In my profession I see way too many people with financial problems because they never learned proper principles of financial management growing up. Schools could do a much better job of teaching kids about money and personal finance principles; however, parents have the primary responsibility of teaching their children about money and personal finance.
If we don’t teach our children financial responsibility in a loving and fun way, the world likely will in a merciless and unforgiving way. Sound financial habits, if learned while young, will last a lifetime and will improve the quality of their lives.
Fortunately, teaching kids about money and personal finance can be very natural and can also be a lot of fun. I am not a child counselor, but I am a father and I have taught financial education professionally. I share a few of my thoughts and ideas below about teaching kids about money and personal finance. Please note that not every principle or idea will be appropriate for every child or every age.
Ideas for Teaching Kids about Money and Personal Finance
1. Importance and Benefits of Hard Work
a. Share an inspiring book of how hard work, training, and persistence paid off.
- Gifted Hands: The Ben Carson Story
- Go Long!: My Journey Beyond the Game and the Fame (Jerry Rice biography)
- Lone Survivor: The Eyewitness Account of Operation Redwing and the Lost Heroes of SEAL Team 10
b. Assign unpaid chores that children must do as a contributing member of the family.
c. Don’t just give children money every time they ask; make them earn it.
d. Help them find a job or think of other ways to make money.
2. Banking & Saving
- Teach your children about the various cash management vehicles and help them open up a high yielding savings account.
- Buy your young children an inexpensive Piggybank with multiple savings compartments, such as saving, giving, and spending. Help them put the correct amount in each compartment every time they earn money (but allow them to put the money in—they will love this!!). Once they have enough saved up, help them deposit their savings in a savings account, use the “giving” money wisely, and have fun spending the rest.
- Create an incentive for them to save. Perhaps match 50 cents for every dollar they save.
- Have your children help you make a shopping list and stick to it at the store.
- Explain how you find ways to cut expenses
- Play a bargain-find game with your children at the store.
- Discuss what factors you consider before making a purchase
4. Charitable Giving
a. Discuss the importance of helping others
b. Brainstorm as a family how the family’s charitable contributions could best be used.
c. Help them see how their contribution helped someone in need
d. Share a touching story of giving, service, or charity. Here are a few of my favorites:
- Demonstrate how your budget works and why you use it.
- Help older children plan out, budget for, and execute a weekly grocery trip or family vacation.
- Many kids love computers. If you use budgeting software such as Quicken, show your children how it works.
- Help them create their own budgetand track their spending
- Use the following phrases frequently: “We can’t afford it” or “it’s not in the budget.”
6. Emergency Fund
- Explain the importance of an emergency fund
a. Explain what types of insurance you have and why:
- Life Insurance
- Auto Insurance
- Homeowner’s Insurance
- Medical Insurance
- Disability Insurance
- Umbrella Insurance
- Long Term Care Insurance
b. Teach them to occasionally shop around for insurance to avoid overpaying
8. Financial Responsibility
- Make older children responsible for some of the things they want or need
- Explain that you had to work and save money to be able to withdraw cash from the ATM machine or pay off the credit card.
- Help older children find an appropriate credit card for teens (i.e., limited balance or secured, etc) in order to build credit. Credit mistakes made when children are young will generally be less severe than if they use a credit card irresponsibly later on.
- Show them the interest rate on the credit card and how expensive carrying a balance quickly becomes. Teach them to pay it off in full each month.
- Discuss the importance of credit and how it works.
- Show them your FICO scores and credit report (and theirs if applicable) and discuss it with them. Explain how you monitor your credit, either on your own or with the assistance of a credit and identity theft monitoring service such as TrustedID.
- Show them how to destroy sensitive documents using your shredder.
10. Estate Planning
- Explain the importance of estate planning and what documents are in your plan
11. Food Storage & Emergency Preparedness
- Explain the importance of having food and water storage
- Show your children what you have stored, how you rotate it, etc.
- Show your children where they can find your emergency preparedness kit and the first aid kit in case of an emergency.
- Explain the basics of investing and the risks of day trading to your older children
- Explain how brokerage accounts and IRAs work.
- Many teenagers are fascinated by investing and the stock market. Share a book that will teach them the basics:
- When your children start working, help them fill out their W-4. If they are required to file a tax return, help them prepare it.
- Explain important concepts such as tax withholding, deductions, credits, and refunds. Teach them basic tax planning techniques.
- Teach your children to be law abiding citizens and to be honest in all their dealings, includingtaxes.
- Discuss the value of an education
- Discuss the cost of higher education, the importance of saving for education, and what they will be expected to contribute.
- Explain why and how you are getting out of debt
- Discuss the various types of debt, including consumer loans and mortgages.
- Discuss the importance of auto insurance
- Discuss what could make premiums increase as well as the importance of shopping around for auto insurance to get the best rate.
- Compute the gas costs of the various drives teenagers make on a regular basis.
- Teach them basic car maintenance, and how much it would cost to pay someone to do it for them.
- Discuss the pros and cons of buying a new versus a used car.
Additional Resources for Teaching Kids about Money and Personal Finance
For additional information about teaching kids about money and personal finance, consider the following books:
- The MoneySmart Family System: Teaching Financial Independence to Children of Every Age
- Raising Money Smart Kids: What They Need to Know about Money and How to Tell Them
- Growing Money: A Complete Investing Guide for Kids
- Life After School Explained