My eight year old son Cuylar was given list of items to bring to Boy Scout day camp. Included among the sack lunch and sunscreen etc. was money for the trading post. We were pleasantly surprised when Cuylar called his Grandma for a job and then spent all morning the next day clipping down weeds and stuffing them in bags at his grandparent’s storage units. After earning his 20 dollars, I have to admit I was worried he would blow it all at the trading post. Instead he put 10 % in his tithing jar and then returned home from day camp with only 2 paracord bracelets for himself and a friend costing only 2 dollars each.
While this hasn’t always been the case with his money spending history, I was proud that he implemented the money managing skills we try to teach in our home. Multiple parents have expressed that they feel money management is an imperative piece of education that needs to be taught while children are still under our care. How do we teach them this important skill? This article explains three important principles our kids need to know in order to manage their money wisely and some practical ways to teach them.
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Teach them to work and earn money:
You can’t learn how to use something you don’t have. I think it’s important that kids have opportunities to earn money as soon as they start to communicate specific wants or needs. There are many different ideas about kids “making money” and learning how to use it. Some parenting experts advocate giving an allowance. Some suggest making a list of chores or jobs coupled with a predetermined wage for each job. When I teach my kids anything, my objective is to teach them principles that are as true to real adult living as possible. In our house we choose not to give an allowance for chores that contribute to our regular family needs, but we seek to help our children find opportunities to make money from doing jobs that Mom or Dad would generally do. We “hire them” to clean out a car, shine our shoes or some other extra job that is out of the ordinary. We also try to help them discover other innovative ways to make money by asking neighbors if they have work for them to do or the favorite is to get special jobs from Grandma because she pays inflated wages.
As a child my little brother and I used to collect soda cans and return them to the store for the deposit. Mark Cubans first money making business was walking door to door to sell garbage bags to his neighbors. I have some nephews that sell their mom’s cookies from a road side stand. You can still see kids out on the street corner selling lemonade in the summer time. The main thing we want our kids to learn is that there are opportunities all around them to earn their own money if they are willing to look and then to work.
Show them how:
As we’ve said so many times, “Kids are much more inclined to learn and implement principles they see in you than concepts that are preached to them.” Show them how to work and do it cheerfully. Give them a glimpse into what it is you do for work by talking with them about what you do each day over meals.
Teach them to Manage the Money they earn:
Dave Ramsey teaches a system for managing finances and teaching kids to manage finances that is simple and can be understood from a very young age. Have three jars…
1. A Giving jar (at least 10%)
2. A Saving jar (Pay yourself first. You can split this into long and short term saving if you would like)
3. A Spending jar (They need to have a jar that is available to them to spend on whatever they would like to spend it on.)
The saving and spending jars can be broken up however you and they agree upon, but each of these areas are important to managing money in a healthy way. This is an extremely uncomplicated way to break down their money in a way they can understand and a way that you can successfully help them with.
Show them how:
As kids grow up it becomes more important to help them understand and keep even a small budget. Include them in understanding their family’s budget and financial responsibilities. There is no need to overwhelm them with those responsibilities or to scare them or make them feel responsible for family finances, but it can be helpful in decreasing the “gimmies” and helping them learn how to manage their own money wisely as they grow into adulthood. You may not have physical jars to put your money in like your kids, but you can discuss and display to them that you put your money into these three categories as well. Share with your kids and let them be a part of your giving efforts. Whether you tithe with your church, give to a charity, support a cause or simply share with neighbors and others that have needs, let them help you fill out the donation forms or deliver the aid. This is not only wonderful for teaching them to manage their money more wisely, but also helps them to develop selfless character, gratitude and compassion.
Teach them how to spend their money wisely:
- Teach them about opportunity cost, cost/benefit analysis or tradeoffs.
Kids love to spend money. They love to buy things or have you buy things for them. Even when kids have their own money, they are exceptionally impulsive with it. I’ve never, in my adult life, experienced the kind of buyer’s remorse that I have seen my children suffer after making a hasty decision to buy a pack of gum because it was there and he could afford it right then, instead of delaying that immediate gratification so he could save enough money to buy the Lego set he wanted. When we go to the store with our children and they ask the dreaded question, “Can I have that?” We almost always answer, “Yep, If you would like to bring your money with you and pay for it next time we come to the store, you are welcome to do that” or “If you would like to earn and save up some money for that, you can definitely get it.” We don’t police what our children choose to buy a whole lot, but we do often ask them questions before they purchase items. We might ask things like…
- What would you be giving up by spending your money on that right now?
- Is it worth it to give up those other things for what you want right now?
- Will you be happy that you bought it when we get home or tomorrow when it is gone?
There is a famous psychological study that was done years ago. Researchers had children take turns coming into a room with a single marshmallow on the table. The researchers told the child he could have the marshmallow but that if the child would wait until they came back in a few minutes, they would give the child another marshmallow. They tested the children’s ability to delay gratification for a more favorable outcome. What they found was that some kids ate the marshmallow right away while others resisted with varying levels of effort and success. Results showed that the children who were able to delay gratification and wait for the researcher to return with another marshmallow were generally more successful later in life in many aspects. This trait of delayed gratification can have far reaching implications in kid’s lives. On the one hand children need to have the opportunity to have and spend their money, but they also need to learn this skill of delaying gratification. Parents can help by being an external regulators for our kids and teach them to problem solve and make positive decisions with their purchases.
Show them how:
Include them in money decisions that affect the family. (California trip) “We are not spending money on that right now because we have other things that need to be paid for that are pressing and more important.” Don’t spend unwisely yourself. Be disciplined and wise regarding your purchases. Kids are often frustrated when parents say no to any purchase request they make, but parents can’t say no to themselves. Show them how to follow the basic money management technique we’ll discuss below by doing it yourself and being transparent with your kids about it.
As kids grow up, these principles above lay the foundation for healthy spending and money management. You can add other financial, business and money principles as they ask questions or are mature enough to understand. Teaching things like, checking accounts/debit cards, understanding credit and debt, investments, etc. can be added to everyday conversations and practical real life situations as they become more relevant in their lives.
We want our kids to manage their money rather than their money managing them. As we teach and show them how to work and earn, manage the money they receive and spend it wisely, they can become masters of their financial fate.
Question: What are some unique ways you help your kids learn about money?
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