Craig Lemoine, Ph.D., CFP®, Director of Consumer Investment Research
Ask kids what they think money is, and you get some interesting responses.
Over the last month, I asked my friends, family and neighbors if I could pose a question to their children about money. Their answers covered it all – insightful, surprisingly robust and hysterical.
Ellie (4): “Cash. It can pay for stuff, like Pop Tarts.”
Kate (6): “It’s how you pay for what you want.”
Lily (6): “Money is something that you can use. It can really help you get something important or things you really wanted. If you have a friend over, ask them what they want. You have to agree on what you both buy.”
JJ (8): “Money is paper, it has writing on it to tell you how much you have on it. And you should spend it wisely.”
Brady (10): “Money provides opportunities and the ability to explore something new.”
Amelia (12): “Green paper that’s backed by the government.”
Kellen (13): “Money is a waste of time, but it can bring happiness sometimes.”
Elizabeth (14): “Something you earn so you can spend.”
Chloe (15): “Money is a piece of valuable paper, backed by the government. You get paid by working.”
Spencer (16): “Money is a form of currency.”
Ryan (18): “The means by which you purchase goods and services. If someone asked me what to do with money, I’d tell them to save half and spend half on something you want.”
Two years ago, I realized that we had not done well teaching our children about money. Within one month, both an iPad and a Kindle Fire were left outside in the rain. The wet electronics are not my failure; my stinging failure was the quote that followed:
“Daddy, you can just buy us new ones.”
I promptly took my girls outside to find the Money Tree. My youngest ran from tree to tree with hope and anticipation.
Money is not natural to kids. They don’t learn how to budget along with crawling, though I wish they would. Parents are the primary source of financial literacy for children. While some schools are better than others at teaching financial literacy, parents remain the cornerstone of educating children about personal finances.
Some of us genuinely struggle talking about money. But teenagers who are educated about personal finance are more likely to have lower levels of credit card debt, experience less negative stress and are more likely to succeed in college than those with lower levels of financial literacy.
Money is ingrained in our everyday lives. Talking about money means talking about compassion, diversity, charity, privilege and so much more.
Get Started Teaching Your Kids Money Management
Fantastic nonprofit organizations such as Jumpstart, Junior Achievement, The National Foundation for Financial Education and Money Savvy Kids have thousands of templates and resources to help you start conversations about money with your kids. Consider the Million Bazillion and the Planet Money Podcast as repositories of entertaining personal finance content.
Budget in the Open
Budget in front of the kids. Talk about spending and savings openly. They may not participate in the process, but talking in the open takes away the taboo of not discussing money. As children become older, let them help make some family budgeting decisions. Making safe choices around money builds the confidence and discipline to make wise independent choices about money as they get older.
Practice Choices in the Moment
The next time you make a gift purchase, set a budget and let the kids choose. If my plan is to spend $20 on a birthday gift, I’ll hand cash to my girls and let them pick. As a result, we have some fantastic conversations about math, budgeting and priorities in the middle of Target.
Demonstrate Work Ethic and Hustle
I don’t pay an allowance for daily chores, but I am open to giving the girls opportunities for making money by going above and beyond. In financial services, we often hear, “You can’t teach hustle.” But making hustle fun when children are young goes a long way to carrying that work ethic as they are adults.
Have Conversations with Kids About Money Priorities
On my birthday, I received a card from a family member with a $100 bill in it. I showed the girls what $100 looked like and didn’t think much more about it. A few weeks later, one of them saw a commercial for a Barbie Dream House and, despite my best objections, stated “Daddy, you have enough money to buy it, don’t you remember?” We had a wonderful conversation about the house, Happy Meals, the dogs and dance class. The same money must pay for all our costs, and maybe they could begin saving for this two-story bungalow on their own.
Teach Kids to Budget with Give, Spend, and Save
I’ve seen envelopes, mason jars or piggy banks work toward instilling a greater financial understanding. Provide each child with three places they can store money.
- The first jar for giving is money kids can use to enhance the world around them. Use money from the jar regularly to provide an offering to a place of worship, gift to a food pantry or donation homeless shelter, museum or charity meaningful to your family.
- Label the second jar spending and give your children discretion over how to use it. Providing control helps instill the power of choices, small lessons in missing out and scarcity.
- The saving jar is for mutually agreed upon goals between parents and children. As they get older, saving might mean a down payment toward a vehicle or offsetting college costs.
Talk About Credit Cards
I almost always pay with my credit card while shopping with my kids. I try to be very clear about what a credit card is: I’m borrowing money from the bank to pay the grocery store, and I will have to pay the bank back later from my paycheck. We pass a bank on the way to school, and every now and then the girls initiate a conversation to ask if I have paid the bank back yet. Six may be young age to instill the lesson that credit cards are for convenience and not credit, but some progress is better than no progress.
Talk About Bank Accounts, Venmo, PayPal and Whatever Comes Next
Open bank accounts with your minor children. Teach them how to check the balance and reconcile receipts. Share about overdraft fees and learn about the tools they are using. Most of my students use Venmo. While instant cashless transaction apps are new, they also require budgeting, goal setting and conversations.
Teach Kids Responsible Investing
Find companies, toys, shoes or amusement park empires your children enjoy. Most public companies have the ability to open dividend purchase plans (DPPs) or dividend reinvestment plans (DRPs) directly through their websites. As children evolve past putting money in a savings jar, encourage them to buy individual shares. DPP and DRP programs generally allow parents to open accounts alongside their children (Uniform Gift to Minors Accounts or Uniform Trusts to Minors Accounts). Dividends paid by these stocks will accumulate, building excitement about stocks and investing and helping children develop a critical eye.
Setting our children up with realistic expectations about investing can help shield them from taking huge risks on trading apps and crypto platforms when they hit college.
You Are Going to Mess Up – and That’s OK
Parents get to be imperfect. We get tired, overwhelmed and stressed out about money. There isn’t one perfect money script to use with kids. While we all come from different backgrounds and experiences, we all have stories to share with our children about money. Talk about money and invite children to participate in household discussions.
The part of the Money Tree story I often leave out is the true conclusion. After taking my girls outside to find the Money Tree, I waited a few minutes, lifted my arms in the shape of a tree and shouted, “The Money Tree is right here!” It was possibly the most “Dad” moment of my life, but not one that expresses my values.
Sometimes even adults can use some help with understanding money. Learn how financial planning can help!
Craig is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Craig is in no way related to Cetera Advisor Networks LLC or its registered representatives.