I have an 11-year-old daughter and an 8-year-old son, and one of my biggest challenges is to equip them to be successful in life. I want them to not only be able to earn money, but I want to provide them with lessons that will help them better manage money now and in the future too.
In order to help the kids really learn money lessons, I think it's important to make these lessons part of everyday life. When you do it right, you don’t even need to spend five minutes of each day lecturing your child about money. That’s because money touches us in many ways and there are learning experiences you can incorporate into your daily life that can help your child develop positive money habits for the long run.
1. Talk About Money
First of all, make money a topic you discuss around the house. If your kids don't hear about how you handle your money situation, they won't have any idea how to manage their own finances. My wife and I frequently talk about how we want to use our money and the steps we are taking with our money when the kids are in the room. They hear us talking about increasing retirement account contributions, waiting a couple of months to make major purchases, and even what we're doing to earn more money. All of this means that they are used to hearing about money, and knows they can ask us questions. They also get a better sense that money doesn’t grow on trees, and how it touches so many facets of life. While we don't want them spilling our financial details to friends and family, the open environment still creates a situation that allows them to be reasonably comfortable with money.
2. Include Your Child in Money Discussions
Our children aren't helping us make major financial decisions like what to set aside for retirement or when to sell the house. However, we do include them in our discussions. Sometimes we ask them whether we should eat out at a nice restaurant they like to go to or go to a simpler restaurant but save the difference towards the next vacation.
Other times, we include them on our hunt for the best deal by comparison shopping. We'll include them in the process, asking them to lookup an item online, and having them articulate its pros and cons. This way, we are all making decisions together, and they can see the importance of financial discussions. They also learn the value of shopping around and getting the best bang for your buck. My kids, and my daughter in particular, rarely want to buy anything. But when they do, they will look online and compare prices at various outlets to see how they can get the best deal.
Contrast this with an acquaintance’s son who I saw one time having written a long list of toys he wanted to get. He said he gets these ideas on YouTube and adds the items to his list so his mom knows what to get him when she lets up on saying no. It seems to me that he purposefully tells everyone in order to shame his mom into buying those toys for him. Shopping doesn’t cost anything to him. All he sees is what he wants and whines until he gets it without regard to how much things costs and what his mom had to sacrifice in other areas of life in order to get the gifts for him.
3. Let Your Child Make Mistakes
Our children have their own money that they get to keep and do as they see fit. They don’t get to keep every dollar they receive as gifts, but there’s already plenty leftover from our generous friends and family. We let them do whatever they want with that money. We let them make mistakes with that money too. And when they do and experience buyer's remorse, especially if they’ve blown the money on something they no longer care about and now can't buy something they really want, we talk about it. We talk about how they feel, and what they could have done differently, and how they'll need to recover.
We let them know that we, as seemingly all-knowing parents, have made those same mistakes. We even point those purchases out that’s lying around the house to them. Allowing these mistakes has resulted in them making much more thoughtful purchase decisions. Showing them that we make mistakes too gives them comfort that mistakes aren’t the end of the world as long as we don’t repeatedly make the same mistakes.
Teach The Kids Good Money Habits Now
Most of my friends spend all of their time and money to give their kids a leg up in life. The only problem is that all the effort is spent on potentially helping their kids to be able to earn more money. Seldom do I hear about my friends trying to help their kids figure out how to manage their future wealth more responsibly.
We all know that it’s not how much you make, but how much you keep that matters. If you don’t want your kids to be just like others who take out huge student loans or make high income but still live paycheck to paycheck, then it’s time to teach them how to be a better steward of money at an early age. Your kids will want to make good money, but they will need to live below their means to have a good life.