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!