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Written by: Corey Janoff

Listen Here!

As a parent and a financial advisor, I feel a duty and obligation to teach my kids about money.  It will be embarrassing for me if my kids are not knowledgeable about money and finances by the time they are adults.  These 11 ways to teach your kids about money will help guide parents as you work on educating them about their finances.

Along with your kids’ knowledge, many of you are probably curious to learn effective ways to teach and save for your children as well. We all want to see our kids grow up to be successful adults who make smart financial decisions.

Lets dive into things…

1. Talk to Them About Money & Purchases

It all starts with communication.  You need to talk to them.  When you want to teach your kids proper manners at the dinner table, you talk to them about how to act at mealtime.  If you want your kids to learn about money, talk to them about it.

When you’re at the grocery store, point out the cost of things.  For example, if you are buying Cheerios, you can look at the cost for the regular sized box and the family sized box.  Show them the difference in gross cost between the two sizes and show them how to identify the cost per ounce (hint: it’s usually listed on the shelf’s price label in smaller print).

The regular size may be 12 ounces and costs $4 for the box.  The family size may be 18 ounces and cost $5.  While the family size is more expensive than the regular size, the cost per ounce is actually less ($0.27 versus $0.33).  However, we do not want to be wasteful, so if you aren’t going to eat the entire family sized box of Cheerios before they go stale, then you are probably better off with the regular sized one for a lesser total cost, even though the cost per ounce is higher.

As kids get older, you can open up a bit more about the cost of goods and opportunity cost.  Opportunity cost is money spent on one thing cannot be spent on another thing.  With limited resources, we must make decisions on what to purchase.  Maybe you tell your kids they can spend $200 on new clothes for the upcoming school year and go shopping with them.  They could either buy a lot of cheap clothing, or fewer clothes from a brand name.

2. Establish a Token System or Sticker Chart (Young Kids)

This is actually something we had done for our 4-year old.  The idea of money is a rather nebulous concept for young kids.  Creating an easy-to-understand tangible currency is helpful.

We got a jar and some disc-shaped wooden tokens that are about two inches in diameter.  If our son listens and does what we ask of him, we will give him a token.  If he plays nice with his younger brother without hitting, shoving, scratching, choking, or otherwise harming baby bro, we’ll give him a token.  If he helps clean up all of his toys when we ask, we’ll give him a token.  If he puts up a fight, no token!

He can use his tokens to buy things he wants.  For example, there was this toy Mack truck and Lightning McQueen car from the movie, Cars, at Target that he really wanted.  We told him that he needed to earn 15 tokens before he could have it.  It took him about three weeks to earn enough tokens (the struggle is real in our house).

Some parents will do a similar thing with sticker charts.  Put a chart on the door of their bedroom or on the fridge and reward your kids with stickers.  Once they get enough stickers, they can go get ice cream or get a new toy or something.  Whatever you want to offer.

This helps teach the concept of earning things and exchanging currency for stuff you want.

3. Give Kids an Allowance

As kids grow a little older and can understand paper currency, you can graduate from the token system and start offering an allowance.  You could tie the allowance to household chores, or simply give them a set amount per week.  Make sure it is in cash so they can physically hold and count it.

Teach them about the importance of saving some of that money over time.  Maybe with a six-year-old you start out giving them a dollar per week. Maybe that feels too stingy, and you make it $5.  Whatever you want.  Like the token system, they will have to save up their money to buy things they want.  Which leads us into the next point…

4. Make Kids Pay for Things They Want

We don’t want our kids to grow up spoiled and think they can automatically have whatever they want.  We’ll provide the necessities, but for certain “wants” we will make them pay for it.

You want to get that new video game?  Start saving.

This is no different than what we discussed in the token system or the allowance section above.  The whole point about giving them money is to teach them how it works.  You can either spend it immediately on something inexpensive that you want today, or you can save up over time for something grander.

5. Play Monopoly or Other Board Games

Monopoly was one of my favorite board games growing up (still is).  In addition to being a classic, it does a good job teaching money concept.  Accumulate cash to buy properties.  Put houses and hotels on the properties to charge people rent.  The more houses/hotels you own, the more money you get when people land on your property.  Certain properties cost more, but also generate larger rent payments.  You must invest money to make money.  Trade properties with other people to create a monopoly on a section of the board and watch the money pile up.  Make your kids be the banker to learn basic match skills (but keep an eye on them so they don’t cheat!).

There are plenty of other money board games out there you could explore to find ones that interest you and your kids.

6. Video Games That Incorporate Purchasing Goods

Video games can be a great educational tool if you get the right games.  I learned to type fast from a computer game where words would fall from the top of the screen and you had to type them to shoot them out of the sky.  The words would get longer and fall faster as the levels got harder.

Math Blasters was a great computer game I grew up on to learn math skills.

Plenty of other awesome computer and video games incorporate currency into the game where you can buy things to improve your success. The US Government even has a website devoted to games to teach kids about money.

For example, in some turn-based strategy and role-playing games, when you come across a foe and fight them, if you win, you get the money they are carrying.  You can take that money and use it to buy better weapons or skills, so you are better equipped to face bigger and badder foes.  You learn about opportunity cost as you can only buy so many things with the money you have.  Do you spend your money on a new sword that delivers stronger blows, or a new shield that better protects you against hits from your opponent?

