7 Ways to Teach Kids About Money and Start Building their Future Wealth Today | INVESTED MOM
If you're like most parents, you want to do everything you can to help your kids succeed in life. Not only to become a good human but also to thrive financially. But how? How do you teach kids (especially young kids) about money and good financial behavior? This became a big burning question for me when I became a mother and I spent the last few years obsessing over it.
I grew up playing Monopoly with my cousins and to this day I credit most of my good money habits to this holiday pass time. But was the game of Monopoly enough to set me up financially in adulthood? The answer is yes, and no.
In a very practical way, it taught me about purchasing power and, at a high level, how overall money decisions can define financial success. My financial decisions had a direct impact on whether I was going to be able to buy enough properties and stack them with houses and hotels.
The paper Monopoly money was a tangible way to see and keep track of how well I was (or wasn't) doing and helped express the value of my assets. In today's world, we hardly ever use cash anymore which makes it harder to conceptualize the value of money, especially for kids.
Using real money is the best way to teach kids when you're starting out so that it doesn't just turn into an accounting exercise. The lessons of buying and selling with paper money went a long way and the ultimate goal was cash flow. As I got older the game of Monopoly sparked my love for real estate investing. Real estate is now a sizable portion of my wealth builder's portfolio.
But in a very different way, Monopoly didn't prepare me for financial adulting. It's amazing for teaching kids about money in the early years, but it isn't a substitute for all the financial lessons kids need to thrive in adulthood. I had to learn about earning an income beyond property ownership and the need for financial planning and learning good money habits.
One of the best things you can do for your kids is to teach them from a young age about money and how to put that money to work. Personal finance and financial literacy are not taught in school in any meaningful way. So the first (and often only) place they will learn how to manage money is at home with their parents and extended family, for better or worse.
Here are 7 ways you can start teaching your kids about money today:
Teach yourself first
It's hard to teach your kids about money if you don't know how to manage your own finances yourself first. Kids learn through example. It won't help to make your child repeat your financial mistakes. So much of my money mindset blocks came from how money was discussed in my household when I was growing up. So teach yourself about financial literacy and money management first. There's no shortage of information on financial topics out there. You can find a lot of resources online or get started with my 10-step guide to financial freedom. It's a completely free workbook-style guide to get you started on your wealth-building journey.
Start early
The earlier you start to teach kids about money, the better. You can start teaching your kids as soon as they are old enough to understand basic concepts. This will look different depending on the age of your child. For younger kids, you can teach them about counting, spending, and saving money. As they get older, you can teach them about credit, investing, and budgeting.
If you start when they're in elementary school, by the time they hit middle school, they should already have a few concepts under their belt and maybe even be ready for some entrepreneurial adventures. Earning money can be a powerful way to show them how money grows. Having cash to spend on big-ticket items also acts as a huge incentive.
There are also a lot of great resources out there to help you teach kids about money. There are so many great books, board games (like Monopoly), online games, apps, and websites out there to help teach your kids. A quick Google search will give you a ton of ideas. My new favorite discovery is an app called Hire and Fire your Kids. The app helps you turn chores and behaviors into a game of hiring and firing your kids in your household. It helps you empower your kids to set themselves up for success in the real world.
Set a good example with your spending and saving
Your kids will learn more from what you do than from what you say. If you want them to save, then you should save too. Show them how much fun it is to watch their money grow!
Start by involving them in your everyday finances
For example, when you're grocery shopping, let them help you count the money at the till or use a child-friendly piggy bank to help them learn how to save up. Opening a savings account (or investment account depending on age) for them is even better. This will help teach them good financial habits.
Be consistent
It's important to be consistent when you're teaching your kids and leading by example. They need to know that you're serious about it and that it's not just a one-time thing. You can make it a part of your daily routine or weekly ritual. For example, every Sunday evening, you can sit down with them and talk about how they did with their allowance for the week and how they plan on executing their tasks (or chores) for the coming week. Introducing some rigor into a routine helps to create a healthy habit.
Demonstrate how saving and investing can earn money
When you save money, you're setting it aside for a specific purpose – whether it's for a rainy day, a future goal, or something else entirely. And when you invest money, you're using it to buy things that will grow in value over time. For example, you might buy stocks or real estate.
But why should your kids care about saving and investing? Because when you do it right, saving and investing can earn you money. That's right: your money can work for you, instead of just sitting around in a savings account. And one of the best ways to make your money work for you is to understand compound interest.
