Carina has been typing on the internets before there was a www in front of everything. This is why she’s cranky and wants to know when you’ll get off her lawn. She resides in a hopelessly outdated home in the Mountain West with a mathematician and three children hell-bent on destruction. Her laundry is not done, but her Twitter is totally up to date. Carina does not have a Tumblr, because get serious.

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Teaching Financial Literacy To Kids

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One of the most important life skills we can teach our kids is how to be financially literate. Too many parents are either scared, working through their own financial difficulties, or think kids don’t need to be burdened with financial matters. I think we owe it to our children to start teaching them how to conceptualize, save, manage, and spend their money, as soon as possible.

Allowance

We have younger kids so we haven’t started giving a regular allowance, but we’re about to start. For now, they have Tooth Fairy money, grandma money, and birthday money. Not a bad income stream, if you ask me.

Bank Accounts

As soon as each of my kids were born we set up bank accounts for them. They learn early that they deposit a portion of their birthday money into their bank accounts to save for a rainy day.

Let Them Pay

As soon as they can, I allow my kids to pay for items with small bills so that they can understand that money can be broken down into parts, subtracting for the value of the purchased item. We are exchanging money for an item that we can use.

Cash and Cards

One of my kids loves to hit the green enter button after I punch in the PIN to pay for an item with my debit card. He’s learning that the money lives at the bank, and the store gets paid from our account when we provide our signatures. We’ve had conversations about how whether it’s cash or card, it all comes from our account where I’ve saved money.

Cupcake Stand

Another child wanted to sell cupcakes that he and I made to earn some extra money. It was great for him to learn that his labor equaled income. He learned another lesson when I subtracted the cost of the cupcake ingredients from his haul.

Explain How Work Works

One of my children used to complain that I was always working, or going to work. He was probably 5 before he understood that when I work, I get paid a certain amount of money, which goes to paying for our house, the lights, the food, and gas for the car. If someone in our family didn’t work, we wouldn’t have a way to pay for food or electricity. It’s an ongoing conversation that demonstrates how we manage our household.

I Don’t Want to Spend Money on That Now

I’ve heard some people worry that when they discuss financial things with their kids that they’ll over step the line, causing the child, in turn, to worry about financial insecurity. I don’t want my kids to worry that we don’t have enough money, or the health of our finances, but I have no problem telling them that I don’t want to spend money on that thing now.

It’s a subtle change from “We can’t afford food if we buy you a new remote control car” to “We aren’t going to spend money on a remote control car now” but it’s a change that can help your child: we choose to spend deliberately instead of capriciously, or desperately.  Memorize it: I’m choosing not to spend money on that now.

Let Them Make a Mistake

Did you ever make a financial mistake as a kid? I remember saving up money to buy a special toy, only to be disappointed by the toy and left without a dime to my name. It was a valuable lesson that my parents allowed me to learn. My mother tried to talk me out of buying the toy, but I really wanted it. My parents drove me to the store and let me buy the toy. I quickly learned that spending money on something that you want won’t necessarily bring you happiness forever.

What are some of the ways that you teach financial literacy for kids in your house? Do you have tips and ideas that have worked for your family?

 

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Comments (6)

  1. Ashley Parks 04/10/2012 at 8:02 am

    I love your article. I’ve written a book called The Saving Seed: Growing a Financially Healthy Family Tree. I’d be happy to write a blurb for your site. Great job!

  2. Rachael Herrscher 04/06/2012 at 12:27 am

    We actually got this DVD at evo conference last year from Sesame Street: http://www.pncgrowupgreat.com/parents_caregivers/for_me_for_you_for_later.html

    My elementary school age kids were cool with it. I love the way they break it down into 3 jars. Simple concept to start with.

    The kids have plenty of chores around here, but they only get paid if they take on extra chores.

    We also just started talking about saving money for college THIS WEEK – I probably should have started earlier. Like pre-school or something 🙂

  3. Stephanie Porter 04/05/2012 at 1:30 pm

    Love this. Thanks!

  4. Matt At Health Care Credit Union 04/05/2012 at 9:17 am

    I love these tips. Teaching the children while they are young is a very important lesson. The bank accounts thing is great because, for many kids (mine included), having a separate piggy bank in the house doesn’t mean as much. They think they can still get into it and spend that money.

    When my by asks for something now I ask him how much he has saved in his toy fund. If he doesn’t have enough, I will work with him on a plan on how he can earn it. If he does have enough, I let him do with it as he wants, as long as he has put some in savings. It is nice to have these goals to work towards for him. Though at age 6 he doesn’t fully understand the importance of money, yet.

    Thanks for sharing this post!

  5. Amy Allen Johnson 04/04/2012 at 2:15 pm

    I think we need to work on the “small bills” idea. My daughter took a $20 bill to the store for her toy purchase and was thrilled when she got 7 bills in return. She thought she’d made money. 1 for 7 Hey, great deal!

    Great ideas!

  6. cabesh 04/04/2012 at 1:40 pm

    At age three we start giving our kids pocket money each month. They get $2 for every year old that they are. Each child has three jars on their dresser. One is for charity (10%), one for college (30%) and one for spending money (60%). We help them divide the money up when they get it. Any money they get from relatives follows the same pattern.

    We have discussed, and they’ve agreed, that their pocket money covers any friend or family birthday gifts, Christmas gifts and special outings that they’d like to purchase or participate in (when my daughter was invited to the American Girl boutique by her friend she had to spend her own money). This helps them to realize how much things really cost and gets them into the mindset of saving up (in our family Christmas and three birthdays fall within a two week period, so they know if they haven’t been conservative all year long they won’t have enough money to give the gifts they’d like to).

    Twice a year we empty out the college jar and deposit it into their 529 accounts. The kids love to login to their online accounts and see how much they’ve saved.