Teaching kids about money used to be easier. You paid with cash and taught them the difference between a penny, nickel, dime and quarter (though it still confuses me that a penny is larger than a dime but worth less; can someone do something about that, please?). Budgeting was easier to drive home when kids watched their parents tally their bank balance with a paper checkbook ledger and deposit their paper paychecks by physically going inside the bank to fill out an actual deposit slip.
But how do you instill the value of hard-earned money when kids watch you buy groceries, gas and their pretty pink princess shoes with the swipe of a credit card? Bills are paid automatically, paychecks are magically deposited electronically and we rarely if ever step inside a bank.
All this financial effortlessness can make it easy to forget that we’re responsible for turning out fiscally wise offspring, says Janet Bodnar, editor of Kiplinger’s Personal Finance magazine, where she writes the “Money Smart Kids” column.
“The end goal is to turn out financially independent adults who make their own decisions,” Bodnar says. “Kids see the world in concrete terms, so you have to find ways to teach them about money in concrete terms. You can do that in everyday situations.”
—Combat in-store proclamations of “But I need it!” with a brief explanation of the difference between “want” and “need”: “Things we need include healthy food, a home, sleep and clothes. Want is everything else.”
—When making purchases, verbally explain the process. “We give the checkout lady our groceries and she tells us how much it costs. I give her our credit card to pay for them. Then we can take them home.”
—Give your child a bill to hand to the cashier and have your child accept the change.
—Teach numbers and the value of bills by examining currency. Teach the name and value of each coin.
—Start an allowance at about age 3. Keep this money and any cash gifts the child received in your purse in an envelope marked with his name. When he finds something he wants, talk about whether there is enough money in the envelope to buy it. Also talk about how once that money is spent, he has to start saving again for the next purchase.
—While you may choose not to pay for chores, find some way to connect work with earning money, perhaps seasonal household tasks or working in the family business.
—Encourage your kids to start a small business, selling homemade baked goods or crafts, offering lawn care or pet walking/sitting services. Help them purchase the materials, market the business and calculate actual profit. And no, they can’t just use the sugar and lemons that are already in the kitchen. Unless they buy them from you. At a markup, of course.
—Start requiring the child to use her allowance for a reasonable necessity, say pencils for school or toothpaste. These responsibilities increase as the child gets older and gets a bigger allowance.
—Set up a system by which kids are forced to save a portion of their money and cash gifts toward a specific goal. This might include a paper spreadsheet with their income and target, an auto-transfer from their personal checking to a savings account or two piggy banks, one for spending, one for savings. You can add a third for giving.
—Take the kids on the weekly shopping trip, but before you leave, have them help create a list and budget. Aim to squash the notion that shopping involves throwing stuff you want into a cart and driving it home. The lesson: Money is finite.
—Talk about money at the dinner table. Chat about how much things cost, whether that vacation to Costa Rica is doable this year and how much taxes were this year (watch your mouth). Destigmatize the topic.
—When it comes to charitable giving, use the evening news as a peg to discuss your family’s philosophy and practice of it. Talk about why this is an important part of budgeting, how much you choose to give and how you choose your charity.
—Send your kid into the 99 cent store with a $1 bill and use the experience to teach the cold, hard facts about taxes.
—Ask for a tour of your local bank, including introductions to employees in each department.
—Open a checking account in your child’s name. Go over monthly statements and teach them to balance a checkbook.
—Teach budgeting by giving your child a seasonal clothing allowance on a debit card and help them determine what kind of clothes they want and need—and can afford—for the following six months.
—Start talking about interest when you pay your bills. Explain how much of each mortgage payment is interest or have them help you shop around for a savings account.
—Have each kid choose a family purchase and find ways to afford it. Say your son wants a new Wii. It is his responsibility to find ways for the family to save and earn money to pay for it, whether it be cutting down on junk food, riding bikes instead of driving, renting movies instead of going to the theater or cooking instead of driving or selling off old toys cluttering the basement.
—Once per week, make your kid responsible for planning, shopping for and cooking a simple meal. When you sit down to enjoy it, discuss how much the food cost, plus the expense of driving to the store to buy it, the energy to refrigerate and cook it, and the cooking supplies to make and serve it. How much would a similar meal cost in a restaurant? (You can reverse this lesson by looking over your restaurant bill and talking about how much it would cost to prepare it at home.)
—Have them calculate the tip on a restaurant bill.
—Make a game of getting the best deal at the big-box store. Hand the kids a stack of coupons and ask them to select the best deal on, say, dish soap. What is the best deal: the store brand or the name brand with the coupon? What about the on-sale luxury label or the giant tub of generic? Introduce per-unit prices.
—Give your teenager a household task to manage, including a budget. An example might be mowing the lawn. Not only is he responsible for mowing it every week but also managing the mower’s gasoline and maintenance.
—Use your own year-end credit card statement, or a chart from a personal finance tool like Mint.com, to give your teen a snapshot of what it costs to run your household.
—As a holiday or birthday gift, open an online trading account in your teen’s name and deposit a small amount. Start teaching them about researching and trading stocks.
—Pull the credit report for your son or daughter and talk about the importance of a strong score and how to get one.
—Open a credit card with them and explain the details of the interest, late and annual fees and rewards points. If they screw up, they pay the penalty. Review the statements together monthly.
—Make the college talks real-life. Review their 529 accounts with them in detail. Help them think through the expense of an education, that is, how many loans they are likely to accrue and how much that will mean in monthly payments when they graduate.