How many people do you know who have no idea about money? Often, money is a hush-hush subject in households, so when it comes time to move out on their own, new adults are not prepared for what awaits them. I asked my 10-year-old the other day what a good topic for this blog would be and he said “teach kids about money early.”
I became obsessed with personal finance when I was pregnant with my 2nd kid in my late 20s. Mr. Bean and I both grew up in families that didn’t go into great detail about the importance of savings and investing but we knew the basics and made sure to follow them:
- Don’t spend more than you make
- Pay all your bills ON TIME!
- Put some money into your retirement account at work
As we became older, we realized our parents never really got to learn much about personal finance beyond the basics either. Like many, they were working off what they knew and doing the best they could while raising a bunch of kids in the process.
As I soaked in blogs and books on personal finance during that pregnancy, I decided that I wanted my kids to know more about personal finance than the generations before them.
Here are some of the key things we have done to teach our kids about money:
Talk About Everything
Any time I sit down to do anything money-related, I encourage the kids to come to sit by me and I’ll talk through what I’m doing. It gives them a chance to not only see what needs to happen as an adult but also allows them to ask questions about how, why, and when things need to be done.
I have done this since they were little. Yes, it is so much easier to just tell them to go away because I need to concentrate but most of the time, they may only sit to watch for a few minutes before they run off to do something else. Oftentimes, they will have questions about what they saw me doing later in the day, or even later in the week.
I make sure to answer these questions as honestly as I can in terms that are appropriate for their age but not dumbed down to baby talk. Kids are smart and can comprehend way more than some people give them credit for.
Have kids join you when:
- Paying bills, when they get older they can help do the math for the bills too
- Setting up new accounts
- Depositing checks at the bank or via mobile apps
- Looking at investments
- Paying taxes
Let Kids See Bills
When we moved into our new apartment a few years back, Mr. Bean and I noticed that our power bill kept growing, especially when Covid started and we were home all the time. The main things we could think of were things the kids had control of:
- Lights left on
- Chargers constantly plugged in with nothing charging
- The TV always running with no one watching it
- AC running on a perfectly windy day
So we decided to get the kids involved with the power bill.
We looked back at historical bills, before the jump, and found that the lowest month was around $80. From there, we added a little bit of wiggle room and told the kids we would expect to pay $100 a month for electricity. (At the time, our highest bill reached $138) If the bill was lower than $100, they could split the difference, but if it was higher, they would have to pay the difference.
We then went through the house and told them all of the simple things they could do to bring the bill down. The next month, our bill was $82! After a few months, they even got the bill down to $68!
The kids loved earning money and made the effort to find more ways to save power. Now every month, they keep an eye out for the power bill to see how low they got it. It gives them an opportunity to:
- Make money, and divide it amongst themselves for their savings vs spending funds
- See how bills work
- Understand that they can control their bills through simple actions
- Pay bills via Bank App Bill Pay (sometimes I have them set up the payment on my app)
Teach Kids About Investing
The magic of compound interest works best when you have a lot of time for it to work.
With a conservative 8% interest rate over 50 years, $1 can become $55 without ever adding another dollar.
We opened a brokerage account, under our names, designated for each of our kids when they were young. We have them simply invested in a VTSAX Total Stock Index Fund so it can just grow and track the whole domestic stock market. Every month, we put in a few dollars. But we have told our kids about these accounts and encourage them to put 50% of whatever money they receive in the account as well.
- Birthday/Christmas Gift Money
- Power Bill Money
- Any monies they get doing small jobs for neighbors
Teach Kids about Taxes
How many kids start their first job and are in shock when they receive their first paycheck? Teach kids about taxes. Plan for about 30% of any paycheck to go towards taxes.
If you run your own business, dog walking, YouTube channel, anything, plan to put 30% of every check into a high yield savings account for tax time. So many small business owners freak out every spring because they owe money at tax time and didn’t put away anything through the year to pay it.
Earning money is great, but know that a portion of every earned dollar will be claimed by the government.
