Give Your Kids An Edge – Teach Them About Money Early In Life
I believe that a major cause for the financial problems that many Americans face is directly tied to a lack of money-related education earlier in life. If you set a good example, and start educating them early, you will give them a significant advantage when they begin their own lives in the real world.
Admittedly, my experience in this process has been limited so far. My son is only 2 ½; we haven’t successfully potty-trained him, much less taught him all those important lessons about money. But that time is coming, and I want to be ready.
Not only do I want to help my son make good financial decisions to improve his quality of life, but this knowledge may someday protect the financial lifestyle that my wife and I want for us. No doubt there are countless examples of situations where the parents’ finances have been significantly impacted by the poor decisions that their kids make.
The following outlines my plan to educate my son on some important lessons about money. I invite any comments from those experienced parents and grandparents on any other useful tips you have found.
Age 3-5:
At this age, I’m not going to try too much; I just want him to be aware of what money is and what it’s used for. Perhaps my first rule will be: Don’t eat the money (I never underestimate his curiosity). Next, I will most likely just dump some change on the floor and let him have fun sorting the money into sizes and colors.
Later in this age group, I may introduce the use of money by letting him put coins into a vending machine or hand money to a cashier at the store.
Age 6-10:
By now, he should understand the differences in the value between coins and bills and other basic money-related concepts. Most of this is taught in schools, so I may not have to do much in this area, but I will verify that he understands it. He should also begin to understand what things cost (e.g. a TV is more expensive than a hamburger).
Starting with this age range, I will introduce an allowance. I believe an allowance is a good method to teach kids about spending and saving. It will be his money and his decisions about how to use it. I will let him make mistakes so that he learns from them.
There seems to be some debate about whether an allowance should be earned or given freely without condition. I don’t think there is a right or wrong answer here, but I am not going to tie chores to his allowance. I feel that it will be his family responsibility to clean his room or help with dishes, and not a requirement to get paid each week. I think of this “give-away” as a good investment. If you go to a ballgame and they want to buy one of those big finger gloves, let them, as long as they use their own money. They want a new bike? Sure, if they put in half (doubt they will want the most expensive one now). This not only helps them, it helps you save money.
In order to help make the work/pay connection, at this age I will start giving him simple projects to help around the house for extra money (raking leaves, cleaning windows, etc).
The next age group (11-18) is a much bigger topic in of itself which is why I am going to end here and cover that group in its own post.
As always, if you have any comments or ideas on what has worked for you, please post them – they are greatly appreciated.
Kevin Jaegers, Senior Investment Advisor
