Learning about money is something that happens at different stages for different people. For some, real lessons are learned in young adulthood. For others, lessons are learned later in life after a series of bad decisions. There is something about first hand, personal experience that can get people to change their behavior!
That being said, it seems to make sense that the younger people can be when they learn important skills regarding handling money, the better off the rest of their lives will be. If someone has to wait until late in life to grasp basic concepts, it could make for a marginal financial existence amidst a desperate attempt to work when older. Might as well learn when young and live a better life.
So, I’ve been thinking about the notion of teaching kids lessons about money. My oldest is still in elementary school, and knows that I’m not too interested in spending, but I feel like I need to do a better job of teaching these lessons now. I don’t think it needs to be inevitable that as a teenager I should expect her to be overly interested in shopping, or making bad decisions. Why not get set up for good decisions and a solid foundation for future decision-making?
Here are some ideas that I’m revisiting regarding this topic, with 7 ways to teach young children the value of money:
- Make clear that money comes from work. I have a friend who once told me about how his kid thought that money came from an ATM. Wouldn’t that be fun? Just go get more whenever you need it! Explaining to them how one acquires money, while obvious to you and I, just might be necessary instead of silly!
- Equate cost to time worked. By this, I mean describe what it takes to buy something in terms of how long you have to work. Let’s say a parent makes $30 per hour, and nets $20 after taxes. Let’s also say that a kid wants to buy a toy that costs $40. Explaining to them that it will take Mommy or Daddy 2 hours of work to buy that toy might help make the point.
- Give an allowance. This traditional approach works for some, maybe not for all. But giving them a specific amount for their own discretionary purchases can help teach them how to save, and how money isn’t unlimited.
- Pay them for chores. I not a huge fan of this approach! Let me make that clear up front. It seems like kids need to learn some basic life skills, and should be able to wash dishes, do laundry, etc by the time they’re teenagers and getting ready to go to college. Right? That being said, I will list it as one way to teach the value of money since this does work for some people. Note: I’m willing to listen to why this might be a good approach, if you see it differently than I do.
- Teach them about opportunity cost. For example, if a kid wants to go watch a newly released movie at the theatre at $10 per ticket, tell them that for that price they could instead watch 10 daily rentals from a $1 kiosk. Or, that they can watch a multiple movies for free from the library, and then use that $10 for a stuffed animal they could keep forever. Not that world needs more stuffed animals, but you get where I’m going with this 🙂
- Teach them about compounding. Okay, this might be advance for a kid. But you can tell them that instead of spending $10 now, they can keep that $10 and it might turn into $10.50 next year if invested well. Then, show them how after each year it will grow into more and more.
- Show them why they should be thankful. Now, this one might be controversial. But I totally inadvertently might have given this lesson. We were downtown and my daughter saw some homeless people begging. The whole idea was tough for her to understand, how these grownups looked so ragged and dirty, and had to beg for help. Yet, people just walked on by. It can be a cruel world, which many of us don’t want to believe, but if have no money and are destitute, things like that can happen. Seeing people struggle like that can make an impression on a kid to be thankful and ultimately differentiate wants from needs. Additionally, being generous and offering help is another good thing for kids to see too.
Questions for You:
Do you agree/disagree with any of these methods?
Do you have any others to add?
How did you learn lessons about money as a kid?