If you've listened to The Millionaire Choice Show, then you probably already know that I have six kids. No, I'm not insane, but some days I do think I'm two kids past my limit! My oldest son is 22. My youngest son is 10. I have another son that is 18, and three daughters who are 17, 14, and 12.
While I've been learning about money since I was 25, I can't say I have everything figured when it comes to teaching kids about money. I'm learning.
Like so many of us, we copy what was modeled for us as children. In my case, I learned to work hard, do a good job, take pride in my work, and blow all my money with no plan for the future. I don't really want to model that for my kids.
Since I adopted a debt free mindset, my kids have picked up on it as well. We've done a good job of not spoiling the kids, and we've done a good job of not buying a lot of useless stuff. For the most part, the kids are frugal and don't expect to get the latest trend in clothes, sneakers, or anything. When it comes to electronics, they get the hand me downs. When mom gets a new laptop. They get the old one. When dad gets a new laptop, they get the old one. The same goes for phones. My oldest son is still using an Iphone 5. Hey, it works. It's cheap. My 2nd son wanted a newer phone after his went on the fritz. He opted for an iPhone 10 for which he footed the bill.
During my childhood, I would often beg for treats at the grocery or department stores. Money was tight, but my mom couldn't refuse. I knew it, and I worked it. Looking back, she should have just spanked me...a lot. I deserved it. With my kids, I opted not to reward bad behavior like begging. It's best to nip it quickly before the little ones learn bad habits.
I chose to be very clear that if we went into a store for something, that was all we were getting. It didn't stop the kids from asking, but it made my response much easier. "Did we come in here for that? No. Then we're not going out of here with that." Very clear. Candy of course was their most common request, but the message was always the same. I've lightened up on this a little bit more recently when one of the kids wants to go on an errand with me. A trip to Home Depot might be worth a pack of twizzlers or a push pop. A trip to our new house with my oldest daughter usually ends up with a stop by Andy's Frozen Custard. Always in moderation. I don't want the kids to take anything for granted. You get the picture.
Regardless of your upbringing or current financial situation, making sure your kids have good money principles will be valuable for them for the next 75+ years of their life. There are very few things that we, as parents, have as much power to shape our children's futures with as money.
Teaching the Basics
I believe in keeping things simple when it comes to money and kids, but DO NOT underestimate the power you have right now to impact the lives of your children. Just a few small lessons can make a huge difference, but the habits they form will be key for really empowering their financial future.
Learning to Make Money
One of the first things a kid needs to learn is where money comes from. If you give them money, they learn that it comes from you. If they steal money, they learn it comes from stealing. I've had to deal with this in my house a few times, which brought about the lesson of learning to protect your money and the lesson of punishment for taking someone else's money! The lesson we really want to teach is that money comes from working and earning it. Early on, I would pay my kids in quarters. Every time they completed a job, they would get a quarter. Instant gratification. Later, we tried $1 poker chips and let them redeem the chips. This allowed them to build a paycheck of sorts and redeem it for cash. I've never been terribly good with the structured model of chores in our house. I believe there are things that just need to be done. Kitchen, dishes, rooms. All of that stuff needs to be done because you live in this house and it is yours. Take pride in your home and take care of it.
I've done much better for task and small jobs payments that are outside of the standard house routine. There's always plenty of this stuff around the house to do, and it's okay to pay to get it done. Specifically, cutting the grass. My oldest son's first job was cutting our grass. When he turned 16, I fired him and told him to go get another job. I hired his brother, then 14, to be my new lawn care guy. I wanted to push him out of the nest a bit.
It's amazing how much money kids can accrue through birthday and Christmas gifts! Be sure to set aside portions of this gift money in larger chunks so the kids don't get spoiled thinking the money they need comes in the forms of gifts. Most of the money should be place in an investment fund for their first car or other future needs they may have.
Learning to Manage Money
It's a little bit of a challenge, but teaching your kids even a simple budget when they are 16 or so is huge. I missed this opportunity with my oldest. We created his first budget at 18 to help him understand his expenses for college. His words, "I wish you'd done this with me sooner." Well, no one helped me put my first budget together, so I didn't have a model to copy for when to help kids learn to budget. Not a great excuse, but change and doing things differently isn't easy.
As soon as possible (ages 13-16), setup a checking account and start letting your kids get used to handling and managing their own money. Giving them some expenses to manage and pay is a really big deal in teaching them financial responsibility. You don't want to be their financial handler for very long. The sooner you can migrate them onto being their own financial manager, the better. And please, don't keep bailing them out of problems in their 20s. You're just going to be enabling them and delaying them from getting on a good financial path.
Learning to Multiply Money
Many people don't learn to invest their money until much later in life. As every savvy investor will tell you, time matters. The longer your money is invested, the better it is. The more time it has to multiply.
For kids, you have a couple of great options to get them started.
Custodial Account: You can setup an account in your child's name under your management. I prefer eTrade due to fees, but you can use any reputable provider. Once you setup your account, work with them to look at some stocks. I used a simple process of letting them name 10 companies they are interested in. Usually these are brand names they know and are familiar with. In many cases, the stocks they name are stable and viable investments, or they wouldn't be in business, and they wouldn't be on your child's list as a good brand. After you have your list, help them do some research on the company using a tool like finance.yahoo.com. How's the profitability of the company? Is it trending up or down? Is the company facing any trouble in the future? Do they have any new products coming out?
ROTH IRA: If you're kid is of working age and gets a W2, then you could help them start a ROTH IRA or Standard IRA. You could fund it as the parent up to the amount of income they had that year. I like this idea because it helps your child have a sizeable chunk of money set aside at a very young age and helps them to switch on the prep for retirement part of their brain. For many workers, that switch doesn't get flipped until much later in life.
Get Investment Smart: Get your kids some investing material that interests them. This could be a podcast, or youtube channel. Require them to watch a few of these every once and a while. Last year, I started having my 10 year old start watching cryptocurrency videos on youtube. Once you get your child moving in a direction, keep putting coals on the fire so that their fire doesn't go out. Feed the flames!
Wealth Building Key for Teens
One of the greatest tricks I've uncovered for teaching kids about money is don't start with budgeting. Budgeting is boring. Start with investing. Once your kid learns about investing and it clicks, the sky is the limit. Kids are brilliant and once they connect the dots with investing, they'll figure out things you probably can't imagine.
Once investing is ingrained in their minds, all the other principles of money will begin to fall into place. They can develop an 'invest first' mindset, which will naturally restrict their spending, and give shape to their spending plans. Teaching kids about how to build wealth though investing is one of the critical steps of financial education. It may be the most important one!