As a parent, it's sometimes hard to know if the important life lessons you teach your children stick with them until they grow up. For many families, financial matters can be tricky to discuss, especially with kids. Because money is such an abstract concept, it can be difficult for kids to wrap their heads around what it does — besides allowing Mommy and Daddy to buy them stuff.
If you're not sure where to start teaching your kids about cash, you're in luck. We talked to four financial experts who know exactly what you and your children need to learn about money because they've been there themselves. From company executives to best-selling authors, these money mavens weigh in on the most important lessons to teach your family.
1. Teach your child that there's more to do with money than just spend. — Susan Beacham
Susan Beacham is the co-founder of Money Savvy Generation and creator of the Money Savvy Pig — not to mention supermom to two twentysomething daughters. With more than 15 years of professional experience teaching kids about money, she tells parents they need to show their children from a young age that there are four choices for money: spending, saving, donating, and investing. To make the last three options more "provocative" and appealing to youngsters, she encourages parents to teach them "how to set goals for those choices and [give] them opportunities to experience making those choices" repeatedly to help build the skill of "delayed gratification."
"It's kind of akin to how we teach our children to use their indoor voice, [say] please and thank you, and share their toys," Beacham told A Plus. "We do this as parents over and over again because we know it's important for them to learn these skills. It will make them successful. They will have good habits. Well, another good habit for a child to have a lot of time to practice and build that muscle is understanding there's more to do with money than just spend."
That's why she came up with the Money Savvy Pig, a translucent piggy bank with four slots, each labeled with spend, save, donate, and invest options. "It, for me, took the abstract concept of money and made it concrete, which is the missing link here when you're working with children," she says. "We created the Money Savvy Pig so parents would stop giving kids one flat piggy bank because that doesn't teach them anything ... Kids don't like the fact that money has been taken away from them for no apparent reason. If you give them the opportunity to set a goal, then they understand why that money's been put away." Beacham adds that many people also do this with clear jars, but cautions that that doesn't always work because jars can get separated. Whatever form parents choose, the most important thing, according to Beacham, is simply getting a "vehicle that allows them [the children], each and every time they have money in their hands, to think in terms of choice."
Next, Beacham says, "Get a piece of paper ... and have your child draw a picture of what they're saving their money for. Have the child label it or estimate the cost with your help, and then you do the same thing." By participating in this activity alongside your child, "you have elevated this task to something extremely important in a child's eyes because you're doing it," she adds. "Parents are the most impactful teacher in a child's life — and that includes lessons on money." Beacham suggests both parent and child choose to save up for something they will want or need in a year, and then "cooperatively help each other meet that goal" over the course of the year. To add an extra twist to the activity, once you see your child has been saving up towards their goal for a while, tell them you're going to match the amount of money they've saved. "You don't say this in advance," Beacham advises. "You surprise and delight them by doing this and then, boom! All of a sudden saving is a lot more provocative. So it's turning some of the other options, saving, donating, and investing, into fun options."
2. Teach children the difference between wants and needs. — Ron Lieber
The "Your Money" columnist for The New York Times, author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, and dad Ron Lieber told A Plus via email that explaining "the difference between wants and needs" to children is a necessary life lesson. "Grown-ups have a hard time with this ourselves," he adds. "We often push financial decisions through the prism of what we think we deserve and not what we actually need. So it's one of those things that we may need to teach by learning and doing it ourselves."
It's never too early to teach this lesson to children who will need to remember it once they reach their 20s and, even with a secure salary, probably won't be able to afford much of what they want for a long time. "If you don't know the difference between wants and needs, you may be tempted to go into the debt to get the things that you think your deserve or have to have to keep up with the rest of the world — but are not things that you actually need," Lieber says.
He suggests giving your kids an allowance "with a strict cap." This creates "a kind of artificial deprivation," forcing kids to make trade-offs. If parents are uncomfortable just giving their children money every month, they can supply their kids with a kind of "homegrown income" by putting a price on their normal and/or extra designated chores. According to a recent survey of Americans as part of the COUNTRY Financial Security Index, the majority of Americans (68 percent) believe kids should receive an allowance for completing chores. Of those parents who are already providing their children with an allowance, over half (54 percent) do so to teach their children money needs to be earned. To keep track of their children's progress, parents can make a chore chart or use COUNTRY Financial's ChorePal app.
Once children have reached age 12 and have a reasonable amount of money saved, Lieber advises parents to tell their kids that it's now their sole responsibility to pay for anything and everything they want, unless it's their birthday or a holiday. He also encourages parents to double their kids' allowance if they can. "They'll celebrate — until they realize that you are no longer paying for souvenirs on trips, or snacks when you're out and about ... or anything at all other than the clothes they need to wear and the food they need to stay nourished," he says. This way, children begin to learn the realities of managing money on their own as soon as possible.
3. Tell your money what to do instead of wondering where it went. — Dave Ramsey
According to Dave Ramsey — founder of Ramsey Solutions, author of Financial Peace, and dad of three — the most important thing is to "get on a plan." He encourages parents to write up a budget every month before the month begins. He told A Plus via email, "The biggest mistake people make with their money is they don't bother. They wander through life with no clue where their money goes or what they spend it on." It's never too early to teach this lesson or too late to learn it. "No matter your age," Barry adds. "If you're going to win with money, you have to be intentional."
So this isn't just a plan for mom and dad — far from it, Barry says. "Teaching your kids about money is one of the best ways to set them up for success later in life," he advises. "Remember that your kids are watching you, and you have to set the example of how to handle money. When you teach them the values of giving, saving, and spending, you are teaching them to be responsible adults."
4. Be content with what you have. — Rachel Cruze
One of Dave Ramsey's daughters, Rachel Cruze, just happens to be a personal finance expert, author of the forthcoming book Love Your Life, Not Theirs, and a mom herself. "The most important money lesson we can teach our families is contentment," she told A Plus via email. "Content people may not always have the best of everything, but they make the best of everything." She encourages parents to teach their children that contentment happens on the inside, not through outside possessions or income.
Because "everyone battles with comparisons," Cruze believes "it's important that we teach our kids that trying to keep up with everyone else is not only exhausting, it leads to debt, stress, and worry." Contentment, on the other hand, can help families and individuals stay out of debt, save more money, and give generously because they're not trying to find happiness in a big pile of stuff.
Like many of the other financial experts, Cruze can't stress enough how much parents act as unconscious role models for their kids. "More is caught than taught," she explains. "If you find yourself talking about all the things other people have that you don't, your child will pick up on it." She advises parents to approach giving with that same role model mentality. "Not only should they witness you giving to others," she says. "Urge them to use some of the money they earn to give to a cause they find important. It's amazing how living with an open-hand mentality will cause your kids to be more selfless instead of selfish."
Overall, she encourages parents to teach their children the fundamental lesson of gratitude. "It sounds simple, but start with making them say, 'Thank you.' When you put their plate on the dinner table, have them say, 'Thank you for cooking the meal,' " she explains. "And just as important, make sure you are showing gratitude as well. Saying 'thank you' to your husband or wife and those around you can be the best encouragement for your kids."