What to Teach Kids About Money

Think about everything you learned and gained from your parents, particularly as you got older.

How to speak to an adult, show respect and perhaps that led to getting a job thanks to a stellar interview.

Maybe they taught you more practical things: how to tie a tie, ride a bike, bake your first cake or how to change the oil in your first (of many) cars.

Parents live to teach, protect and show their kids how to do as much as they can, because moms and dads always have that inkling of not only how to do things we don’t know but that the more they can teach you, the better off you’ll be in your adult life.

Money is no different as moms and dads have sought out the best possible approach to teach their kids the value of a dollar, how to work for money and ultimately what it means to save, spend and come to the realization that if you do too much of the latter, the former just won’t happen.

Parents might consider a variety of approaches, including what age makes the most sense to start the money saving teachings, but the truth is teaching kids about money has to be at the top of any list put forth by moms and dads, because of just how much of a savings crunch the average person is in at the moment, hoping that your kids don’t find themselves in that same bind.

Kids begin to understand the concept of saving money around the age of 9, with allowances starting as early as age 6. ^[1] That information is all too important for parents as a basis to start teaching about saving, starting mainly with the idea of chores or doing things around the house, allowances and others of that ilk to have money change hands, and kids learning to save it or buy something, but realizing that once their money is gone, they’ll have no more of it until that next dish is washed, shirt folded or room cleaned.

The age of 7 also is important because that is when they start to understand value in general, and how money is exchanged.^[2]

Younger kids will opt for money in the form of volume, such as two dimes, and a nickel instead of just one quarter. The age of 7 allows them to form the thought and understanding that they are the same value.

Beyond the formative years of kids learning about money in a more simplistic way, parents also can’t overlook their own money-saving up and downs, and how that plays into kids learning about money when they’re older, in their early teens, as an example.

Parents who rely on credit cards, borrowing money and doing so as a means to get something you normally can’t have weighs heavily on the subconscious of a child. They understand at the age of 5 when money changes hands in order to get “things,” but as they get older, they have to determine from the habits of mom and dad that if you run out of money, you can’t get what you want.

The startling information regarding kids and credit cards is that the number of kids who have credit cards between the ages of 8 and 14 is up to 18 percent, and that is as of 2017 and versus four percent in 2012.^[3]

This sounds as though parents might need to brush up on how they’re teaching kids about money, more so than you’d believe.

Aside from the allowances a child and money used that is from your bank account and now borrowed, parents have to fill in the gaps between those age brackets and then some, by using these strategies and tips to teach kids the right way to save:

Learn to Budget: Having a plan shows kids haphazard spending won’t work

Does the average person really have a budget? Is every adult using a budget wisely and actually putting pen to paper (or keyboard to computer) to really devise something that works.

Well, not really.

Most Americans aren’t really budget conscious and that is alarming for not only adults, families but kids who are “learning” from mom and dad.

A study of 1,000 people showed that if you’re over the age of 30, less than half could tell the researcher what a 401K is, with 55 percent feeling as though they’re clueless when it comes to long-term stability financially and about 13 percent have a plan that extends to at least 5 years.^[4]

Even more disheartening are the 66 percent who say they have a budget, but rarely keep it.

Doesn’t sound like kids have much of a chance?

The truth is keeping a budget isn’t difficult for adults, and the translation of such shouldn’t be difficult for parents to communicate, either, even if you’re not as financially savvy as you want to be.

Consider the three jar approach, a common and successful means to teach kids about money.

Parents who allow kids to earn money or even kids in their teens who are working, getting paid and don’t have a bank account but instead cash their check and proceed to spend aren’t really understanding how budgeting works.

For younger kids, the three jars is simple: one jar for saving, one for spending and one for sharing (much like we detailed above in the 10 percent window of teaching for what they make).

When your child earns money for shoveling snow, allowances for chores at home or helping their grandparents, aunts, uncles or neighbors with household needs and they earn money as a result, show them how to put what money into what jars, explaining that if the spend one runs out, and you dip into the savings one that you’re not going to have any money on hand in case you need it.

The average kid should have a bank account by the time they’re 13 (called student checking accounts in some circles).^[5]

The earlier, the better, quite honestly.

