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Teaching Kids about Money

My three-year-old daughter has her own piggy bank, filled with coins. I have been talking to her about saving so she can invest and have more money in the future. She wants to invest in "puppy" companies. I think she has the idea that as a shareholder of a "puppy" company, getting a puppy is part of the deal. Although I find these conversations funny, they also serve an important role in teaching her about money. As parents, we should all have conversations with our kids about money. You can start the conversation when your kids are as young as two years old and continue it throughout their teenage years. The conversation obviously gets more complex as they age, but I think it is one of the most important conversations to have with your kids. Here are some important ways to continue that conversation and give your kids a head-start to being financially savvy.

  1. Teach them how to earn money. You may give your kids an allowance, but that allowance should be tied to their chores. Kids should be expected to earn their allowance and understand the value of money. You can offer more money if they want to do more chores. For example, when it comes time for spring cleaning or fall raking, you could offer a certain amount for each extra chore they complete. Encourage your kids to think like an entrepreneur. Depending on their age, they could sell their old toys in your garage sale, run a lemonade stand, do yard work, babysitting, or snow shoveling for the neighbors. Older kids should be encouraged to get a part-time or summer job.
  2. Teach them how to budget money. Once they have money, teach them the importance of budgeting and planning in order to buy what they want. Emphasize the idea that they may have to wait to buy something. Make sure they divide their income into buckets for spending, saving, and giving. Talk to them about organizations they can donate to such as their church or a charity of their choice.
  3. Teach them how to save money. For the youngest kids, a piggy bank or jar works for their savings. By about age 6, they are ready to go to the bank with you and open their own account. Then, you can talk about the bank statements they receive and make trips to the bank to make other deposits or withdrawals. For older kids, if they have a part-time job, encourage them to save for college, and yes, even retirement using a Roth IRA. Start teaching them about compounding. I wrote an article on The Power of Compounding which explains it in detail. Use an online compounding calculator like this one so they can see how much money their savings will be after compounding for 5, 10, 20, or 50 years.
  4. Teach them how to spend money. Emphasize the need to make choices about how to spend money. Compare different brands of apple juice at the grocery store and talk about why you would choose the most affordable option. You should have a conversation with older kids about credit, the dangers of too much credit card debt, and how to use one wisely.

These conversations are important, but when you talk the talk, you must also walk the walk. Reinforce your conversations by showing your kids through your own planning, budgeting, saving, and wise spending. Make sure you are setting a good example for your kids that supports your conversations.

We all want the best for our kids. By starting and continuing a conversation about money, our kids will have years to figure out how to make good choices and develop good habits when it comes to money. Teaching your kids about money when they are young sets them up to be financially savvy for life. And, for me, I think that is one of the best gifts I can give my kids. Even better than a puppy.

If you have any questions about investing or are wondering how you can get started, I would be happy to meet with you for a no-cost consultation. You can e-mail me at gleest@wtwealthmanagement.com or call (928) 225-2474.

Sincerely,
Glenn Leest

Gleen Leest

References:
Dave Ramsey: 15 Ways to Teach Kids about Money
Parents Magazine: Teaching Kids about Money: An Age-by-Age Guide
Forbes Magazine: The 5 Most Important Money Lessons to Teach Your Kids

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