One question every parent faces is when and how to teach kids about finance. The reality is bad financial habits are hard to break the older we get. Also it is a proven fact that the older we get the harder it is for us to learn something new. So it is well established that we need to to teach them young.
The Issue with Starting Young to Teach Kids About Finance.
My mom use to have a saying when I was a kid, “You are only a kid once, you should not grow up too fast”. She often said this about me wanting to work full time in the summers in high school. Ultimately I did not listen. Instead I worked 40 hours a week the summers of my Junior and Senior year. As such I did miss out on a lot of time with friends that honestly might have been better spent at that age. After all 7 dollars an hour as a life guard for 10 weeks in the summer didn’t exactly set me on the road to wealth. I learned a lot in that job about the pros and cons of work. I’m just not sure those same lessons could not have waited until college. I believe I got obsessed about finance way to early.
While I use high school as my example, the reality is the risk to starting too early begins much sooner. My oldest son has a Bearnstein Bear book that touches on how to teach kids about finance. The simple premise is the kids start a lemonade stand to make money to buy some items. Ultimately they become obsessed and forget to play and have fun. I want my kids to not worry about money all the time and enjoy playing as kids as well. As such I obviously don’t want my kids to go to the extreme. Given their young, they are unlikely to have the self control to not go to the extreme. As such while we’ve established the need to start them early, the key here is to do it in such a way that money is not the key point. Learning about finance needs to be a side effect.
How to Teach Kids About Finance
I believe the single best way to teach your kids about finance is through games. You could use the old standbys of Monopoly or Life, or many of the newer strategy asset based games. In any case many board games tend to focus on the aspects of both investing and saving for the future as strategy to get ahead. However, the focus is not on how they specifically use and spend their personal money. As such we avoid the risk of them becoming obsessed. I’ve begun these games in lite versions already with my 5 year old. We got him a cash register toy this year for Christmas and I’m starting him on learning the game of life.
The Grasshopper and the Ant
An additional way I remember learning about finances are stories. The money related story and cartoon I remember seeing as a kid is the grasshopper and the ant. It had a very important message about saving and being prepared for the future. For those who have not read the fable or seen the associated Disney Cartoon, the story follows a grasshopper and an ant. The grasshopper fritters away all summer while the ant prepares for winter. Once winter comes the grasshopper is starving and only survives due to the good graces of the ant who lets him into his house and feeds him. This story particularly taught saving for the future and charitable acts.
This story had nothing to do with my drive to work full time in high school, and in fact did not lead to any obsession. It was just another story that I enjoyed. But it taught a life lesson that I obviously still remember. I plan on introducing this story and others like it to my kids over the next few years. I’ve already started with the aforementioned Bearnstein Bears book. With any luck the books and games will help them learn the power of saving and investing wisely while still having fun.
Older Kids Can Handle the More Direct Approach
Needless to say the above plan only goes so far. When my kids are in their teens the risk of obsession will be much reduced and the importance of them understanding their specific circumstances will increase. They will then need to know the impact of choosing a really expensive college, buying their first car, and other truly important individual financial questions. So my current plan has me bringing the conversation more specifically to finances when they reach their teenage years. At that point we will deal with things like allowance, first jobs, etc and have them balance money directly. Hopefully by then I will have enough content on this blog that I might even be able to reference some of it in the discussion. The clock starts now, I have 8 more years of content to kick out ;).
When did you start to teach your kids about money? What methods do you use? Do you have any board games subtly about money you might recommend for a 5-7 year old?
Always an interesting topic.
I agree that the best way, when they are young, is through stories and games. You may not realize it, but as you do this it is sinking in.
As they get older, I’d suggest setting up savings accounts and have them drop a certain amount of their allowance or other $ into it.
I also believe summer jobs for teenagers is an essential part of this. I have seen college kids who never had a job in their life (never flipped a burger before) get out, get their first job, and go crazy with consumerism, because for the first time in their lives they have “lots” of money. Better to prepare them for it early.
Having a service job (waiter, busboy, etc.) also teaches them never to treat these folks poorly. Too many folks treat waiters, servers, store clerks, etc. with contempt.
I definitely agree a service job before college is a necessity. A internship also seems to be the minimal requirement these days to high end fields.
I learned finance through some teaching (nothing formal) and some self learning. My parents taught me to budget, but didn’t tell me the inner workings of personal finance.
My parents were great examples of what not to do, so I guess you could say I learned by the (bad) example. But I have higher hopes that my kids won’t have to relive all my mistakes. Any recommendations on younger oriented resources?
I haven’t taught my son about finances since he’s still pretty small. However, there is a great board game that talks about mergers and acquisitions along with the stock market called Acquisition. It’s one of my favorite board games and definitely teaches about buy and hold 🙂
Thanks for the recommendation, I’ll have to check that one out.
Sorry – no board game recommendations. I think worked well for us though before our sons were ten and even into their teenage years was to teach them through example. Talk to them while you are at the grocery store about how you plan your food purchases for the week. Why you buy certain foods while they are on sale. Why it’s okay to buy generic/store brands of some things because they are the same taste/quality as the brand names. How to avoid over-spending on back to school supplies for things your kids may use once or never. And a big one, is that using credit cards to pay for purchases does not mean that you don’t have the cash in the bank to pay for those items at the end of the month. I think a lot of kids think credit cards are like coupons and you never have to pay for those items. As they get older, you can show them a cc or utility statement and talk to them about consequences and what happens when you don’t pay your bills (late fees, interest due, lights/water will eventually be turned off, etc.)
Above you said that you think you worked too much in high school. You can certainly scale back a PT high school job but earning your own money and deciding when/how to spend or save it is incredibly valuable and I think kids who don’t work even once before they go to college are missing out on a huge learning opportunity and perpetuating dependence on their parents.
I agree a job before college is a necessity. There’s just a fine line between forty hours a week and part time.
It’s hard to argue Monopoly as the board game of choice to teach kids about money (and don’t forget there are instructions for a shorter version in it as well).
My daughter just turned 7 and we’ve been playing that for the last year or so. She loves that game. I don’t make it too serious, but I do explain how this can (and should) relate to real life in building wealth. She doesn’t get every aspect, but she’s definitely on the right track.
— Jim
I loved Monopoly as a kid. Great suggestion and one I definitely plan on employing in the next few years.
A family member recently purchased me the Stock Exchange Expansion for Monopoly from the early 90’s. I can’t wait to break this out when my kids are older.
I’ve had many debates about this over the years and I have to say I’m very pro teaching finance younger. I worked in debt management for many years and you would have been horrified to see the amount of 18-21 year olds already in an IVA or even declared bankrupt. Up to three years into their financial life and they were already in tatters. I do agree it should be done through games and having fun, but older kid 16-18 really need to be prepared for what lies ahead. I was always obsessed with finance and making money as a kid, but that was mainly due to not wanting to stress my mum out asking for stuff I knew she couldn’t afford. There needs to be a balance to ensure they don’t become overloaded with information, but something must be done before they leave school and they are blindly thrust into a world of finance. Great post!
Thanks for providing your insight David.