Teaching Kids About Money — 7 Smart Tips

Last updated on January 12th, 2020 at 08:10 pm

Guest post from Winnie Sun, Managing Director of Sun Group Wealth Partners

My sister is a financially savvy mom to three kids. She’s like a lot of “frugal parents” we read about online. She’s good about cutting coupons, driving to the next Craigslist find, and teaching her kids the importance of living within a very strict financial budget. For her, financial education is a way of life. As a financial advisor and a parent myself, I often get asked about the best strategies to teach kids about money. It might surprise you when I say, it’s the lessons your kids learn from you, not what they learn in the classroom.

Have you ever asked your children about money? Where it comes from? Their answers will surprise you. I recently hosted a series of video interviews with children age three through 12, and the answers ranged from heartfelt to downright hilarious.

The good news is that children are able to quickly learn about money and its value. Kids learn through observation and repetition, so the more regularly you talk about money and demonstrate the role it plays in their lives, the better. By turning everyday topics or activities into money lessons, parents can take an active role in providing kids with information about finances. Here are seven tips to help you raise financially savvy children:

1. Start money conversations early

As a parent of three, I’ve seen that kids often pick up on new ideas faster than they get credit for. Even at a very young age, kids can understand the concept of more versus less. Introduce your kids to money as soon as they can count. You can have them count quarters, nickels, and pennies as a way of giving them exposure to money. Create two piles and have them tell you which one has more coins and which one has less. Once they can understand the value of each type of coin, the same game becomes more challenging: Which pile is worth more? You will be able to build on this basic knowledge in the future. When I interviewed Mark Steines of the Hallmark Show “Home and Family”, he talked about how he wove money topics into everyday discussions with his kids. “[I’ll talk to my kids about] how to read labels, then to learn and grow we do math, and we have to pay the bill. We have to know what our budget is up front, so everything becomes sort of a teachable moment” Mark says.

When your kids are younger, you can also encourage them to read signs with prices at the grocery store and explain to them what it means for an item to be on sale. You can explain why you are shopping at a discount store or why you are buying certain items in bulk. As they get older, you can even have them calculate the price per unit to figure out which item is the best deal.

2. Cater finance lessons to your child’s age

While it’s great to start talking to your kids about money early, consider age-appropriate ways to introduce financial topics. Preschoolers and toddlers can learn about money through simple tasks such as sorting coins. When kids are in 3rd or 4th grade, they are ready to discuss more complex money matters such as saving, budgeting, and planning for an upcoming family vacation.

As your children get even older, you can talk about how their choices impact family finances. For instance, when your child unnecessarily leaves the lights on in a room, you can explain how it makes the family electricity bill more expensive. This is not meant to make your children feel guilty, but instead to teach them that simple choices can have a big impact on spending or saving money.

3. Encourage kids to earn money through work

I distinctly remember selling avocados in my front yard to my neighbors at age nine – my first taste of entrepreneurship. Help your children come up with a list of responsibilities or jobs they could do for pay. Ensure that the jobs are achievable and that they will help your kids learn and develop skills. For younger children, such jobs can be more about completing routine tasks such as getting dressed for preschool, making their bed or simply completing homework. Older children may be able to do yard work, babysit, or other helpful tasks for neighbors. Creating and helping your child find opportunities like this to earn money with jobs that interest them is a great way to teach the value of hard work. It also helps eliminate the notion that they are entitled to get whatever they like.

4. Let kids make spending decisions

Say your kids receive money as a gift or from work, should you let them spend all of it during your next trip to the store or should you make them save it for a rainy day? It’s important to give your kids the power to decide what they want to buy using the money they receive because it can help them understand the need for saving money. Your child might pick out an item that is priced higher than he or she can afford. Instead of coming to your child’s rescue by providing additional cash, help them understand that since they don’t have enough money, they will have to wait until they have saved up for the item they desire. Otherwise, they can choose a less expensive item within their budget.

5. Explain needs vs. wants

Though it helps to allow your children to make spending decisions on items they want, it is important to help them understand the difference between things that are needed and things that are wanted. For our adult clients, we call this budget planning. This same concept – questioning whether expenses are for necessary items or nice-to-haves, will help them make smarter decisions with their own money in the future.

For instance, when you’re with your child at the store, they might want that new box of $35 Legos. Talk to your child about what $35 will buy instead. Give your children an idea of what things at home cost. Would you rather have the Legos or would you rather have a ticket to the zoo, or even a bag of groceries, etc? Being familiar with how much things costs allows them to quantify what has greater value and what they can live without. Arm your children with financial and consumer knowledge so they can decide what has value to them.

6. Involve kids in major family purchases

We learn best through first-hand experiences. Include your kids in the process when your family is planning on making major purchases like kitchen appliances, buying a home, or even planning a vacation. You can teach them about the importance of doing research before making a big purchase, the factors that go into your decision-making, and how you do product and price comparisons. Let your children accompany you when you are finally ready to make the purchase.

7. Teach kids about delayed gratification

This is an easy one to teach, even for your youngest of children. For my own, I take them to Target or Toys R Us and remind them that we are “just looking.” If you are consistent with your messaging, your children will not feel deprived. They will learn that toys come at birthdays and special occasions and will no longer expect them every time you shop. Teaching kids the concept of delayed gratification can help in combating the “buy now, pay later” mentality that can lead to credit card debt in the future. Reinforce the idea that good things come to those who wait. For instance, you can microwave a store-bought frozen pizza and then make a homemade one with all the ingredients your kids love. Although the homemade pizza takes longer, it tastes way better.

First steps

Although everyone wants their kids to enjoy healthy financial futures, parents often forget to provide their children a good understanding of money. Hopefully with these simple steps, every parent can help create a solid financial foundation. These are the first steps to teaching kids good personal finance habits so they can become money-mindful adults.

Winnie Sun is the Managing Director and Founding Partner of Sun Group Wealth Partners, a trusted award-winning financial consulting firm providing financial planning services to small business owners, senior executives, celebrities, tech elite, and established families throughout the West Coast.

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