3 Tips on Teaching Kids About Personal Finance

by admin

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Finances.  We are going through a major revamp of our family’s finances right now.

Who invented these things anyway?

Who invented these things anyway?

Running a family of 9 (we have an extra relative living with us right now too) is something beyond the ordinary today.  There isn’t a ton of wisdom out there on how this is supposed to work, because there aren’t a ton of families left in North America anyways, that have this many kids.  But as we walk down this time of change together, I find I have a renewed passion to teach my kids how to handle money.  I don’t want them to have to wait until they are 40 to figure out what I know now.  I hope neither do you.

Here are some ideas you can use that I have come across that can really help with trying to educate your children to manage their money well.  Honestly, I think this may be a skill more important than anything any of them will learn past the age of 12.  Because it affects everything about their lives – from marriage prospects, to comfort, to freedom to pursue their dreams, to being able to be the kind of generous, helpful person they want to be.

Tip: Give-Save-Spend Jars

Swiped this pic off Etsy - seriously, who would pay for jars when you can wash out a jam jar and write with a jiffy marker?

Swiped this pic off Etsy – seriously, who would pay for jars when you can wash out a jam jar and write with a jiffy marker?

There are a ton of different tools that are available to help teach this, but I took it upon myself to make a shelf from scratch to hold all our kids’ jars.  The idea behind this is simple: any money they get should be divided – set aside some for savings, some for giving to charity, and some for themselves.  This is budgeting 101 for us adults (sadly, it is a lesson I have been impervious to for a long time).  Thinking of others with each bit of income we have encourages generosity and results in confidence, kindness, empathy, and I’d argue, even lowers stress levels.  Setting aside money for savings builds into them the important skill of living on cash instead of credit – who would use a credit card when they have a couple thousand in cash saved up?  And the spend jar is open season for them to use – any time anyone goes on a budget they need to set aside some for “spending money” or they will NEVER stick to their budget!  Goes for adults as well as kids!  If I see my kids put money in their spend jar, I make sure never to limit them from using it, so they know that this isn’t about control, it’s about valuable habits.

Tip: Not Allowance, But Commission

Way better than paper money.  Sorry America.

Way better than paper money. Sorry America.

Lots of people give allowances.  I used to get one.  But then I read in a book, I think it was one of Dave Ramsey’s books, that allowances feed entitlement.  It teaches kids that they should be rewarded for simply existing.  I know I am getting to be a crotchety old man because “that’s exactly what’s wrong with people these days!  My taxes shouldn’t be going to a bunch of bums and spendthrifts!  The world DOESN’T owe you a living!”  Don’t worry, I don’t take that tone with my kids… ok.  I do with the older ones.  I am so old…

Anyway, Giving them commission basically works like this: instead of giving them a flat $X every week, tie it to chores.  Meaningful contribution.  I set up a chart for them, where the baseline is clean your room, and pick one basic chore.  Those are the cost of living in my house.  BUT every chore they do over and above the “basics” they earn either $1 or $2 for – to be paid out immediately.  I keep a jar of $1 and $2 coins (Canada is awesome), and pay it out as they do it so they get instant rewards for earning.  Helps hold their short little attention spans… plus when they see their brothers earning money, often others will jump in and ask to do one too so they can get some!

Tip: Ban Credit

I refuse to link to this person who actually gives away printables, so you can teach your child to go into debt

I refuse to link to this person who actually gives away printables, so you can teach your child to go into debt at 20% or more! Might as well come with a baggie of white flour so you can teach them how to snort coke!

As I have begun to hate debt, I have been trying to figure out how to create teachable moments with the boys.  One thing they often ask when we are out and about is when they see something they want, they will say, “If I do these three chores when I get home, can I get this now?”  Or some permutation of that offer.  The answer is always “No.”  That is debt: get something now and pay later.  Do you get a paycheque before you work for a company?  Nope.  (Although the advent of payday loans means a lot of us adults are trying to be children pretty freaking often, and paying ridiculous amounts of interest for the privelege!)  I have even gotten so brutal as to say I will not buy it for them unless they have the money on them.

Now, to be fair, I have also said that if they want to get something that is a little more on the expensive side, if they save up most of the money for it, they will find I am generous enough to reward their effort by kicking in the last few bucks. Or cover the sales tax if they only have exact change.  I’m not an ogre.   But I do hope that these things pay dividends for my sons, and I hope that they will for you too.  Money is no joke, and I am still kicking myself over not taking that advice I heard way back in the day: if you save $100 a month from age 18, you will be a millionaire by age 58*.  If you wait 7 years, to age 25 to start saving, you have to save $100 per month to hit it by 65 you lose 7 years off your retirement.  If you wait to age 40, you have to save $600 per month to hit it by 65!  Going back to age 18 savings, you know how much you have at 65?  Over 2 million!  What did I spend that $100 per month on back in the day?  Nothin.  Junk.  Nothing I have today that I consider of any value.  I can’t even point to an experience I had between the ages of 18 and 24 (when I got married) that had a $100 price tag on it.  Waste.  If I can get my kids, even one or two of them, to become savers and not live the stupid broke life I have lived, I’ll be happy. (If you want to play around with savings here is a good calculator that will give you some object lessons to work with)

* All these numbers are based on the average long term rate of return on mutual funds over the last 75 years – 12%.

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