Raising Money Smart Kids


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It is quite disappointing to see a generation grow up with little knowledge of responsibly managing their personal finances and investing. Many schools today offer some variant of a Stock Market Game for older kids but there is very little being taught about money in the early years. A large part of the responsibility therefore lies on us parents to make sure our kids are learning key money concepts at the appropriate stage of their lives so they grow up to be financially responsible citizens.

Getting Kids Used to the Concept of Money and Savings Early

Early money lessons should focus on helping kids understand the concept of money as an indicator of value. Learning about money and counting coins is also useful to teach basic math concepts like addition and subtraction. The goal is to make children comfortable handling money.

There are 3 basic activities we have used to teach our kids about money:

  1. Let kids go checkout items in the super market: While waiting in line to check out, I will often give my kids a few dollars and an item that they want to buy and ask them to go to the register in front of us and complete the purchase. If the item is $4.35, and I give them $5, they are responsible to figure out how much change they need to get back and then count them once they get it back. This builds confidence handling money, reinforces the knowledge of various types of coins and how to count them and equates their urge to buy the latest toy with the act of letting some money go from their own hands (which will be useful in their lives).
  2. Help them start a coin collection: This Christmas I decided to give them a coin collection display album rather than the usual toys. This particular album was for collecting state quarters. I was not sure if they would appreciate the thought behind the gift, but I am happy that they really warmed up to it. I wanted to give them an educational hobby that will take them away from Wii and Ipad games. Since we have 2 kids in similar age group and they are both collecting coins now, they are learning the very useful concepts of bartering. Additionally, each state quarter has a story behind it and it is very instructional to discuss why each quarter has the picture on it that it has.
  3. Equate good behavior with value: There is quite a bit of discussion on whether parents should give allowances to their kids, and if yes, what is the appropriate age to start. In our case, we decided not to give allowance yet, but rather use a system of earning points for every chore they do (and forfeiting points for each chore they are supposed to do but do not). For example, sharing toys do not earn them points, but by not sharing they lose points. By the same token, if they do their homework before watching TV, they can earn a point. The reward is that for every 100 points they earn (and they are free to combine/trade points with each other if they want), I will buy them a new app on their iPads. They are also learning about using tally marks at school and they keep track of their points with tally marks stuck to the fridge.

Moving on to Savings, Debt and Investing as Kids Grow Older

As the kids grow older, it is time to start talking about personal finances at the dinner table. Key topics to include are

  • handling credit cards and debt responsibly – it is not free money
  • putting some away for later – good savings habit starts early and it is important to talk about banking, savings plans, budgeting, etc
  • making your money work harder – It is never too early to learn about business and start investing. There are ways to set up tax deferred savings accounts for kids. Much more important in my view is to help kids understand how the money works to generate additional wealth in the society, and for themselves, by investing in businesses that create value. Teens can start investing with adult guidance, perhaps initially by using DRIPs and with some experience they will be able to graduate to managing their own investment accounts.

It is true that the habits that are developed early in life carry over to their adulthood. Help your kids understand money, savings and investing early, and they will become a financially responsible adult.