Teaching Your Kids About Money - Cha-Ching!

When you have kids, you learn quickly that although parenting is amazing, it’s also very expensive. The older they get, the more things they want, and many parents struggle to balance not only the cost of all these items but also how to teach their kids about financial responsibility.

Today we’re going to get some expert advice from my MacMillan Publishing QDT colleague, Money Girl Laura Adams, who has some fun and easy ways that parents can work together with our children to create a solid financial future. Laura is the author of the award-winning book Money Girl’s Smart Moves to Grow Rich

Cheryl:  At what age can we start teaching our kids about money and how can we make it an easy process that they can relate to?

Laura Adams: As soon as children start reading or attending pre-school is the perfect time to begin teaching them the ABCs of money. There are fantastic books, games, and kits created for children as young as 4-years-old. Since every child is different, try several different resources to see which ones your child responds to or likes best.

Robin Yang is the author of an award-winning, illustrated series of books called the Enchanted Collar, which teaches young children a variety of money lessons such as saving, banking, and budgeting. Kids will have fun while they learn the importance of being responsible with money.

Another great book, How the Moonjar Was Made, comes from a company called Moonjar. They create fun and easy-to-use products like books, money boxes, and games that teach young children financial concepts to build their dreams. Check them out at moonjar.com or at any online bookseller.

Cheryl: We have older kids, between ages 10 and 14, who haven’t learned much about the value of money yet. What are some suggestions to get them building a positive relationship with money?

Laura Adams: Older children typically want to know how to make money so they can purchase gifts for their family or friends, or buy things for themselves. Paying children to do household chores helps them link the concept of work and money. They begin to understand that money is a resource that doesn’t always come easily.

Additionally, once children earn money or receive it as a gift, it’s important that parents teach them how to make it grow by putting it into a savings account to earn interest. When kids understand that money can earn money all by itself, they’ll have an incentive to save, instead of spending it all right away.

Many banks give children tours to explain what a bank is and even let them go in the vault. This is a great way to get children involved and excited about opening up their first savings account.

Cheryl: Let’s talk about allowances. Some families choose to give allowances as a way for their kids to start learning the concept of saving and budgeting—do you have a suggested guideline for how an allowance should be allocated? Example: Savings, Spending, Charity?

Laura Adams: No matter if you give children money on a regular basis or ask them to earn it by doing chores, a good motto to teach them is Save, Spend, and Share. You might allow young children to choose how they want to divide up their money. Oftentimes, children are very generous and want to share all of their money.

As kids get older, parents should discuss with them how to allocate money based on their specific goals and ideals. However, young adults should get used to the idea of saving a minimum of 10% to 15% of their income—because that’s the ticket to reaching important long-term financial goals, like retirement, as adults. 

Cheryl: Today’s kids have a very strong entitlement factor where they see the latest electronics or expensive brand name clothing and feel as though they have the inherent right to own these. Do you have a suggestion or formula that families could use to help their kids understand the value of such high-ticket items and how kids might be able to contribute to the purchase of such extravagant things?

Laura Adams: One of the benefits of paying children to do household chores is that it gives them a way to value money. For instance, let’s say you pay a child $5 to sweep the driveway or to shovel snow for a half hour.

If they want to buy an iPod Shuffle that costs $50, they understand that it takes 5 hours of work to save enough. If they want the iPod Nano for $150, they’ll have to put in 15 hours of work. There’s nothing wrong with kids wanting or buying expensive stuff as long as they’ve earned it or have a yard stick to value their parents’ contribution.

To introduce children ages 10 and up to the concept of budgeting, there are some great online financial programs and tutorials. One of my favorites is Family Mint, which offers a workbook-based training program that’s designed to last for 2 months so parents can spend time with kids, gradually helping them form good financial habits.

Family Mint also offers a web-based software that allows kids to manage their money by logging in all of their transactions. It isn’t linked to a real bank account, but allows kids to manage money in a similar, clever way. Parents act as the bank by setting up recurring deposits for allowances or giving kids money when they want to make a withdrawal. You can get a 14-day free trial and see how fun it can be to teach kids about tracking money, setting goals, budgeting, and earning interest.

Cheryl:  When should we introduce the idea of credit and credit cards to our kids?

Laura Adams: Since credit is a more advanced financial topic, I recommend discussing it with older, high-school aged kids. The big concept to teach is that it costs money to borrow money. And using a credit card is no different than taking out an expensive loan that must be paid back.

A good way to convince kids how expensive credit can be is to show them an online credit card debt calculator, like the ones at Bankrate.com or Dinkytown.com. The Cost of Debt Calculator at Dinkytown tells you how much interest you’ll have to pay based on how much you owe and how long you take to pay it off.

Take a simple example like buying a new computer for $2,000 on a credit card that charges 18 percent interest per year. If you only make the minimum payments, it will take more than eight years to pay off and you’ll have to fork over more than $1,000 in additional interest. That increases the price of the computer over 50 percent.

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