By Amy Shepard, CFP
As a financial planner and a mom of three, I feel especially strong about teaching good money habits to my kids. Since they are all under the age of 5, I’m still figuring out my approach but, read on for three ways I incorporate money lessons into our family dynamic.
Talk openly about money
In age-appropriate ways of course! Kids should know that going to work has a purpose – it’s a way to earn money to pay for all of the things we have like our home, food, clothes, and fun stuff, too. We openly talk about how much things costs, how to weigh tradeoffs when something is too expensive, and how money is a tool that can be used to achieve our goals.
Explain how swiping your debit or credit card works so that your kids start to understand the connection between the bank, money, and swiping plastic. Show them your checkbook or your budget spreadsheet.
It doesn’t have to be anything fancy or formal – simply including them in the everyday discussions about how we use money is a great way for them to start learning how money works.
Let them practice
I’ve recently read a lot about the concept of a “no strings attached” allowance (I first heard about it via Positive Parenting Solutions). It was an eye-opener because I had previously thought that paying kids to do household chores made logical sense. However, there is quite a bit of psychological research that shows tying household chores to allowance can cause kids to become entitled – they’ll only want to do things if they get something out of it, like money.
The idea of the “no-strings-attached” allowance is focused on creating learning opportunities, particularly when kids are young and the money mistakes they make won’t have huge consequences. Here’s how it works:
- Starting around age 3 or 4, you start giving weekly allowance – perhaps one dollar for each year old (i.e., at 4 years old they would get $4 per week)
- Give them 3 clear jars – one for saving, one for giving, one for spending
- Each week when they receive their allowance, have a discussion about the 3 jars. Let them choose how to split up their allowance or set some ground rules such as at least a portion needs to go in each jar
- Other than some basic ground rules, give them free rein to make decisions. In the beginning, many kids will spend all their money on junk. Over time, they will start to realize that the junk isn’t satisfying. They’ll want to start buying more expensive and meaningful things, so they’ll have to start learning to let their savings grow. This can often take some time – that’s part of the process! The goal is to let THEM learn by DOING. Some kids catch on quicker than others.
Open their own bank account
As their three jars begin to grow, take a special trip to the bank so they can open their own savings account and deposit their money. Do this periodically as their jars get full. It’s a fun experience for them to go to the bank and deposit their own money. Plus, it helps them understand where money comes from when we swipe our debit cards. As their savings gets bigger, I move money into a brokerage account for them so it can be invested. My kids are a bit young for the details on investing, but for now, I simply explain that we put money in an account so it can get bigger for the future.
As they get older, the depth of our money conversations will increase. The key is making money conversations a normal part of our everyday life.
About the author: Amy Shepard, CFP®, RMA®, BFA™, MBA
Amy Shepard, CFP®, RMA®, BFA™, MBA is a Financial Planner at Sensible Money. She has been working with clients since 2013 and loves helping them create and implement a financial plan so they can achieve their life goals. She is involved in the CFP Boards Mentor Program and previously served on the board of the FPA of Greater Phoenix. Outside of work she enjoys spending time with her husband and kids – they have a goal to take a family picture in all 50 states!
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