush their teeth, how to tell the time, how to tie their shoelaces. And over the last year, many of us have had to get even more involved with their education, even teaching them math and their ABCs.
There are different ways that our kids learn from us, too. We often hope that they’ll follow our example, learning by watching us that dirty dishes go in the dishwasher, and not next to it (although that does seem like one of life’s toughest lessons to learn, doesn’t it?).
We hope that we’ll teach them to be kind, thoughtful and patient, but also driven, confident and successful. And we hope that the little lessons we teach our kids every single day are going to serve them well through their childhood and help to shape their adult life.
When it comes to being comfortable, happy and fulfilled – in other words, all the things you’d surely wish for your children – isn’t one of the main cornerstones of all that the way that you handle your finances? So while you’ve taught your kids how to ride a bike and how to make their bed, it’s a good idea to think about how to teach kids about money. It could be the most important lesson you ever teach them.
How To Teach Kids About Money – The Early Years
Studies have found that habits start to set in kids by the age of 9, and after that, it gets progressively harder to forge new ones. So, just like with healthy eating, enjoying being outdoors and being kind to their friends, it’s essential to start sowing some seeds of healthy financial habits young.
You don’t have to start talking to very young kids about money, but just remember that they are watching you the whole time. They are learning from you. If you regularly spend money on a whim, they’ll normalize that behavior. But if you talk about the occasional lavish expenditure as a special treat, they will see it as such.
And yes, I know it’s hard, but don’t let them have everything they want. That’s not real life, is it? Don’t set their expectations too high. It’s OK to want for something, to aim for something, and to know that not everything comes easy.
Let Your Children Learn To Save
Start very young kids off with a savings jar. Advice differs about whether or not to link this to rewards; do they earn money for good behavior? Lose some for bad? Earn some for helping out around the house with age appropriate chores? Ultimately, that’s up to you. But let your young kids have some way of accumulating a little bit of money.
Then, every now and then, let them have the thrill of consciously choosing something for themselves to spend it on, without depleting their savings fully. Before they’ve decided on what to buy for themselves, remind them of something else more expensive that they wanted. Present them with the choice of continuing to save, or spending now and rebuilding their savings. Little kids will learn so much, so quickly, from these decisions.
When they get a little older, set them up with a basic savings account, or a custodial account like an UTMA/UGMA. Transfer the same principles you set with the savings jar at home to the new account. Just making sure that saving money is a habit set early on. Instil in your kids the idea that to save is normal, and to overspend isn’t.
When it comes to how to teach kids about money effectively, some advocate encouraging three buckets for their finances. This can be a really useful way to teach more about money, giving their learning even more value. Doing this teaches kids about the power and impact of money, and the possibilities that it can bring.
Give your child three savings jars, three piggy banks (there are even piggy banks divided into three that you can buy online now), or three bank accounts; do what makes more sense to you.
Then when your child earns some money, or receives some as a gift, encourage them to split it into three. It doesn’t necessarily have to be equal; this is all part of the learning. They need to save some, which doesn’t get touched. Then they have some they can spend, and then some that they can give. They can give by buying a present for someone special to them. Or you can help them to identify a charity that relates to one of their interests, and they can donate the money. Show them what good that charity is doing with money it receives.
Teach Your Children Gratitude
Another cornerstone of financial habit building is to have a deeply rooted sense of gratitude. Teach your young children that what they have is enough, and they are lucky to have it. It may sound idealistic, but teach your children to enjoy the value of experiences over material things. If you can teach them not to aspire to have the biggest, the most, the best of everything, then you will teach them that they can be happy without spending everything they own.
You know that philosophy that says you can’t tell who the millionaire is in your neighborhood, because they drive a used car and wear average clothes (and they look a little bit like Bill Gates)? Well, that’s what you’re helping your kids to learn when you teach them to be thankful for what they have, and not chase after more. By spending money wisely and frugally, the comfortably-off people become wealthy people.
How To Teach Kids About Money – The Teenage Years
Teaching teenagers about money is where it really starts to get interesting. Hopefully, you’ll have already laid some good foundations with them while they’re younger, but if not, don’t worry, You can still make some good progress!
There are three really important ways to teach older kids about money.
- Saving is paramount. If you haven’t set one up already, make sure they have a savings account. Go as far as to set up a “Kid Roth” for them, if you like. Your teenager needs to know that savings are more important than spending in the here and now. Use the three buckets so they can allocate money to saving, spending and giving, and show them the magic of compound interest when they look at their account statements.
- Talk to your kids about money. Don’t send your teenage kids off out into the world without knowing what they’re dealing with. Be open with them about your finances; show them what you have coming in and where it goes out. Give them realistic expectations about bills and commitments. Talk to them about the mistakes you’ve made, and the pain points, and show them how you allocate funds to be able to enjoy your money and your life too.
- Lead by example. This is the golden rule. If there was just one rule and it had to apply to young kids and teenagers alike, it would be this. Kids learn from you. They watch everything they do. They may rebel at times, but like it or not, they are really quite likely to become very much like you as they grow up. It’s almost preprogrammed into them; what they learn as a child is what they grow into. So make sure you are responsible with money, that you are planning and using your money wisely, and make sure that your money habits are good. That is the best and most important lesson of all.
It’s Not Always Easy
Knowing how to teach kids about money does not always come as naturally as teaching them about other things. It’s not always easy, and doesn’t always follow the playbook. You’ve got to pick your timing well, and keep it relevant. Young kids certainly don’t want to know about financial goals and retirement planning.
Kids will rebel, and they are likely to make mistakes. Just foster open communication and as much transparency as you are able to, and your kids will learn from you. If they make mistakes, that’s OK. They probably will. And that is part of the learning experience.
This last year taught me that I am most definitely happier leaving it to my kids’ teachers at school to teach them how to read and write, and remember the dates from history lessons, and the formulas from science lessons. But I can confidently teach them about money, and I can help you to do that too. If you’d like to talk more about this, or to discuss any other aspect of your financial life, please do get in touch.