In a recent post, Teaching Kids About Money, I wrote about how it’s the parents’ obligation to teach their kids. Personally, I think this can be quite an area of struggle for parents. I know as a father of two young children, I’m just trying to figure it all out each day and am learning a lot along the way. Throw money into the middle of things, especially when parenting teens, you’ve got a whole new set of challenges!
Well, I came across a great episode of Dave Ramsey on the Fox Business Network the other night dedicated to this very subject, teaching kids about money. As Dave spoke and received calls, I learned some great tips.
Most importantly, we have to be intentional about teaching kids about money. I think with many things, if we’re not teaching, they’re going to learn elsewhere. And that elsewhere, could be far from the values in which we as parents hope to instill in our children.
Teaching young kids about money
All children young and older need to learn 4 key lessons when it comes to money. A child who is 4 years old can start learning these principles. Children need to learn how to work to earn money. Once they’ve earned money, they need to learn how to give, save and spend it wisely.
The first principle a child needs to learn is work. When you work, you earn. A good way to teach this principle to a child is by paying them for chores around the house.
When the chore is completed pay them immediately so the child understands what he or she did to earn the money. When you wait until the end of the week, you children can’t remember what they did to earn the money.
Increase the work as the child gets older. You can also move to a less frequent pay schedule such as weekly.
Create a chore chart which is updated every time the assigned work gets completed to track work and its completion. As an example, our 4 year old daughter gets to place a sticker on her chart when her toys are put away properly. While we haven’t started letting her earn money yet, she loves getting stickers and see the reward in performing her work.
Save, give and spend
Once the money is earned, teach the child how to save, give and spend by using three separate banks or containers. Clear containers work great because the child can see the money accumulate in each of them. As a child gets older, you can use giving, savings and spending envelopes versus the containers.
The best way to learn about giving and tithing is from watching mom and dad. Show them you are giving and tell them why. They will learn to give out of love and not because it is a written rule.
When it’s time to spend, let your child withdrawal from the spending bank. Teach them they can’t spend more than they have saved for the spending area.
Teaching teens about money
According to Dave Ramsey, teens will nag you to death for something at the store, or for $20 dollar bills! “Every time you turn around they’re asking you for $20.” Dave tells parents “don’t be an ATM machine for your teen!” Teens as well as younger children must be taught no means no!
Mom and dad can’t be so busy they don’t stop to put a money management process in place for their child at home. Be a teacher and a coach for your child. Don’t let college be the first experience a teen has in managing money!
Teenagers should get paid for their chores or work as well. But the key difference is they have to manage the money with parental guidance and coaching.
The money should be deposited into the teen’s checking account. They can then learn to manage money by creating budgeting envelopes for clothing, snacks, entertainment and gas (if old enough to drive). Parents should coach the teen on how balance the account and track spending using the spending envelopes.
Never give a teenager a credit card. Teach them to live on what they earn. If little Johnny comes home from college with a pile of credit card debt, don’t jump to solve his problem. Kids only get your money if they accept your coaching. That’s an agreement you have to reach with your child.
There will be outside influences that go against your teaching, but all you can do is what you can do at home. You can’t control everyone who comes into contact with your child, but you can teach good money management practices at home.
Recreation and activities for children
As parents of young children and teens, we’re all faced with the pressure to involve our child in a multitude of activities. Some of these pressures come from our children and some pressures come from other families in our circles who are signing up their children for every activity available. Dave provided some great tips in this area which are already becoming important for our family to follow.
Don’t overload your kids with too many activities.
Too many activities will burn them out and strain your budget. Prioritize the most important activities with them. Consider one activity per child per season to avoid overload.
Remain conscious of how much money you’re spending on activities and how they impact your monthly budget. You don’t want to end up with 10% of your money allocated towards recreation because it’ll take money away from other critical areas of the budget.
Don’t go into debt for childrens’ activities!
Your kids need to know you have a budget or spending plan, which also means they’re on a spending plan. If you don’t have the money it’s not the right time to sign up for the activity.
What about you? How do you plan to teach your child about money?