Daily we are reminded of how financially troubled our society is. Debt levels are extremely high, bankruptcies are commonplace and many Americans live paycheck to paycheck. Even folks with great careers and six-figure incomes have trouble managing a monthly budget and being prepared for emergencies. How did we get here? Well, for starters, adults today were never taught about finances in school, so what we did learn we picked up from our parents or friends, and the rest we learned through trial and error. For kids today, the same circumstances exist, but learning finances is even harder to navigate because money has become almost completely intangible.
Young kids today seem to have no concept of money or how it works. All they see is Mom and Dad swiping a card at Target or pushing a button on their phone, and then Amazon boxes full of stuff just magically appear on the doorstep. So how do we teach kids about money when it is invisible? We must be intentional about teachable moments and creating them where we can. We need to put our kids in scenarios where they make and manage their own money before they are out in the real world. We want them to learn and make mistakes while the stakes are lower so they don’t get into trouble as adults.
First of all, parents need to create a “payday” or “allowance” for kids to practice handling money. Whether the pay is tied to chores or not is up to you, but every resource I’ve seen on this topic shares the theme of teaching kids to work. Kids who don’t understand the value of work grow up to be entitled, unhappy and incapable of facing a challenge or managing money on their own.
As with most things, the sooner you start the better. Kids as young as 3 to 5 are very interested in money and can grasp basic concepts: You need money to buy things, money is earned by working and sometimes you have to wait to get what you want. Children are sponges eager to soak up information. They want to know about money, mainly because money can lead to new stuff (they love stuff!), so use their curiosity to your advantage. You can start paying them for short, simple chores in cash and let them spend it on what they want. They will begin to understand how much things cost and learn that money is a finite resource.
Kids as young as 6 can grasp the concept of saving, and by 13, they probably have some specific things they want to save for—cool shoes or jeans, phones, tablets or other devices. If philanthropy is a value you want to pass down, you start teaching them to give at this age. Begin the habit of dividing each paycheck up into what kids will give, save and spend.
By the time they are 14, they should have a checking account and be paying for most of their expenses themselves. You simply take the amount that you would normally spend on them for entertainment, clothing and other needs and put that in their checking account each month. Let them manage it. If they spend all their funds on a pair of designer sneakers in the first week and have no money to go to movies with friends later, they will have learned a valuable lesson and will do better the next month. If they feel they need more money than what is allotted each month, encourage them to figure out how to make more. They can babysit, dog walk or get a real part-time job to supplement their income. This will teach them grit, independence and a can-do attitude.
When they are ready to leave the nest, you want your kids to have some work experience and understand they can’t have everything they want right when they want it. You want them to be comfortable handling money and know how to think ahead to make their paycheck last.
As with most things, the sooner you start the better. If you can engrain a behavior early on, the better it will stick. Kids who grow up with a good education about money, with healthy financial habits, will grow into adults who are less likely get stuck in a dangerous debt cycle, are better prepared for emergencies and have the surplus to give to charity and support their communities.
Jamie Bosse, CFP, RFC, is a financial planner at Aspyre Wealth Partners. She is a mother of four and author of the children’s book Milton the Money Savvy Pup: Brings Home the Bacon.