Here are six easy money lessons every parent can teach their kids to help them grow into wealthier adults.
Parents who are good with money generally raise children who are good with money, but not always. Parents who want to raise responsible children should make sure their kids know how shopping works and the difference between needs and wants. They can also use an allowance to get children excited about budgeting and saving and investing, and fall back on good old fashioned board games like Monopoly and Life.
1. How Shopping Works
The process of shopping for groceries and other items can seem like magic to kids. Mom or Dad puts a bunch of things in the cart and then swipes a plastic card and leaves the store. To a child, it can seem like all the merchandise is free.
Even sitting a child down and explaining to them how credit cards work isn’t enough, because a single moment of explanation can’t compete against an everyday experience.
Making the behind-the-scenes money process tangible will help the child grasp what’s going on. One way to get the message across to children that shopping isn’t magic is to relate that cart full of milk and eggs and cereal and vegetables to hours of work. As they’re loading the shopping bags into the car, the parent can simply do a little quick mental math and tell the child, “Mommy worked five hours at her job to get these groceries.” Making that comment with every shopping trip will give a child a money lesson that most will never get.
2. Needs vs Wants
Most people make dozens of decisions every time they shop. There are lots of things a parent sees in a store that they’d like to buy, but they don’t. Either they can’t afford a nice giant flatscreen TV or they know there are other things they’d rather spend their money on. Sharing these usually silent decisions with children makes an excellent money lesson.
For example, Mom and Dad can talk about a trip to Mexico they’d love to take, then explain why remodeling the bathroom is more important. It’s not that parents should never take vacations, but when parents do choose a need over a want, explaining the decision to the child will help the child make sound decisions later on in life.
3. A Graduated Allowance
Parents can give a child a dollar once a week to sweep the kitchen floor, two dollars to clean the bathroom and five to shovel the driveway or mow the lawn. Parents who pay children differently depending on the difficulty of the job raise kids who understand that different work is worth different rates of pay.
Mom and Dad can create categories in the family budget for toys, vacations, restaurant trips and family outings. For instance, a family might split $200 a month between categories like video games, visits to a child’s favorite restaurant and a vacation fund. Getting kids to suggest new categories and different ways that money might be divided up among the different categories can engage a child’s enthusiasm. Children who approach budgeting in this way will be years ahead of most. Parents can even suggest their kids can put some of their allowance money back into their favorite spending categories.
5. Saving and Investing
Teaching delayed gratification can be as simple as encouraging the child to put some of their allowance into a savings fund so they’ll have it later when they think of something they really want to spend it on. Another way to teach kids about saving and investing is simply to designate a small amount of the adult’s investments for the kids.
For example, if Mom has a 401K, she can earmark $5 a month of that money for each of her kids. She can then talk to her kids each month about how much money they have invested. Most investment accounts report their percentage change on a regular basis. Mom can use that information to show her kids how much of their money is principal and how much is interest. In this way, kids can see their savings grow by $5 each month. They can also watch their money grow or shrink depending on how the investments perform.
Games like Life and Monopoly can teach kids about money through play. Monopoly teaches basic concepts like investing, taxes and the cost of luxury items through fun. Life shows kids that different choices lead to different long term outcomes. The best part about these games is that to the kids it doesn’t feel like “learning.”