How I Plan on Teaching My Kids About Money

How I Plan on Teaching My Kids About Money

My oldest son is now 5 and I think he’s ready to start learning some money skills. Which is both exciting and anxiety-provoking for me.

It’s exciting because, as a financial planner, I know how intimately involved money is in every part of our lives and I genuinely think that my wife and I have the opportunity to set our kids up for a happier, easier life by building a strong financial foundation in childhood.

But it’s anxiety-provoking because I worry about going overboard. The fact that I do this for a living makes me care about it more than most people, and I definitely don’t want to be the dad who tries to force his profession on his kids and ends up making them hate it.

I’m also not an expert on teaching kids about money. I honestly don’t know what’s effective, what isn’t, or how to go about all of this the right way. I’ve done a little research, but definitely not enough to really feel like I know what I’m doing.

So my goal is to start small and keep it low-key. I simply want to give my kids the opportunity to make their own financial choices in a low pressure environment so they can learn from experience and start getting comfortable with having and using money.

With that, here are a few things I’m either already doing or would like to do in the future to help my boys learn some basic money skills.

1. Modeling good behavior

I can remember being a kid and getting annoyed that my dad always needed us to be ready and out the door even earlier than we had planned on leaving. I didn’t understand what the big rush was.

Well, guess what? Now that I have kids, I’m always worried that we won’t be able to leave on time and I’m always rushing to get everyone ready and out the door. I try to fight it, but resistance appears to be futile.

Our kids watch and absorb everything we do. The good and the bad, it all gets recorded in their brains and most of it gets repeated at some point.

So when it comes to money, my first goal is simply to be a good example. I try to maintain a healthy dialogue with my wife around money and make good decisions that put us in the best financial position possible. I’m not perfect, and I know that my kids don’t see everything I’m doing anyways, but hopefully they’ll see enough to pick up at least a few good habits.

If you’d like some help figuring out how to set your own good example, you can check out my free guide, The New Family Financial Road Map.

2. Talking about money when it comes up

I really don’t want to be the guy who lectures his kids about money all the time, but I do try to talk about it when it comes up. More that anything, I want my kids to know that it’s something they can be comfortable asking me about, and it’s also an opportunity to start framing financial decisions in a healthy way.

The obvious situation is when we’re in the store and one of my boys sees a toy that they want. When they ask to get it, my default response is to agree that the toy looks really cool but that it’s not on our list. My goal is to validate their interests, but also to reinforce that we decided ahead of time what we wanted to get and that we’re going to stick with those decisions.

The conversation usually venture far beyond that, but sometimes they keep asking why we can’t buy it. So I explain that Mommy and I work to earn money and that we have to decide how to use that money to do all the things we want to do. Some of it goes to groceries, some of it goes to rent, and some of it goes to visiting Grammie and Grampie. Some of it goes to toys too, but we have fit that in with everything else.

I try to avoid saying things like “we can’t afford it”. What I’m hoping is that I can reinforce the process behind financial decisions, rather than instilling a fear or anxiety that there isn’t enough.

None of these conversations get too deep and I’m honestly not sure how much of it sinks in. But my hope is that by delivering a consistent message when it’s relevant to them personally, they’ll start to internalize some of what goes into being smart with money.

3. Giving an allowance

This is the step that I think we’re ready to start now, and it’s one I’m pretty excited about.

Our tentative plan is to start giving our 5-year-old $2 per week. It’s not tied to chores and there are no requirements or restrictions around what he does with it. It’s his money and he gets to use it as he pleases.

Now, we’ll definitely talk to him about the choices he has available to him, answer questions when he asks for help, and talk through some of the consequences of his decisions to help him process everything and learn as he goes along.

But we won’t be making the decisions for him or judging them as good or bad. My hope is that by giving him complete control over his money, he’ll be in a better position to learn how to think through his decisions and learn from the consequences.

Like I said, I’m really excited about this. I can’t wait to see what choices he makes, what stumbling blocks he runs into, and how decides to grow and adapt. I’m guessing I’ll even learn a new trick or two along the way. Kids are pretty creative and I’m just really excited to see where he takes this.

4. Allowing them to invest

Somewhere down the line (likely not for a few years at least), I’d like to give my kids the chance to “invest” their money.

At first it will probably just be a matter of giving some of his money to me that I track in a spreadsheet. Their account balance will rise and fall with the stock market, and we can track and talk about it together. They can get a sense for how it feels to watch their money disappear during a down market, and also how their money can grow over the long-term if they’re patient.

