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Three Money Concepts Your Kids Should Know Before Age 10

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Handling money wisely is difficult for people of any age, but it seems an especially tricky concept for kids as money has become less tangible.  When I was growing up, I saw cash and checks being used as the normal form of payment.  Kids today see Mom and Dad swiping a card at Target, placing an order via Alexa or pushing a button on their phone to make Amazon boxes full of stuff just magically appear on the doorstep.  Combine that perspective with a lack of financial education being taught in school, and we have a real problem on our hands!  What kids do learn they observe from their parents or friends, and the rest they learn purely by trial and error.  It is so important that we be mindful of what children are seeing and what we are teaching them. 

Kids as young as age 3 are interested in money and capable of understanding very basic concepts.  A study in the Journal of Financial Therapy says many of our attitudes and biases concerning money are shaped by age 10.  We all know that changing behavior is extremely difficult once it’s ingrained.  This is why it is crucial to instill good money behaviors, habits and practices as early as possible.  Here are three concepts that your kids should understand before their 10th birthdays:

1. Money Is Finite—When It’s Gone, It’s Gone.

Research shows that 60 percent of Americans are spending all or more of their income, which means they are in debt (or about be) and do not have an emergency fund.  Kids need to know that once a dollar is spent, you can’t get it back. 

In the book Smart Money, Smart Kids, Dave Ramsey and his daughter, Rachel Cruze, share a great example of learning this concept.  Cruze was a child and had a certain amount of money that she could spend on whatever games she wanted on their trip to a theme park that day.  She eagerly started playing the first game she saw and ran out of money within 10 minutes of entering the park.  Ramsey and his wife stuck to their guns and did not give her any more game money for the day, using the situation as a teachable moment.  Cruze says that lesson has stuck with her for life. 

It is important that our kids learn these lessons while they are young and the stakes are lower.  If she had never learned that lesson and continued to blow through funds as fast as she received them, Cruze would have found managing paychecks as an adult far more difficult and would have faced much more serious consequences than not being able to play a game. 

We have to let our kids “fail” sometimes to learn these lessons early in life while they are in a safe setting.  Another important concept for kids to understand is that of opportunity cost.  If you buy X, you will not able to buy Y or be able to pay that upcoming bill.

2.  Money Is Earned Through Working.

Work is a good thing and it’s necessary for making a living.  Our kids need to know that we work to earn money to buy the things we need and to live the lifestyle we want.  Learning to be a good worker is probably one of the most important skills kids can acquire as it will set them up for a better future.  In your younger years, your ability to earn money is your largest financial asset.  We refer to this as human capital instead of financial capital.  We all want to do meaningful work and feel proud of ourselves for a job well done.  You can help encourage this mindset by helping kids take pride in the chores they do around the house or jobs they do for others.  Show them the value of what they’ve done and how having that task done well helps the whole household function.  Just telling them that you are proud of them for doing a good job will go a long way.

3. Delayed Gratification/Patience.

Having a “buy now, figure out how to pay for it later” sort of attitude can get you into big trouble.    You simply can’t have everything you want right when you want it.  The sooner kids understand that, the better.  If there is something they want, help them identify the cost, set a goal and determine a plan of earning money to save up and buy it. 

Saving up for something special teaches patience and ensures you actually do want the item/experience.  In the process of saving for something, many people find the item isn’t actually that important to them and they’d rather use their funds for something else.  Have you heard of the 24-hour test?  If you find something you really want to buy, just wait 24 hours and see whether you still really want it.  Once that item is out of sight and out of mind, most people discover they didn’t actually want it that badly.  Alternatively, the 24 hours gives you a chance to do some comparison shopping, take stock of what you already have that may be similar or find a coupon for it if you do decide it’s a worthy purchase.

The sooner you start having these conversations with your kids and instilling these concepts, the better.  Look for teachable moments and fun ways to talk about money, work and saving.  In my book, Milton the Money Savvy Pup:  Brings Home the Bacon, Milton learns a few very basic money management concepts.  He learns how to identify coins and their value, understands that you earn money by working and that sometimes you have to wait and save to get what you really want.  Check it out here: Amazon.com/dp/1790751462

Jamie A. Bosse, CFP® RFC, lives in Manhattan, KS with her family. In addition to being a mom, she’s a financial planner and author of Milton the Money Savvy Pup:  Brings Home the Bacon.

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