Money and Kids

by Tony Chen

“My dad never gave me an allowance because it looked too much like a government hand-out.” – Rand Paul

“How much money do we have, dada? hundred thousand hundred forty-five?” –Meme, my son, just turned 4

With everything that’s going on with the economy, this is a great time to get smart about teaching our kids about money.  Here are some tips that I gleaned from a great interview with Money and Kids Expert Susan Beacham of Money Savvy Generation.  Her mission in life is to educate our next generation on how to be smart with money.

1. For younger kids, make money concrete.  Money is an abstract concept for younger kids, so the more we can make it about something they can see and touch, the better.   One good way is to use a Money Savvy Pig, a 4-chamber piggy bank that gives kids the choice to save, donate, invest, and spend.  They can see the coins accumulate in there and they start to understand what “savings” actually means.  Even if you don’t use the Money Savvy Pig, use a piggy bank that’s transparent, so kids can see the coins accumulate.  Otherwise, in their minds, money that’s dropped in is just going into a black hole.  It’s basically just a toy to them.
   
   
2. Read to them a lot.  Here’s a great list of books put together by Beacham organized by age.  Even for traveling dads, you can read with your kids over the phone.  The power of listening to your kids when they first learn how to read – this is teaching them the value of both reading and financial literacy.
   
   
3. Give them an allowance with a contract.  Dads, an allowance is one of the best ways to teach kids about budgeting and financial choices.  Instead of making it play-money, make it a transfer of responsibility to managing certain expenses.  Beacham told me about her daughter’s allowance contract (here’s a sample contract).  With her allowance, she was responsible for buying 3 things: lunch for school, toiletries, and clothing.  Buy the $25 or the $1.25 bottle of hair gel?  Get those vintage jeans from the retailer or from a resale?  Buy lunch at school or make it at home?  Budgeting 101. When they’ve got skin in the game, they become more savvy consumers.  And for boys, it’s a miracle!  They even take better care of the things they buy with “their” money.
   
   
4. Don’t break your money promises.  Beacham has traveled the country talking to kids about money, and she’s amazed at how many middle school students know exactly how much their parents “owe” them on allowance.  Unfortunately, this actions-speak-louder-than-words situation is teaching that money promises are okay to break.  So, if you’re late on allowance, pay them interest!  I know that sounds crazy, but what a lesson to respect the value of money.
   
   
5. Help them set some goals.  As they start to save, you can start helping them set some goals.  I know my son wants his first set of real Legos.  This starts them thinking about longer-term planning and (the horror!) delayed gratification.  You can match certain funds, too, along the way.
   
   
6. Get their skin in the game, too.  Kids don’t care if things break if they know we’ll just get them another one.  Or often, they don’t appreciate the things they have if it’s just handed to them.  One of Beacham’s daughters had taken a few years of tennis lessons (which can get expensive!).  One year, Beacham asked her if she still wanted the lessons.  If she did, she’d have to pay for a portion of them.  After some thought, her daughter decided not to proceed.  Beacham would have never known where her daughter really stood with tennis without that conversation.
   
   
7. Give them the grocery store lesson.  How many times do you take your kids to the store?  Make their trip about more than riding in a plastic car-cart or finagling some gum from you at the check-out line.  Yup, running errands is about as much fun as answering the “does this make me look fat?” question, but these trips are great teaching moments.  Introduce your kids to the price tags hanging right next to everything in the store. Get them to help you find a better deal on the $/ounce.  Explain why we buy certain things in bulk from Costco and other things at the grocery store.
   
   
8. Take the time to verbalize your financial decisions.  The grocery store is just one venue, but our entire life as a consumer can be opened up to our kids in an age-appropriate way.  Explain why you’re shopping at Best Buy for a TV, but double-checking the price online.  Explain why Michigan cherries in Illinois are so cheap in July, but why we probably won’t buy the more expensive, less sweet cherries in February. Next time you go to Jiffy Lube with your child, explain to them that going to there is probably 50% cheaper than the dealer, but comparable in quality. These are decisions we are making all the time – take the extra minutes to explain it to them as you’re doing it.  They’re soaking it in much more than we think.
   
   
9. When tough times hit, talk about it.  Don’t go silent and think you’re “protecting” them.  When bad times hit, they pick up the change, get anxious, and if not addressed, will act out.  If you’ve lost a job (mine disappeared a year ago), man up and tell them. Tell them that we’re going to have to tighten our belts for a while.  Maybe they’ll ask “will we have food?”  “Yes, we’ll have food, but we won’t be able to go out to eat as much.  How else do you think we could save some money?”  Lots of kids really just want to know how all these adult-sounding changes are impacting their world – what will happen to my room, my friends, and my pet? 

 Studies show that basically our children’s financial mindset is set by the age of 13.  So, it’s just like investing – start early and grow slowly.  A minute here at the grocery store, a minute there at Best Buy, a minute at home talking about their piggy bank – slowly but surely these investments in time and attention add up and multiple on themselves.

What are some of the best things you’ve done when it comes to money and kids?

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Other Resources:

Susan Beacham's Blog