Parents with young children often ask themselves what their child needs to know about money and how to teach that to them.
First, you don’t have to tell your kids “Money is important.” Once they connect money to food, shelter and how many presents they get, they will get that point. Next time they are thirsty and the only options is to buy a drink, they will clearly see that money is a fundamental part of civilized life. But there are some basics that are helpful to learn. Here are eight of them.
- “You can’t always get what you want.”
The Rolling Stones were right. You can’t always get what you want.
My friend even sang that Rolling Stones song to his daughter one day after she had seen a very attractive bicycle in a store that she wanted. She asked for the bicycle, then demanded it. My friend simply sang, “You can’t always get what you want,” until his daughter, from her car seat, sang back, “You just don’t want to pay for it.”
2. The sooner you start saving, the better
As financial adviser Dave Ramsey has suggested, you might want to “start slow” when talking to your kids about money and that means start at square one with a piggy bank.
Nowadays, some even suggest ditching that old piggy bank and finding a clear jar or a plastic container that allows the child to watch that pennies add up as they save.
3. We’re all in this together
Sure, some people live on their own and there budget is their own affair, but in a family a budget is a family affair. The same salaries that go for skating lessons for the pre-teen pays for the guitar lessons for the teenager. Children need to see that a budget isn’t all “me, me, me.”
One way to do this is to use the play money. Count out the family’s monthly income with Monopoly money: Mom earns X and Dad earns X. Put that pile of money on the table and then start talking about expenses. Subtract the rent or the mortgage. Count out the grocery bills. Take out car payments, then money spent on gas and electric. Take out for clothing, taxes and education – all the way down the line to the savings for college or retirement.
With this method, your child can see where your income shrinks to where there is only so much left for movies, toys and other luxuries.
4. Balancing the accounts
These days, the computer and the Internet have eliminated the need for some folks to learn how to balance a checkbook. But it is still a vital skills to learn and teaches the basic ebb and flow of a budget in real time. If you spend, it has consequences. If you save, that, too, has consequences.
Balancing a checkbooks is a good time to promote honesty. This is a critical part of teaching kids about money, David Ramsey says. Always “be honest.”
This is because checkbook balances never lie. If you spent money frivolously, your bank balance will show that. Kids need to learn this lesson early.
5. Money is connected to values
Earning and spending are both connected to you values. Earning $1 million each year is a reflection of your good fortune, but it also tells us about how you spend your time. What you do with your money is a reflection of what you think is important in life.
Lending can provide personal and economic growth. It can also help your business grow.
Of course, when you borrow, you pay interest on that loan. But when you save or make certain investments, you earn money on that, too.
This can be a very tricky lesson to teach to a child, because the interest is often invisible. When you make a loan payment, you rarely send two checks – one for the principle and one for the interest. But from a child’s perspective, this would be a more realistic and tangible way to teach how interest works.
7. Planning conservatively
Managing money is not an accident that happens because some people instinctively save and others instinctively spend. Saving is a result of money planning, while spending indicates a lack of planning.
This lesson is not only useful with money, but with other aspects of life, as well.
8. Supply and demand
Why does an ice cream cone cost $8 at a vacation resort and $2.50 back home? Supply and demand. In vacation spots, the demand for ice cream is higher, so the price goes up.
Supply and demand is the underlying principle for pricing everywhere. Without this basic understanding, your ability to make financial decisions is limited. Prices for ice cream, cars, houses and stocks on Wall Street all pivot on this basic concept.