The power of compound interest
Compound interest is when you earn interest on your interest. That means that the longer you let your money grow, the more interest it will earn – and the more money you'll have in the end. For example, let's say you have $100 in a savings account that earns 2% interest per year. After one year, you'll have $102 (because you earned $2 in interest). But after two years, you'll have $104.04.
Understanding this concept will help your child learn how to grow the money they earn and pay themselves extra money through recurring interest. Albert Einstein said it best:
"Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”
If children don't learn about this concept when they have as little as a few dollars to manage, they won't be able to do it with a lot of money. As your child's money grows, they will be able to see the power of compounding firsthand.
Choose age-appropriate lessons
You want to make sure that the learnings stick and that you're meeting your child where they're at. Here's a breakdown of some key money lessons for each age group:
Elementary school kids:
The basics of money - what it is, where it comes from, and how to count it. You can also introduce basic concepts like saving, spending, and budgeting.
Elementary school children are just learning about paper money and coins and their value. This is teaching them how to handle money transactionally, but nothing about money habits. At that age, financial education can be as simple as teaching your kids about counting, exchanging, delayed gratification and impulse buys - saying no to the gadget at the toy store they want and why.
Middle school kids:
More advanced concepts like interest, credit, and investing. At this age, kids can start to understand the importance of responsible money management. This is also a great time for an entrepreneurial endeavor like a lemonade stand
Opportunity cost is when you lose out on something else that could have been better. You can use this to help your child understand the difference between impulse buying and long-term goals. Impulse buying is when you want something right now, but you have to think about what you're giving up to get it. Long-term goals.
Teenagers in High School:
The teenage years are a great time to start talking about things like college costs, tax planning, and retirement planning. This is a great time for them to get a job, help out in the family business or grow their side gig. Encourage your kid to work for money either by obtaining an allowance or by gaining work for yourself.
During teenage years when deciding on the best money plan, guidance will become vital. The wealthiest people are the best at managing their spending. Show them why it is essential to be a responsible values-based spender.
I started only spending on things that I value in my life when I started auditing my spending habits and it made a huge difference in how I make decisions about our finances and where I'm allocating cash. We don't pay for things we don't value.
Additionally, you can help them to understand the importance of investing by meeting with a financial advisor or certified financial planner to get some advice on their options for investment accounts or whether a custodial account would be more appropriate.
Starting at any age is better than not starting at all
There are lots of different ways that you can teach your kids about money, and staggering the concepts and lessons appropriately for their age, will help them absorb the knowledge for staying power. The most important thing is to start early and be consistent. And don't forget to lead by example!
Make it fun
When you make it fun, it will make them want to learn more about it. A good way to do this is by using games and apps. For example, the game "Cashflow for Kids" is a great way to teach them while also making it a good time. It's an educational board game that simulates real-life financial scenarios, similar to the concepts of Monopoly.
Another app called Go Henry is a prepaid debit card and app for kids that lets them learn how to manage their money. It's a great tool for teaching kids about spending, budgeting and saving. Similar to Hire and Fire your Kids, this gamification helps to build healthy habits early on and makes it fun and engaging.
Consider philanthropy and charitable givings
As a parent, you can start teaching your children the importance of giving back to the community from a young age. Here are a few tips on how to introduce charitable giving to your child:
1. Explain why you give to charity.
Helping others is its own reward, but you can also explain how giving back can make the world a better place. This is a great opportunity to talk about difficult topics like poverty, homelessness, and disease.
2. Choose a charity together.
Many charities focus on different causes, so sit down with your child and decide which one you’d like to support. This is also a good chance to teach them about budgeting and how to research different organizations, as well as the tax advantages of donating. That being said, nothing beats the fulfillment of donating your time and energy to a cause you feel connected to.
3. Make it engaging!
There are plenty of ways to give back that are also enjoyable, like volunteering at a shelter or participating in a food drive. Children are more likely to be engaged if they’re doing something that they enjoy.
Giving back doesn’t have to be a chore – by introducing charitable giving to your child, you can instill in them the importance of helping others while also teaching them valuable life skills.
As your child grows, their relationship with money will change. Teaching them about wealth building today means they can be financially secure tomorrow. If you want to know more about preparing your kids for financial badassery, book a 1:1 Call with me - let’s chat!