K is for Kids – Raising Financially Literate Children
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Today we are serving up nine lessons to help you learn how to teach kids about money – this is how to develop the habits they need from a young age to be successful with (and respect) their finances.
Perhaps the greatest part of our financial journey has been the knowledge that I will raise my sweet boy, as best I can, to understand the lessons I will share with you today. Not only will we be able to live a life with less stress and more adventure, but my goal as his momma is to impart as much wisdom I can. I want him to know the value of hard work, the benefit of budgeting, and the price of debt. I am pretty sure that he is too young to remember the most stressful financial days of our lives when we were drowning and barely making ends meet. But, with that said, I want to talk openly about money and share our mistakes so that he can learn from them and also learn the value of open communication about all things money.
Where we come from
From an early age, money was a stressful thing in our home. While we didn’t talk openly about money, my parents did everything they could to make sure I had everything I needed and then some. However, I remember being acutely aware that money was tight and a source of stress in our home. I was a grown adult before I understood that my dad’s favourite meal is not, in fact, hot dogs and kraft dinner. We ate that not out of his love for the meal, but out of budgetary necessity. My mom and dad didn’t have the tools they needed to live without debt. They didn’t use a budget, relied heavily on credit cards, and did the VERY best with what they had at the time.
My husband, on the other hand, was raised in a home where there was a strong understanding of making money work for you. His parents provided him with what he needed, and while there were times that money was undoubtedly stressful, over the years, they have learned to manage their finances very successfully. Unfortunately, though, these lessons did not make their way to Daniel. So, when we met, we were both financially undereducated, heavily in debt, and happy to live our best lives while paying our minimum balances on our credit cards.
We are a result of the environment in which we were raised. When our earliest teachers do not have the tools to be financially successful themselves or do not communicate openly about money, it is near impossible for them to raise financially literate children.
Let this be your inspiration to get educated. Your kids are watching. They are learning from the example you set. If you want for them the best life possible, these are the lessons to help get you there.
How to Teach Kids About Money
Where it comes from – hard work.
I am a teacher in the snowflake age. Children are coming into my classroom with more entitlement and a lack of practical understanding each year. Yes, Dex being happy and kind and successful are high on my list of priorities for my son. Him NOT being an entitled jerk ranks at number one. Life will not be handed to him on a silver platter. And the way I am choosing to start teaching him about money is by instilling the idea that money comes from hard work.
Literally, nothing in this world is owed to you. When you work, you make money. If you don’t work, you don’t get money and thereby can’t buy the things you want. Simple as that.
Right now, my son is six, so this is all age and stage appropriate. He has a chore chart – a list of jobs that he is responsible for in our home, with a timeline on when they get done. If he makes his bed before school, he gets a checkmark. If he doesn’t make his bed, or he makes it after school, he doesn’t get a checkmark. Every checkmark equals a quarter. I don’t fight with him about making his bed. I hope that he learns that doing the job equals money in his pocket.
Sometimes he gets bonus checkmarks for going above and beyond, like when he beats me to it and makes MY bed. And he knows that if he doesn’t do the job, he doesn’t get the checkmark. I don’t nag him. No one nags me to go to work every day; I know it is my responsibility, and if I don’t go, I don’t get paid. I want him to understand the same thing.
Money is not finite.
This is an important lesson to teach kids about money. Money doesn’t come from a bottomless well. Once it’s gone, it’s gone. This is the lesson we are working on now. When you have $20, and you spend it on 15 new Hot Wheels, but then you want to buy a new game, but there’s no money left, there’s no magic bank of mom that is going to come in and cover it for you.
I’m determined for him to learn this lesson, even if it comes with a bit of pain. There will certainly be times where I have to watch him waste his money and then feel disappointed when it’s gone because he can no longer buy something he REALLY wants. Painful for me to watch, but necessary for him to learn.
We pay for things not with money but with time.
This might be a trickier lesson to teach kids about money. But as Dex gets older, when he would rather play with his friends than do his chores or get a job, I feel like he will understand the important relationship between money and time.
This lesson was especially crucial for me to remember during our debt-payoff year. Every single extra dollar we could find went towards paying off our debt, so if we wanted to spend money on something else, we considered how many hours of overtime that would be. Our family love language is quality time. So, an unnecessary expense might not be worth the time it will take to afford it.
We don’t borrow money.
If I could go back and teach 17-year-old Katie one thing, it would be this. That first credit card felt like freedom. And so did the one after that, and the limit increase, and the student loans. I was able to go on trips and go out with my friends and do whatever I pleased, all on credit cards. And then it took years and years to pay that money back. Worth it? Nope.