Eventually we could move on to trying out different asset allocations so they could get a sense of their risk tolerance, and when they’re old enough to work we could even use some of their income to open Roth IRAs in their names so they can invest for real and start building up some real savings.

My goal here is simply to help them get used to the process of investing and dealing with the ups and downs before there are any real stakes so that it’s a much more natural exercise when they get older and it starts to matter.

5. Allowing them to take on debt

Eventually – again, probably years down the line – I’m going to let my kids borrow money from me and pay it back with interest.

Let’s say they want a new video game system that costs $300 but they only have $200 in their account. Well, maybe they can borrow the extra $100 from me and pay me back over the course of the next year with 10% interest.

Just like with investing, my goal here is to give my kids experience with debt before there are any real stakes. They can experience the convenience of having access to more money than they’ve saved, along with the struggle of having to pay me back out of their allowance every single week.

More than anything, I want them to understand how debt really works so that they can approach it intelligently when they get to adulthood, instead of with fear or ignorance.

What are your ideas?

Like I said before, I’m not an expert on any of this. These are just some ideas I’ve come up with from reading how other people are doing it and thinking about what I’d like my kids to learn.

So what I’d really love to do is hear about your ideas. How are you teaching your kids about money? Or how do you think you’d like to do it when they’re old enough?

Put your thoughts in the comments below so we can get a conversation going. I’m sure we could all learn a lot from each other!

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22 Comments... Read them below or add one of your own
  • KT May 16, 2017

    My kids are now 19 and 16. I did several of the things you mentioned. I also exposed them early on to my actual budget – and the concept that there had to be money put aside for irregular expenses, emergencies and college and retirement. I started simply when they were young, but at this point I’m pretty open book. Regarding debt, I might use a higher % to illustrate what credit card use can do to the cost of an item. I’ve also taught them more recently about getting credit and what it’s used for – meaning my daughter has her own credit card to build credit and 3x a year I help her check her credit. I also show her mine and talk about the differenent costs of borrowing based on someone’s credit score. In hindsight, I kind of wish I’d attached allowance to chores or grades. I never thought I’d say that, but if we don’t work as adults we don’t get paid, so maybe it would help foster that understanding.

    • Matt Becker May 16, 2017

      I really like the idea of exposing them to the whole budget. I have a friend who actually had her daughter manage their budget for a few months, which I think is an awesome idea for down the road.

      I go back and forth with the idea of tying allowance to chores too, but at least for now I’d like to keep the focus strictly on letting him learn how to handle money he has. Down the line I could definitely see keeping the allowance relatively low, having some chores that are just expected, and others that could earn them a bigger allowance. Or otherwise helping them learn how to apply their skills and creativity in exchange for money. I definitely agree that helping them learn the connection between work and money is important.

      Thanks for sharing all of this KT! It sounds like you’ve really gone above and beyond in making sure your children have a range of financial experiences and knowledge before they go out on their own.

  • DIY Money Guy May 16, 2017

    I think you are spot on about just being a good role model and setting the example. As the father of twin two year old girls I am trying to get prepared for money conversations as well. I just finished a really good book from the library that I actually plan to go out and buy now. It is called “How to Make Your Kid A Money Genius” by Beth Kobliner. I really recommend it. Tons of actionable advice based on research studies and experiments.

    • Matt Becker May 16, 2017

      Thanks for the recommendation! Is there anything in particular that stood out from the book that you plan on using yourself?

      • DIY Money Guy May 16, 2017

        There is a ton of stuff. Some of my favorite tips that I wrote down in a notebook are:
        – Get them to focus on the long term and understand delayed satisfaction. “You can get that small toy today but then you won’t be able to afford the PlayStation you really want in a few weeks”
        – How to Handle Allowance – Use cash. Chores are not related to allowance (If they are then kids will eventually realize that they will just wont get allowance if they don’t want to do any chores). But doing chores is part of taking care of our home and our family. Goal of allowance is not making money but rather teaching kids how to handle money in a variety of situations as the grow up.
        – Kids can do extra chores like wash car & rake up leaves to earn money. But refer to these “extra chores” as “work”. Help instill that most people need to work to make money and if they want to earn extra money they are going to have to do work.
        – Set up a parents matching system to encourage saving.

        • Matt Becker May 16, 2017

          Ooh, I like the idea of a matching system. Another reader suggested I read this book, and looking through some of the reviews it looks like he advocates paying your children 5% interest per month on their savings so they can see the benefits more clearly. Kind of a similar idea that I like a lot.

