Written by: Joseph Francis
One of my followers recently sent me a private message thanking me for the content I create and in that message, he shared a video and pictures that blew me away. He showed me how he teaches his son about money. He went over earning, saving, and even investing. His amazing story has inspired me to tackle the important topic of teaching our children about personal finance. For some families, the subject of money can be taboo. For generations, speaking about it was akin to discussing religion or politics. What this has done has created a generation, or more, of financially illiterate people. During that same time, consumer debt has risen, wages have fallen, and an overall sense of despair has taken over. Today I am going to give you 12 Ways to Teach Your Children About Money. Let’s nip this in the bud right away folks.
1) Reward effort and punish lack thereof
Punish is a hard word so I will explain myself. In life, those who work hard are rewarded and those who do not get left behind. Children from a young age need to understand that they should always give their best effort. When they do, they should be monetarily rewarded. This can be with a treat, hopefully healthy, or even better, straight cash. On the flip side, if they put forth no effort, or not their best effort, compensation should be withheld. There are no participation ribbons in the real world. The consequences are grave for being lazy. Make sure they understand this when they are little, so you don’t have to teach them in your basement when they are 30.
2) Have them help you pay
Having your child help you pay at the checkout is very educational in several ways. First off, it shows them the different types of money. It helps with counting and adding. More importantly, it shows them that everything in this world costs money. The treat they begged for or the toy they wanted aren’t free and they should know that from the get-go. It is this process of paying for things that will help them understand the finiteness of money when they get some of their own.
3) Force savings
I highly recommend giving your child an allowance, for doing work of course. I also highly recommend withholding some of that allowance and saving it for them. Let’s be honest, kids don’t need much money. More than likely they will blow it all on candy. Instead, show them the power of saving. I recommend the clear jar versus the piggy bank so they can see their money grow. What this will also help them understand is the concept of tax and “Paying Yourself First.” Knowing that some of their money will disappear before they will get it is an important lesson. Too many children grow up thinking taxes aren’t part of life. I am always amazed when a 20-year-old sees their paycheck and is confused some of its gone.
4) Explain Interest
Along with savings, interest is very important. While you should withhold some of their allowance for savings, also show them what can come of that forced savings plan. When you take $5 of their $20 allowance, add an additional $2 at the end of the month as interest. This will show them the importance of patience and paying yourself first. Both these virtues are rewarded greatly in real life. Sadly both of these virtues if neglected have dire consequences. To be independently wealthy you have to have your money working for you, so make sure children know that money can be a powerful weapon they can use to make their lives better.
5) Explain opportunity cost
Along the grain of patience, opportunity cost is a big lesson to be learned. Again, money is finite, not infinite. Children need to understand this. We need to show them that they can’t have everything at once. This means making them decide between 2 things that they might want. This ties into making them pay for things. When they understand the values of different money, and then the costs of things, they then can be made to make a choice when there just isn’t enough money. It is your job to show them how to prioritize these choices. While they may enjoy getting ice cream after their soccer game every week, show them how withholding that for a month can get them a new hat. This will aid them greatly later in life.