Spending Spree: Kids should know that excessive spending will ruin your finances

When kids get money, what is the first thing they want to do with it? Spend it, right?

Most experts agree that spending money is perfectly fine for kids, because of the rule it teaches regarding hard work means you can have nice things, but excessive spending is something that they should understand is a financial pitfall you’ll have a hard time recovering from as you get older and the spending “bug” is more engrained in your day to day approach regarding money.

Kids should learn the 20-10-70 concept of how to save.

The 20 percent is about paying yourself first out of your paycheck, with 10 percent giving to less fortunate and 70 percent of what they make is what should go to expenses.^[6]

The 70 percent in this example is crucial is that it really drives home the point that if kids spend 100 percent of what they make, they’ll never be able to save, thus the importance and impetus of living below your means.

Far too many people live paycheck to paycheck, and that means no money in a savings account for emergencies, and kids have to understand that’s no way to fret through monthly expenses.

When it comes to spending, much like the easy to understand 70 percent out of a 100 concept, you also can teach kids about the 24 hour rule (or some that use the 48 or 72 hour rule).

Whatever you opt for between one or two days (no more than three, however), kids can understand wants versus needs using this simple approach.

If you see something you want, something you like that is a cross between a want and a need, give yourself 24 hours to think about if you want to buy it or actually need, thus mitigating the impulse piece.^[7]

Ultimately, you’ll end up teaching a valuable lesson about how money “doesn’t actually grow on trees.”

Consider the example of tax returns, and the average person.

Most people consider tax refunds like found money, and that simply suggests that the money is already planned to be spent before you even get it.

The average tax refund in 2016, for example, was $2,860, and 1 in 4 Americnas already had it spent, along with 36 percent of millennials and 40 percent already had it spent among Generation X.^[8]

Remember, kids need to understand cash in hand, spending on needs and generously thinking through if you really do need a “want” or not.

Advice column: Be careful who you get advice from, savings wise

This piece of information comes with a proverbial grain of salt in that if you’re the parent, and you’re not good at managing money, then why are you giving kids advice on it?

True, very true.

But moms and dads can see the error of their ways, but this learning tool about who you get advice from money wise is something they can build upon as they get older, look toward a financial planner in their adult years so they can better plan for retirement and the future.

You wouldn’t necessarily rush to bestow this information on an eight year old, but your high school kids might want to listen closely to some, and ignore most.

Financial advisors are a hit or miss proposition, and your kids should know that going in.

Most people don’t have one or search one out for their planning, roughly 62 percent simply don't and have never used one, but the ones who do have one want it reviewed semi annually to the tune of 82 percent of them.^[9]

One of the reasons most people don’t have a financial planner is a relative distrust for them, so teaching kids about choosing wisely is key. Approximately 65 percent say they don’t trust them, with 2 percent trusting them complete and 15 percent say, “a little.”^[10]

The best advice you can give your kids is that if they’re unsure of how to plan, then search one out. The best financial planner often is someone who is a referral from someone you know, rather than just a blind Google search.

Also, on a more practical front, kids should understand that if someone who isn’t good with money, is a free spender or really struggles financially no matter if it’s a friend or relative, then that isn’t someone they should really heed advice from whatsoever.

Earlier, it was mentioned that there is a borrowing and debt crisis among all age groups, really, across the board.

The average amount of debt a person carries in the form of credit cards far supersedes how much they have saved in their nest egg or savings account.

You should have between three and six months of essentials saved in a savings account, meaning that if you lose your income, you have three to six months worth of cash on hands to get through that period of time.^[11]

If you make $2,000 a month, you need to have $6,000 to $12,000 saved.

More than half of the population in the United States has less than $1,000 saved.^[12]

Parents who find themselves in this predicament might want to consider how they can possibly and realistically teach their kids about money if they’re no better off at the moment.

Use that as a means to not only change how you’re handling money day to day, but also what you don’t want your kids to do: the same pitfalls you found yourself in.

Being a success story financially after being in debt or not saving properly can be the ultimate lesson you teach your kids, the schooling of your son or daughter that not only is debt and falling behind realistic but something you went through and what paths you should be taking to save, spend properly and not find yourself as another adult statistic who can’t put any money aside and is more content on borrowing than budgeting.

Lesson learned, right?

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