Teaching Kids About Money

My parents were both educators. My mom taught special ed and later became an administrator. My dad taught at a state college in Georgia while pursuing his passion for music. When I played music he taught my lessons, and all these years later he & his partner do the same for my children.

Both parents taught me about money when I was growing up.

My mom modeled budgeting and talked about money frequently. She would take me to buy shoes and tell me her budget. If I wanted shoes that cost more than her budget, I’d have to pony up the difference myself (and I frequently did because I like expensive shoes).

My dad modeled debt-free living with a zero-based budget. When I was older he taught me some of the basics of investing and even took me to a Dave Ramsey seminar when I was a teenager.

They both encouraged me to get a job as soon as I turned 15 and to save as much as possible to buy a car. The freedom of my own car was all the motivation I needed to start squirreling away. I put every paycheck and monetary gift into savings that year. By my 16th birthday, I’d saved over $2500 and bought my first car — a 1993 Ford Escort in light blue. I took that car with me to college and drove it until the wheels fell off.

At this stage of my life with kids of my own, I’m extremely appreciative of my parents’ transparency and willingness to educate me about money. And I now see that this took a great deal of effort on their part. Not all parents give that gift to their children, and I’m grateful.

Research shows that kids have formed their perception of money by age eight. A staggering statistic, when you think about it. My youngest child is 8 now, and to think that her money mindset is fully formed at this point is quite astounding.

So how can parents or influencers in a child’s life ensure those perceptions are accurate and balanced?

I’m so glad you asked. Some of these recommendations come from personal experience and some come from years of my own research and learning about money psychology. So settle in, let’s discuss.

Talk About Money with Your Kids

Start talking about money with kids as young as you can. When they’re 2-3, point out prices at the grocery store. Let them observe, listen, and parrot you. No pop-quizzes or pressing for understanding at this stage. We’re just talking neutrally.

“Yummy apples! These apples cost $4 a bag. For these 6 apples, it’s $4. Yes, that’s right. Four dollars.”

At the next stage you could explain the basics of earning and spending and apply it to the things they know like food and shelter.

“Momma & Papa both work and earn money. We get paid every month for our work and that’s how we provide the food we eat, this house we live in, and the toys you play with.”

Advance the subject matter at each stage of childhood.

While I don’t advise sharing money stresses like, “Momma can’t buy this today because Papa will get mad,” or “Momma & Papa are broke and can’t afford this item this week,” you could talk about your spending plan using age-appropriate, unemotional language.

“I know you want that candy, but our budget today is for supper food, not candy.”

Let them ask questions and answer as simply as you can depending on their age and stage. Don’t worry if your child doesn’t ask questions. Just keep talking about it. I promise they’re listening and observing.

Provide Hands On Experience

Let your kids learn by doing. At age 5, we started giving each of our kids hands-on experience with earning and spending money.

My oldest started feeding the dogs every day and earning $5 a week. We gave him three clear jars so he could divide his money up into “Spend,” “Save,” and “Give” categories each time he got paid. This taught him to save a little and give away a little from everything he earned. And the clear cash jars helped him see his savings accumulate.

We followed this framework with all of our kids as they turned 5 and continue it to this day.

Connect Earning Money to Work

Entitlement is rough to watch in kids. Nothing makes a parent cringe like entitled phrases coming out of their kid’s face. I speak from experience as well as anecdotes from fellow parents.

Some entitlement is natural. We all possess some main character energy. But much of it is learned as well.

It’s important to instill a sense of earning with children, so take the opportunity to make the important connection of money to working.

Each of our kids has a few jobs around the house and gets paid on payday. They earn their respective age each week and those raises are met with more advanced jobs each year.

If they want to earn extra money above and beyond payday, we give them those opportunities. My husband came up with a system where the kids can do extra tasks to earn points they can cash in.

They respond well to it, and it’s helped them learn that they can turn extra work into extra money.

Incentivize Saving

As adults, we’re incentivized to save - some ways obviously and in many ways less obviously.

My oldest will be 14 soon, and we’re starting to think about a car for him. So our next move is to offer him an incentive to save for that purchase himself. Our plan is to offer to match his savings so that he learns that every $1 he saves could become $2.

Sound familiar? This is our way of introducing him to an employer match in a retirement account, scaled down to a more immediate incentive - a car.

KEEP Talking About Money

Keep leveling up the conversations and tools as your kids grow.

My oldest occasionally sits in on our weekly budget meetings. I’ve shown him our budgeting tool with our numbers, and we’ve talked about the cost of electricity, water, and other home expenses.

We talk about investing regularly, and he’s starting to grasp that investing in the stock market is not, in fact, gambling in most cases.

Instead of clear jars with cash, our older kids now have checking and savings accounts that I show them on my phone anytime they request. My 13-year old has a debit card that he’s comfortable using and that we fully trust him with.

It’s important to us that all of our children grow up with transparency, autonomy, and comfort with money.

Let Your Kids Make Mistakes With Money

We realized a couple of years ago that we’d been unintentionally instilling a scarcity mindset to our kids. Gulp.

Because I was so worried about the kids wasting money, I found myself gatekeeping their spending - not letting them buy something they wanted and had the money for because it was a silly purchase in my mind.

But just like I say often here, personal finance is personal. And it took my husband’s intervention to help me realize that I was denying my children of an important life lesson — money gets wasted sometimes. We buy things we don’t use like we thought we would.

That’s valuable learning. Let your kids learn it with small purchases now — instead of on big purchases later.

My daughter told me recently, “I should not have bought that. I don’t actually think it was worth it now.” And I am so proud of her.

Giving your kids the opportunity to make mistakes with money can teach them what they value and what they don’t.

Don’t Be Afraid of Making Teaching Mistakes

We’ve made loads of mistakes along the way. I’ll never forget the day that I heard my middle son - then about 4 years old - parroting my words to his papa, “Papa, you blew the budget!” Ouch. And more recently my oldest witnessed a heated argument between us during a budget meeting he was sitting in on. Not quite how we were hoping that would go.

Sometimes the emotional side of money shows up and takes over. But that is also important exposure for kids. Money is a tool but it is certainly not neutral. It’s psychological, it’s emotional, it’s personal. But keeping money taboo for our kids isn’t helping them learn how to use it.

We can’t always avoid mistakes, but we can repair and move forward. Don’t let fear of mistakes keep you from starting building a strong foundation for your child.

Do you have to do this exactly the way we are? Of course not. It works for our family at this stage but it may not work in the next, and it may not work for yours. And that’s okay! Cherry pick your tips and share your own ideas! Personal finance is personal, after all.

Need some personalized tips for teaching money to your kid at his/her own stage of life? It’s never too late and it’s never too early. Contact me and help kick off your own child’s journey into money management and set them up for success!