If I could add one thing to all school-age kids’ curriculums, it would be a mandatory class in financial education.
Every. Freaking. Year.
And not just teaching about the different bills and coins and how to count them (which is quickly becoming ancient history anyway). But it seems like what our kids really need are lessons on thinking about money, relating to it, and learning how to invest it and create real wealth.
In this article, we’ll cover:
- Why it’s important to teach our children about money.
- 5 ways to teach kids about money management that will make them actually want to learn.
My Sparse Financial Education
I had a minimal financial education growing up. Yes, I had a savings account that I could put money into after the holidays. But I didn’t really grasp the power of money and how it could work for me.
My parents typically talked about finances behind closed doors, as so many parents do. But it taught me not to even consider money. So when I started working, I spent everything I had. I didn’t know any different, and I assumed my parents had been doing the same.
I spent most of my 20s learning and finding my own way financially. Lucky for me, I was curious. I wanted to understand a different way of living. I wondered what it might be like not to sweat in the days leading up to a paycheck, wondering if I had to have ramen for dinner again.
As I think about raising kids of my own and the other children in my life, I want nothing more than to empower them to learn about money and the powers of how managing it correctly can change their lives.
Why Teaching Kids About Money is Essential
When you teach kids about money management, you’re teaching them about life. Money is one of the few things in life that we’re all destined to deal with, whether we have it or we don’t.
There are several overarching life lessons that you can help kids understand when you begin to teach them young.
- Delayed gratification: This is HUGE in a society that wants everything right now. If kids can understand that by saving money now, they’ll have more money later, that’s immensely valuable. And they’ll likely be the only one of their friends with this understanding.
- Opportunity cost: One of my favorite financial podcasters, Paula Pant at Afford Anything, always says, “You can afford anything, but not everything.” The sooner kids learn that every purchase they make means sacrificing something else, the sooner they can make balanced smart decisions.
- The power of compound interest: Oh, if I could drill one lesson into my younger head, this would be it. If I had started to save and invest the money I earned with part-time jobs in high school, it would have jump-started my financial future in a significant way.
Teaching Kids About Money Isn’t Easy
Most of the kids I know have the attention span of a squirrel. They also generally don’t want to hear anything I have to say because I’m old and clearly don’t know what I’m talking about.
But as adults who have been around the block, faced money issues head-on, and lived to tell the tale, we owe it to the youth to pass on our knowledge. These are the 5 best ways I believe we can do that, without boring kids or leaving them lunging for their phones.
Start a College Savings Plan
The cost of a post-graduate degree is ever-climbing. And it’s common for kids to not appreciate the actual cost of an education. A great way to show them is by starting a 529 college savings plan.
Most states offer a 529 plan that encourages saving by offering tax deductions on contributions and tax-free growth over the life of the investment.
I started a 529 for my niece when she was 7, and we’ve talked about it a lot since then (she’s now 13). Since opening her account, we’ve discussed:
- The opportunity cost of what I’m contributing each month. (And how much I love her and want to support her going to college, so it’s worth it!)
- How what I’m saving is only going to cover a fraction of what she’ll likely need.
- The difference in cost between in-state and out-of-state schools.
My hope is by doing this, she’ll be able to make a more informed decision about which college she’ll go to based on price and what she already has saved.
And as someone who made a college decision with my heart and not my head, I hope she’ll be smarter than I was.
Birthdays and gift-giving holidays are prime time to teach kids about money management. While family members and friends often gift candy and cheap, plastic toys, there is so much opportunity to share money lessons that will last a lifetime.
Some of my favorite gifts for kids are:
- A share of stock in a company they understand. Think Disney, Mattel, Nestle, etc. Kids can begin to link company performance with the price and how markets work.
- Educational, financial books masquerading as stories. I love David Bach’s The Latte Factor for older kids, which I gifted to a cousin at high school graduation. Younger kids may better connect with a story like Rock, Brock, and the Savings Shock by Sheila Bair.
- App subscriptions. An app like iAllowance enables parents to encourage kids to do their chores and send them money for doing so. It’s a very controlled introduction to managing finances.
Make it Fun with Games
Some of my favorite lessons in money management came from Monopoly.
- If you don’t have enough cash, you can’t buy that property.
- Taxes are the one certainty in life.
- The banker may or may not be paying themselves extra on the side (or maybe that was just my brother).
When we learn lessons through games, they can be much easier to absorb. So consider playing a money-focused game with your kids. There are some great financial education games cleverly disguised as family-friendly board games. Some of my favorites are Dave Ramsey’s Act Your Wage and Buy It Right from Learning Resources.
Host Family Financial Meetings
If you and your significant other are already discussing finances regularly, bring the kids in on those conversations. One of the best ways kids learn is by seeing you evaluate options and how you make decisions.
Let’s say this month you’re discussing whether the family will go on a summer vacation to a destination or do a staycation and go through with a minor home renovation instead. Ask the kids their opinion.
Encourage them to weigh the options and explain how a home renovation and shorter vacation would actually add to your family’s bottom line by increasing the value of your home.
I love these types of family discussions because they bring up questions you may not have considered. And the kids will feel like they’re involved.
Don’t forget to make these meetings fun. Make up some popcorn and put on some feel-good music. The most important thing to instill is that money shouldn’t be scary or something to keep quiet about.
Give kids a bit of leeway when it comes to spending their money. They will make mistakes. But better to make them when they’re dealing with small change than to wait until they’re out on their own and the financial stakes are higher.
A few years ago (pre-college fund), I gave my niece cash for her birthday, and we went out shopping. And wouldn’t you know, she blew every last dollar. It was entirely her choice, and I didn’t say a thing.
Afterward, we talked about the other things she could have used that money for and if she made the best decision. This enabled her to make connections instead of me preaching about smart spending.
The Bottom Line
Teaching kids about money management should be fun. If you can do the following, your children’s experience will be positive and lead them into a successful lifelong relationship with money.
- Encourage kids to make decisions, and ask for help when they need it.
- Be open and honest about family finances (but be cautious not to burden kids with financial issues).
- Serve as the example you’re trying to teach.
As with anything to do with parenting or being a role model for kids, it ain’t easy. You will be imperfect, and that’s okay. Kids need a realistic vision of money.
We all have money blunders, but it’s worth teaching kids about money management to give them the best chance possible to succeed.