Teaching kids about money, it matters more than you think


Numerous studies have proven that children who get a basic understanding of financial concepts early in life are much less likely to have financial difficulties later in life. It may be surprising just how many opportunities parents and grandparents have to teach their children about financial matters early in life.
When should we start talking to kids about money?
Kids even as young as four or five can start learning basic habits such as savings and can start to comprehend needs versus wants.  Making them save for big items instead of buying for them right away is one great way to teach both concepts at the same time. Often, for someone younger, what they want can change quickly.
What are some of the misconceptions that younger kids tend to have that we need to correct?
If parents aren’t careful, kids can believe that the “magic” card is all that you need to buy whatever you want.  Another misconception that needs to be corrected early on is that you just walk through a store and buy whatever you want that day, that’s why shopping with a list a great teachable moment.
Are there any foundational aspects of money that should be taught?
The building blocks of financial education that I like to use is the “spend, save, share concept”.  For every dollar they earn or receive, spend part of it, save part of it, and share part of it.  A good rule is the 50, 40, 10 – let your kids spend up to 50%, have them save at least 40% for a future purchase and encourage them to share 10% in some manner.
Are there any real life opportunities to see if your child is going to be a saver or a spender?
Yes, the best one is the keep the change game. Give your child more money than something costs let them keep the change for whatever is left over.  For example, give them $10 ice cream. They then get to make the choice of buying just the $5 cone, or they can go for the extra scoop and pay more.
What is an appropriate time to start allowances and how much do you recommend?
By the age of 9 – 10 is a good time to start allowances and my recommended amount is $3 times their age per month.  The one caveat is that they need also need an appropriate level of financial responsibility. A ten year old would receive $30 per month in allowances and be responsible for minor financial obligations that they incur. The teachable moment is don’t bail them out if they run out of money.
At what age would you recommend increasing their financial responsibility?
I would suggest around 15 - 16 to increase their allowance and make them responsible for more of the things they need, such as going out, non-school related clothes, entertainment, other minor expenses they might have.  When they start driving, increase the allowance a little more and make them responsible for the gas they use when driving.
Why is it so important to give responsibility at an early age?
Most of them will have financial setbacks, maybe even a minor failure, but because they are young, these setbacks can be easily corrected and are great teaching moments.  A financial failure at 14 might mean being short a $100, a financial failure at 24 might be $100,000 mistake.

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