Even racing games often incorporate money – you get prizes for winning a race and can use the winnings to buy enhancements for your vehicle to be even more competitive against stronger competition.

Many video games involve currency and stores, even though teaching money concepts isn’t the primary goal of the game.

7. Make Kids Work to Earn Money

As kids get into their teenage years and the days of tokens and sticker charts are long gone, make them work for some money.  Make them get a part-time job to pay for their gas money or if they want to go to the movies with friends.

Depending on schedules and extracurricular activities, they may or may not have time to hold a traditional job.  If not, you could make them do chores on the weekends.  Mow the lawn, weed the garden beds, vacuum, clean the toilets, etc.  Manual labor is good for them.  Give your back a break.

There is no such thing as a free lunch.  Teaching your kids the importance of work ethic early on can be powerful.

8. Delay Purchases

When I was a kid, we would get catalogues in the mail.  If we wanted to buy something from the catalogue, you had to mail a form in and then wait 6-8 weeks for the item to arrive.  If we saw a commercial for a new toy, we had to beg mom to take us to Toys R Us.  We couldn’t just go on Amazon and have it arrive at our doorstep within a day.

If your kids say they want something, make them wait a little bit for it.  Heck, that’s a good habit to practice for yourself.  Rather than one-click purchases, save it to your shopping cart and wait three days.  You’ll be surprised how many items you put in the shopping cart you end up deleting because you decide you no longer need or want them.

The idea of delayed gratification is important.  If we get accustomed to having everything we want instantly, the joy of anticipation gets lost.  We also end up spending more than we probably should on unnecessary things.

If you make your kids wait before they can purchase something, they may decide they no longer want it.  It also gives you an opportunity to make they earn it, so they learn they can’t just get everything instantly in life.  They need to work for it and understand money spent on one thing is money that can’t be spent on something else.

9. Credit Their Savings Account with 1% Monthly Interest

An awesome strategy I like for older kids to teach them about saving, investing, and compound interest is through the Bank of Mom & Dad.  Open a real bank savings account with them.  However, rather than letting their savings sit there and collect dust, credit their savings account balance with 1% interest per month.  You can link your account up to theirs to make transfers easy.

If you want ideas on which savings accounts to open, visit www.bankrate.com to view online high interest rate savings accounts, that provide you with better interest rates than typical brick-and-mortar institutions.

As for your interest contribution as a parent, every month, log in with them to see what their balance is.  Multiply that by 0.01 and deposit that amount from your account into their account.  For example, if they have $100, credit them $1 after one month.  If they have $101 still in the account after two months, credit them $1.01 (0.01*101), for a total of $102.01.  After month three, if they still have the $102.01, credit them $1.02 (0.01*102.1).

As they add more to their account and leave it in there, the compound interest can really add up.  Maybe they have a birthday and deposit another $100 after month three, for a total account balance of $203.02.  The next month’s interest credit will be $2.03.

It can help to track it on a spreadsheet too, so you can easily see how the interest is growing over time.  As the kids start to see that compound growth and increasing interest credits from Mom & Dad, they’ll (hopefully) really be motivated to keep saving, rather than spending all of their money the moment they receive it.

10. Open a Roth IRA and Match Contributions

If your teenagers (or younger kids) are working and earning a real wage, they can contribute 100% of their earnings to a Roth IRA, up to $6,500/year (current limit at the time of this writing).  The Roth IRA might be the greatest investment vehicle ever invented, in my opinion.  Tax-deferred growth and tax-free withdrawals in retirement.  Love it.  In love with it.

For minors, you must open a custodial Roth IRA and contribute on their behalf. This blog post breaks down the details of opening, funding the account, and the rules with these.

I would plan on doing a dollar-for-dollar match for your kids and strongly encourage them to deposit 50% of their gross pay into the Roth IRA.  That way, they can keep some of the money they earn for spending, while still getting 100% of their pay into the Roth.  So, if they earn $3,000 working a summer job, have them put $1,500 of their own money into the Roth IRA and you match $1,500, for a total of $3,000 going into the Roth IRA.

You could take it a step further and let them pick the investments in the account too.  Get them interested in investing and learning about different types of investments.

For more advanced learning that also relates to investing early is the power of compound interest. The earlier and more frequently you invest, the better.

11. Enter a Stock Market Simulation Contest for Kids

When I was 12 years old, I won an online stock picking contest for kids.  We were given a set amount of play money on the platform to buy whatever stocks we wanted.  I think it ran over the span of about a month – short time horizon; kids have short attention spans.  Whoever’s portfolio performed the best over that span won.  I won a t-shirt that arrived in the mail and was way too big. Even though the shirt didn’t fit, I was pumped to win and have been interested in investing ever since.

There are plenty of stock market simulation websites out there and many have actual prizes you can win.  If some for kids existed over 20 years ago, I’m sure there are even more options today.

Doing is the best way of learning, so what better way to learn about investing than to actually do it.

In Summary

We all want our kids to make smart financial decisions as they leave the nest and are on their own.  If we do a good job teaching them about basic money concepts, they can hopefully become self-sufficient adults and not rely on us for monetary support.  No kid is too young to start learning about money.  Make money a comfortable topic to discuss with your kids.  Talk about it regularly.  Find fun ways to help them learn and enjoy the journey with them.

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