Look both ways before crossing the street. Eat your vegetables. Brush your teeth. Don’t talk to strangers. As parents we spend a good portion of our time teaching and reinforcing important lessons to our children. Some we do through a combination of words and deeds, like to be polite, and say please and thank you, which we reinforce by our own behavior. There are also some things that parents tend to put off until children are “old enough to understand” and one of those topics is money. The problem is by the time we believe most kids are able to “understand” money they have already had years of misinformation cemented into their subconscious and overcoming those seemingly hardwired misconceptions is tough. The solution is to teach money and financial lessons early and remember that money is fun.
Cash is King!
As far as kids are concerned credit and debit cards are an endless source of getting stuff. Children, including teenagers, have difficulty processing the concept that there is real money behind the piece of plastic. Using cash for making purchases with your children is something tangible that they can understand. They can see the exchange of money for goods and will develop an appreciation for the fact that there is a limited supply of the green stuff.
Piggy Banks and Pickle Jars
Give your kids, as young as three, a piggy bank or pickle jar to use as a place to stash their allowance. Yes, that means giving them an allowance, in cash. Allowing them to handle and accumulate money, and as we’ll see in the next lesson, spend it, will give them an appreciation of its value. Piggy banks are also a great way to teach saving, giving, and investing lessons.
Giving kids an allowance, even in exchange for chores or positive behavior, is not enough to provide them with a sense of empowerment. However, having them use their savings to purchase things they want will not only give them a sense of independence but an appreciation for the very abstract concept of value. The secret to successfully accomplishing this is to keep the time scales short enough between starting to save and making the purchase, so that they don’t lose interest or simply forget–but that will usually mean funding a portion of the purchase yourself.
Fun with Numbers
Rather than a single lesson this is an ongoing series of lessons that begin with the first dollar your give your child in the form of quarters, dimes, nickels and pennies where you teach counting, addition and subtraction. Money is a great tool for teaching math and math is a great tool for teaching the value of money. As your children mature increase the complexity of the calculations to progress from addition to calculating simple interest to compound interest by paying them interest on what they save. Keep the lessons and projections within their frame of reference. Pointing out that if they start saving at 12 they can have a down payment for a car by the time they are 16 is a goal they can understand and act upon.
(Prepaid) Card Games
The time to teach your kids how to responsibly use credit cards is long before they are old enough to head off to college where there are banks and unscrupulous credit card companies waiting for naive incoming freshman to take advantage of. Prepaid credit cards are a wonderful way to teach teens how to responsibly manage credit. Giving a teenager a prepaid credit card with two or three times their monthly allowance as an opening credit limit and requiring them to pay the balance in full each month is a challenging game that makes them to use all their previous lessons, every time they reach for the card.
Photo Credit: flickr