Personal Finance

Teaching kids about ‘invisible’ money

An altruistic child may chose to save some money for a good cause.
An altruistic child may chose to save some money for a good cause.

Being in the financial industry, I am reminded daily of how financially troubled our society is.

Debt levels are extremely high, bankruptcies are commonplace and too many families are just scraping by living paycheck to paycheck. Even folks with great careers and six-figure incomes have trouble managing a monthly budget and being prepared for emergencies.

How did we get here?

Well, for starters, we were never taught about financial education in school, so what we did learn we picked up from our parents or friends and the rest was learned through trial and error. For kids today, the same dynamic exists but it is even harder to navigate because money has become almost completely intangible.

It seems kids today have no concept of money or how it works. All they see is Mom and Dad swiping a card at Target or pushing a button on their phone and Amazon boxes full of stuff just magically appear on the doorstep.

So how do we teach kids about money when it is invisible?

We have to be intentional and must look for teachable moments and create them where we can.

We need to create a scenario where kids make and manage their own money before they are out in the real world. We want them to learn and make mistakes while the stakes are lower so that they don’t get into trouble as adults.

We need to create a “payday” or “allowance” for them to practice handling money. Whether the pay is tied to chores or not is up to you, but every resource I’ve seen on this topic shares the theme of teaching kids to work.

Kids who don’t understand the value of work grow up to be enabled, unhappy and incapable of facing a challenge or managing money on their own.

As with most things, the sooner you start the better. Kids as young as 3 to 5 years old are very interested in money and can grasp basic concepts – you need money to buy things, money is earned by working and sometimes you have to wait to get what you want.

Children are sponges that are eager to soak up information.

They want to know about money, mainly because money can lead to new stuff (they love stuff!) so use their curiosity to your advantage. You can start paying them for short, simple chores in cash and let them spend it on what they want. They will start to understand how much things cost and learn that money is a finite resource.

Kids as young as 6 can grasp the concept of saving and by 13, they probably have some specific things they want to save for – cool shoes or jeans, phones, tablets or other devices.

If philanthropy is a value you want to pass down, you can start teaching them to give at this age. Start the habit of dividing each paycheck up into what they will give vs. save vs. spend.

By the time they are 14, they should have a checking account and be paying for most of their expenses themselves. You take the amount that you would normally spend on them for entertainment, clothing, and other needs and put that in their checking account each month and let them manage it.

If they spend it all on a pair of designer sneakers in the first week and have no money to go to movies with friends later, they hopefully have learned a valuable lesson and will do better next month.

If they feel they need more money than what is allotted each month, encourage them to figure out how to make more. They can babysit, dog walk or get a real part-time job to supplement their income. This will teach them grit, independence and a can-do attitude.

When they are ready to leave the nest, you want them to have some work experience, understand how to handle money and know how to think ahead to make their paycheck last.

Like with most things, the sooner you start the better. If you can ingrain a behavior early, it will stick better.

Kids who grow up with a good education around money with healthy habits will grow into adults who are less likely get stuck in a dangerous debt cycle, are better prepared for emergencies and have the surplus to give to charity and support their communities.

Jamie Bosse is a Certified Financial Planning professional as Financial Planner at Aspyre Wealth Partners. She also is a board member of the Financial Planning Association of Greater Kansas City. She is the Author of the children’s book, “Milton the Money Savvy Pup: Brings Home the Bacon. “