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Raise Money Smart Kids

Children are exposed to money at an early age. Because of all the influence from the secular world, it’s important for parents to have a strategy for influencing their children to think of money in a way that honors your family values.

The best time to figure out how to teach your children about money is when you’re engaged to be married, and no later than when your baby is on the way. Mom and dad need a plan for an 18 year long conversation with your child to teach them all about finances.

Teaching kids about money is a way to teach them values that will last their whole life. It’s about teaching them priorities and the proper way to live. It’s teaching them a Godly attitude about money and possessions. Teaching kids about money should be as fundamental as teaching them to read.

By ages 3-5 they should be exposed to delayed gratification. This can be a hard concept for some adults so the sooner they learn it, the better off they’ll be. Set the tone when you shop. Kids do not need a toy or gift every time they walk into a store.

When they are 6-10 you can teach them about making good financial choices. In the grocery store explain why you buy generic not name brand items or why you use coupons or shop at a certain store. The more they are exposed to wise financial choices, the more likely they will make wise financial choices.

At 11-13 years old, begin focusing on how their short term spending may affect a long term goal. For example, if your child has a habit of buying a snack after school every day, she may decide she’d rather put that money toward guitar lessons.

This is a good time to introduce the concept of compound interest, where interest is earned on the amount saved plus the interest that has accumulated. Describe compound interest using specific numbers from their allowance, which is more effective than describing it in the abstract. The “Compounding Your return” calculator on the Compass Catholic Ministries website is a helpful tool.

By ages 14-18 they should be on the road to independence with more financial responsibility each year. If you are providing money for certain items outside of their allowance such as school clothes, give them a budget but allow them to make the buying decisions. It will make them much more careful shoppers than if mom and dad provide unlimited funds.

Incent them to save money. If they take the time to cut coupons and search for the best buys on grocery items, give them 25 or 50% of the savings as a reward. Or if they save $XX, match it with $0.50 on the dollar.

The above are all age appropriate goals but there need to be some family standards to support these goals.  Following are ideas for you to consider.

An allowance is a good way to allow kids to learn about money and spending. Start when they have a basic concept of money and can add and subtract. Target amount is $0.50 to $1.00 for each year of age. Provide enough so they can buy something, but make the amount small enough that they have to save for it. It’s all about teaching them to make spending choices. They can buy a small item this week or save and buy a larger item next week.

Have three see through containers in their room – give, save and spend, and help them allocate their allowance into each container every week. In addition to teaching them to spend wisely, you are also teaching them to save and be generous.

Decide on a strategy for household chores. The kids are a part of the small community that makes up your family, even if your community is one parent and one child. Chores are the responsibility of each member of the household, so we highly encourage you to NOT pay for chores such as making their bed, walking the dog, emptying the dishwasher, etc. Paying for household chores falls apart the first time the child decides they would rather play with their friends than walk the dog.

A weekly review of their budget will help them learn how to manage money. If they make spending mistakes, ask them questions instead of telling them what they did wrong. Experience will help them make wise decisions, weigh different options, and comparison shop. Better yet, mistakes help them feel regret when they make a blunder. This is the best way for them to learn.

Let the kids make their own spending decisions and let them make bad ones. If they mess up, let them experience the consequences. Better for them to make a bad decision buying a $20 toy than a $200K house!

If they spend lunch money on a video game, then they have to make their own lunch with whatever is available from the pantry. Don’t bail them out. They need to figure out how to eat lunch the rest of the week without mom and dad giving them more lunch money, buying extra groceries or making lunch for them.

In addition to an allowance, hire them for tasks around the house that are over and above their regular chores. Things like staining the back deck, spreading much or shoveling snow may be beyond their normal chores. A good rule of thumb is to pay the child a fair wage for the work you would have to hire someone to do. 

Parents have a responsibility to train their children to cultivate good work habits. The objective of teaching children the value of work is to develop their character and their ability to earn money. They’ll grow up with more respect for the value of money and the effort required to earn it when they learn how to work. This is a giant step toward becoming productive adults and will become valuable in the job market. Their future roommates and spouse will thank you.

Once kids are into their teens, sit down and explain the family income and the family bills. It’s usually an eye opener for kids to see the BIG income number, and how fast that income is consumed by daily living expenses.

Parents are the number one influence on their children’s financial behaviors, so it’s up to us to raise a generation of mindful consumers, investors, savers, and givers.

The world teaches children its way of handling money, which is contrary to God’s way. We have the responsibility to teach children God’s way of handling money. We must be even more intentional than the world in teaching our children.

Proverbs 22:6 tells us, “Train up a child in the way he should go even when he is old he will not depart from it.”

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