What To Teach Kids About Money: An Expert Weighs In

I retired last year at age 42 from my career in Financial Services. At the time I had a 4-year-old and two 2-year-old twins. (I still have them, but now they are older). I put a lot of thought into what do I need to teach my kids about money.

It’s especially top of mind because they won’t grow up seeing their parents work. Our work had already been done to grow our finances. They see the rewards, but not the sacrifice. One of the reasons we bought ChaChingQueen and started ClothDiaperBasics was so they could see us working on something.

The below captures my thoughts and recommendations on what and how to teach kids about money.

At the end of the day, all I want is to try to be a good dad.

At what age should parents start talking to kids about money?

It’s never too early for parents to start talking to their kids about money.  Nearly everyone either spends money, makes money, or invests money every single day. Money is such a critical part of all of our lives.

Step 1:  Build A Foundation Early

It’s so important to build a foundation with kids.  As a father of 3 kids aged 4 and under, the way I’ve introduced the conversation has been around “value” and “trade-offs”. 

Even our two 2-year-olds understand the idea of trade-offs. Focusing on trade-offs also allows the child to gain confidence in their decision-making abilities.

Money is just something that allows transactions, but ultimately all that matters is what is the value of something to you and what trade-offs you want to make to get and give up what you value.

Step 2: Associate Math With Money 

Adults all do something with finance every single day, but the school system does a really poor job of teaching finance.  The simplest math is the same math we use in finance.  It’s all just addition, subtraction, multiplication, division, and percentages. 

Connecting the dots between these math functions and money is the perfect financial goal.  The way we do this is we talk about it with our kids. We actively connect the dots. The school system does a horrible job of this. Parents need to supplement.

The only reason finance seems difficult to adults, is because we don’t associate that it’s the same math we learn as kids, just with different words.

Step 3:  Add To The Foundation

For a child that is 10-14 connect positive and negative numbers with the concepts of assets, liabilities, and not spending more than you have.

Don’t overcomplicate these ideas, but help the child understand the idea of a negative number is spending more than you have. We’re all so desensitized to credit cards and debt that we don’t realize what a problem it is to spend more than we make or borrow more than we need to.

Debt is acceptable because we don’t realize the math that shows us it’s a problem.

What about high schoolers? This is where it gets fun.  Budgeting and basic terms should be a requirement.  More advanced/older high schoolers should understand the time value of money basics, what is a mortgage, how a credit card works, very high-level tax basics, and other similar basics that will impact their lives daily for the next 80 years.  

It’s doubtful they will dissect a frog as an adult, but they will surely touch money every single day.

What Is A Good Age For A Child’s First Credit Card?

I’m comfortable with kids having debit cards and credit cards if they are used as a tool to teach assets and liabilities and tradeoffs.  I love the idea of using them as a tool to teach restraint and self-control. 

This requires a lot of engagement and coaching from parents.  If a parent sees their role as oversight, then they are looking at it wrong.  The goal is to teach, not police.

A parent should be comfortable giving a teen a credit card when the parent is able to accept the immense liability that goes with it.  I don’t mean the financial liability, I mean the level of engagement that is needed to coach your child.

Is it a good idea to pay kids for chores or good grades? 

Whether or not it is a good idea to pay kids for chores depends on the parent.  Is the parent doing it to bribe the child or coach the child?  If the parent is using it to bribe the child then it is setting a foundation for the kid always need something to do what they should do. 

If the payment is used as a coaching opportunity then the child is learning about earning and saving.  It depends on how engaged the parent is.

Should parents make kids work for the things they want? 

If a parent wants a child to grow up to be a self-sustaining person, which should be the goal of every parent, then teaching work ethic is critical. 

If you teach your child they are rewarded for doing things they should be doing, then you are teaching someone to be more dependent on society than on themselves.

Is it ever too late to teach a child to be financially responsible or grateful?

A parent’s job of coaching their child never ends, not even after the parent has passed.  Life lessons are the most valuable thing that can be passed down.

When Should Kids Get their first savings account?

Kids should open their first savings account when they are old enough to remember the learning experience, which is usually around 5.

Anything earlier is a waste of a learning experience and anything later is missing out on the chance to lay down a foundation.

How can you set up A Child’s first bank account?

Go to a bank. My wife and I do our banking online, but for our kids’ bank accounts we went to a brick-and-mortar. We want our children to have the tangible experience of making deposits. We think it’s important for them to see their money go to a place instead of online (even adults don’t understand where their money goes with online banking)

Why is Opening a savings account important for kids?

Every day, each of us spends money, makes money, invests money, or saves money. The school systems don’t really teach financial basics. Parents really need to step up and teach their children about money. Having a savings account is an easy way to build those conversations.

How are savings accounts different from 529s?

Savings accounts receive interest from the bank they are held at. 529 Plans are investment accounts. The money is invested in securities, with the most common being mutual funds.

529 Plans offer tax deductions for those that contribute to them and gains that are free from capital gains as long as they are used for qualified education expenses later. Just like adults should have 401k plans and savings accounts, children should have 529 Plans and savings accounts.

What are some strategies kids can use to build up their savings?

Talk to your kids often! Explain the tradeoffs of spending vs savings often. Whenever they start their “I want this, or I want that” explain to them tradeoffs. Put it in their terms depending on age.

The best way to teach kids about money, and about anything is to realize you are their role model. Practice good habits. Explain to them why you do what you do with your money. None of us is perfect either. That is fine. Teach your child your weaknesses with money and how they can be better than you.

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