Save for Large Purchases, No Debt
In this age of instant gratification via the internet, it is so easy to want things and expect to have them NOW.
But wait Veruca darling, you can’t have everything now.
Teach kids to save for what they want. This will make them value these items even more.
If they want a new RC car, don’t rush out to get it for them right after they saw the ad on YouTube.
- Have them research more about the items
- What’s the best quality?
- How much should they cost?
- Read Reviews
- Save Up for the item
- Save gift money
- Work extra chores around the house or neighborhood to earn money
- Look For Sales
- Is there a better time of year to buy the item?
- Does one store offer lower prices?
Teach kids to research, save, and wait for their purchases. That way, when they need to make larger purchases, like cars and houses, in the future, they will know how to get what they want without racking up loads of unnecessary debt.
Purchase Price Is Not the Only Cost of Things
Help kids realize that the purchase price of an item is not the only cost associated with it. If you buy a car you also have to pay for:
- Maintenance Costs
- Insurance
- Gas
- Upgrades, if you choose
If you get a $10 hamster at the pet store, you also have to pay for:
- A cage, toys, and bedding
- Food
- Vet Visits
- Time playing with it and cleaning its cage every week
Every time you decide to bring something into your life, you also bring the associated costs as well. Teach them about these expected expenses.
Let Your Kids Know What You Plan to Help Them With
Are you planning to help them with certain purchases/expenses? Or not?
Discuss with them what you plan on helping with and how much of the cost you are willing to cover. Here are some examples of purchases/expenses that you may choose to help them with:
- Buying their first car – maybe you plan to give them $5,000 and they need to come up with the rest if they want a more expensive option
- College – even if you have a college fund for them, you could encourage/assist them in finding scholarship/grant monies as well. If they get a full ride, then their college fund could be a nice graduation gift.
- Living situation – could they still live with you and pay rent after graduation instead of moving out to save money?
- Insurance – are you able to keep them on your health insurance until they can find their own benefits?
- Wedding – if you plan on kicking in some monies for their wedding, let them know how much so they don’t plan a Bollywood party when you’re contributing a Red Lobster budget unless they plan on making up the difference
Keep in mind that you need to be in a situation that is financially feasible for you to assist without compromising your own financial status/retirement.
The best gift you can give your kids, other than arming them with the knowledge they need to succeed, is to ensure that you are financially secure in your retirement years so that you do not become a financial burden on them.
Wrap Up
The bottom line is that your job as a parent is to raise a kind, healthy, contributing member of society, don’t raise an unprepared adult. 🙂 Help them to feel confident as they enter adulthood, more financially aware than most of us were when we left home.
Start by teaching them these adulting financial skills:
- Basic Money Rules
- Don’t spend more than you make
- Pay all your bills ON TIME!
- Put some money into your retirement account at work
- Talk About Everything
- Have kids join you when:
- Setting up new accounts
- Depositing checks at the bank or via mobile apps
- Looking at investments
- Paying taxes
- Paying bills, when they get older they can help do the math for the bills too
- Have kids join you when:
- Let Kids See Bills
- Let them know how much things cost
- See how bills work
- Understand that they can control their bills through simple actions
- Pay bills via Bank App Bill Pay or writing checks
- Teach Kids About Investing
- Long term investing and the magic of compound interest
- Teach Kids about Taxes
- A portion of every dollar earned will go to taxes, plan for them if self-employed
- Save for Large Purchases, No Debt
- Have them research more about the items
- What’s the best quality?
- How much should they cost?
- Read Reviews
- Save Up for the item
- Save gift money
- Work extra chores around the house or neighborhood to earn money
- Look For Sales
- Is there a better time of year to buy the item?
- Does one store offer lower prices?
- Have them research more about the items
- Purchase Price Is Not the Only Cost of Things
- Every purchase creates Expected Expenses
- Let Your Kids Know What You Plan to Help Them With
- Car
- College
- Living Expenses
- Insurance
- Wedding
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