  • Brian May 16, 2017

    I have three kids, 18 year old twins and a 14 year old and they have been involved in our budget discussion for years. My wife and I want them to have a good understanding of how much we make, what the mortgage, food, electric, etc cost. So when I yell about shutting off lights or turning off the television no ones watching it has meaning. It also helped when we scaled things back while in debt and had to say no more often. This helps sent the precedent that it’s okay to talks about money too.

    I like the idea of charging your kids interest or a tax along the way as a learning lesson. It’s certainly something they will experience in the real world. We gave our twins a used car to share as a birthday gift. They are paying for insurance and all maintenance costs. They still are getting used to the cost of an oil change, but all part of the process.

    • Matt Becker May 16, 2017

      Another vote for involving kids in your budgeting. Definitely something to keep in mind for the future. Thanks Brian!

  • Laura May 16, 2017

    We are also learning as we go with the kids (now almost 14 and 11). They each have very different money personalities. We’ve done a lot of what you wrote about above. I also try to do things like
    – comparison shop with them when we are out
    – limit showers because (gasp!) we pay for the water … they didn’t realize there was such a thing as a water bill
    – when they ask for extra chores to earn more money/privileges beyond their allowance, we are happy to oblige

    It will be interesting to see what happens as they enter high school and beyond.

    • Matt Becker May 16, 2017

      Nice! I like the idea of relating everyday decisions (e.g. how long you shower) to financial consequences. At least knowing that there ARE consequences can lead to more purposeful decisions.

  • Karl May 16, 2017

    Love the ideas so far. We have our first bun in the oven (a girl due 9/30), but we’re getting some extra practice with my s-i-l and get the kids (7, 8 & 9) living with us to get back on their feet. We are holding my sil’s feet to the fire, making her do a budget, and we got the kids involved by making a debt thermometer poster and putting it up on the dining room wall. At the top is a picture of a house to represent them getting their own place one the debt is paid off. We point out how choices affect how fast we get to the top (e.g., getting fast food makes it go slower).

    We also have open conversations about money (sans actual balances or amounts) with or in front of them, and we describe the choices we make and how we do a budget every month. We don’t share amounts at this age because they lose focus on the why and just get enthralled about the number.

    We also are trying to curb the bragging about how much they have saved up.

    • Matt Becker May 17, 2017

      I like that last point about making sure no one’s bragging. I think celebrating milestones is probably positive, but none of this is a competition.

      • Karl May 17, 2017

        What we do for that one is when they mention having a specific dollar amount or ask how much money we have, I tell them, it’s not about the amount. I have “enough.” That’s all anyone else needs to know. Also trying to mix in lessons on contentment in there.

  • Amy May 16, 2017

    Instead of calling them “chores”, the extra jobs that they get paid for could be called “side gigs” and then explain to them that adults do those to bring in extra money.

  • My kids get an allowance that’s not attached to chores. However, I’m trying to emphasize to them about working for pay, so I offer jobs outside of what I would normally expect them to do at different rates. They’re generally pretty willing to do a few here and there and it’s pretty helpful for me as well!

  • Matt @ Spills Spot May 18, 2017

    Hi Matt, really enjoyed this post about ways you’re planning to teach your kids about money in a practical way. There are so many different philosophies out there, it’s always interesting to read the different perspective.

    My parents provided me a good understanding of personal finance from a young age. I learned very early to avoid debt and how important saving/investing both are.

    I’m now married and 26, yet my Dad continues to encourage me to learn more. His latest idea has been to “bribe” me to read difficult investing books and write reports on what I’ve learned, for $100 per book. I though it was a really creative idea and I go into more detail about it on my blog, maybe you could use this idea for your kids in the future.

    http://www.spillsspot.com/finance-blog/2017/05/08/dad-finally-got-reading-investing-books/

    • Matt Becker May 22, 2017

      It’s great that you have such encouraging parents! I read your blog post too and it sounds like they were very purposeful in how they taught you to handle money. I like the idea of holding your kids at least somewhat responsible for their college education.

  • Pallavi P June 5, 2017

    Hi,
    I had ques about how basically u start with teaching kids. I hv 10 yr old who gets money for her chores. Now the question comes about lunch money..She is use to get lunch money every week which is different from her chores money. So how does everyone account for lunch ? Shud i ask her to get from her chores money ?

    • Matt Becker June 5, 2017

      Good question. I don’t think there’s a “right” way to do it, but my personal view is that lunch money is just part of the cost that comes with having a child and would therefore be something we would provide in addition to allowance/money earned from chores. Whether or not my children earn money, spend it foolishly, or anything else, I’m going to make sure they’re able to eat.

I’d love to hear from you, please leave a comment