There are times where at six, Dex thinks he can borrow on his commissions. “But, you can use your money, and I’ll do extra chores and pay you back!!!”
Sorry kid, no way.
I don’t want to set him up, thinking that borrowing money from anyone is okay. Certainly not to pay for some random toy at Walmart that a kid on the internet recommended.
Borrowing money costs so much more than it’s worth. And I never want to set a precedent that it’s okay to borrow any amount, ever. Hopefully, by instilling this in him at a young age, he’ll never turn to credit cards to fund his lifestyle. Or worse, rely on payday loans that cost an arm and a leg in interest, just to get by!
How to Save
Just like I want to teach him to spend responsibly, I want to teach him to save for what he wants and, eventually, needs. Right now, we are talking in quarters and Hot Wheels. Don’t get me wrong – I’m not expecting him to start saving for college. But if he wants a new Lego set, he knows that he can save for it.
I’m only mastering this skill now, so I’m grateful that he gets to learn it 30 years sooner.
We are heading to Disneyland in the fall, and we will give him a bit of spending money to enjoy. I also want him to use his own savings for anything he finds that might catch his eye. I anticipate that we’ll experience a bit of that ‘money isn’t finite’ lesson during that trip, too!
How to Give
The greatest gift I have found in being debt-free is being able to donate generously to causes that matter to me. Diabetes and mental health are at the top of my list. However, after watching a documentary about whales, Dex became determined to put an end to whale hunting globally. (He was four at the time, and would ask other parents at pre-school pick up if they’d support his cause. Cute little weirdo, right?) He chose to spend seventy of his hard-earned dollars to sponsor a whale (Owen) through **whale charity**. A big lesson for a little boy to put his money towards causes that are important to him.
How to budget
My budget is my most important tool when it comes to financial freedom, so you can bet that this is also a huge part of how to teach kids about money.
We organize Dex’s money into categories. 50% spend, 30% save, 20% give. This goes for money he gets for his birthday, his chores, or any other money that comes his way.
This is a very beginner way of budgeting. But it teaches him that not all money can be spent on a whim. It also gives him goals to work towards, and he loves to use a tracker to see his savings grow! (Just like I do – more evidence that they are ALWAYS watching!)
The other day, while he was flexing his independence and grabbing the mustard from the top shelf of my mom’s fridge, Dex hopped up on the lower freezer so he could reach. We asked him to please not stand on the fridge and ask for help if he can’t reach something, because he’s getting bigger and could break the freezer. I told him that we don’t have money to buy Nanny a new fridge. And he said, “What?! We are debt-free! You can just buy a new one!”
First of all, I LOVE that he uses that language and that he was a part of that journey and our debt-free scream.
But second, I needed to explain to him that yes, we are debt-free, but we have goals and priorities for our money, and buying a new fridge is not on that list. Not only that but breaking something with the expectation that we can just replace it is also not okay.
The most important part of this story, though, is that we have open communication about money with him. I want him to understand why we spend and save the way we do, how we organize our budget, and why we can live the life we do. We can’t go out to eat every week, because even though yes, we are debt-free, it is not in the budget. We don’t buy everything we want, and we communicate that with him so that he understands that we practice the same money principals we are teaching him. I never want to create a relationship where he doesn’t understand something but can’t ask us about it because it’s been made too taboo, and I think money can easily fall into this trap.
Model Model Model
This may be the most important lesson to teach kids about money. I strive to be a financial role model for my kiddo, in the hopes that the information I impart will sink in and stick with him throughout his life. I don’t want him to live through the mistakes that I have, so I strive to educate him from a very young age, to be in charge of his own money, and be able to make his own decisions when it comes to his spending and his goals. Part of what keeps me on track, on the days that I want to fall back into my old habits because it would be easier, is the idea that he is watching the example I am setting. I want to show him what to do, and what not to do, and talk about the process in between.
By no means am I saying that this advice is the be-all, end-all of teaching kids about money and raising financially literate children. I’m early in my journey, and I’m making it up as I go along. I’m only sharing what we are doing so far and what I think that will look like as years go by.
I’d love to hear how you teach your kids about money. Hop on over to our Facebook Group to join in the conversation and let us know what works (or doesn’t work!!) when it comes to money and kids in your world!
Check out the rest of our ABCs of Intentional Finance series for more awesome inspiration for all things money, habits, and intentional living!