kids about money and investing

How To Teach Kids About Money and Investing

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Most of us are probably among the crowd that wishes we’d learned how money works at an earlier age. I’d like to think that given the knowledge I have now I’d be much better off financially. The next best option to waiting for a time machine to be invented is passing the lessons we’ve learned about money onto our kids. As they grow up, it becomes more important to teach kids about money and investing.

With the ages of my kids ranging from early teen to college years, I’ve had a while to indoctrinate the value of money and why they should care about it. To that end, I’ll share the lessons I’ve taught them about the subject. If you’re not sure how to talk to your kids about money, hopefully this post will provide ideas on how to approach the topic.

The Value of a Dollar

To children, money is the thing they watch us hand over to the teller in exchange for toys, happy meals and amusement park tickets. Because the first lessons children tend to observe with money involve consumption, it’s important to occasionally step back and teach them the value of a dollar.

When we would go to the supermarket or mall, I’d explain to them that having a dollar spend really requires that you earn at least $1.25. I discussed the concept of taxes and how as an adult they would be subject to them. While I’d like to think they understood what I was talking about conceptually I couldn’t be sure.  So, just in case, I would regularly use an example that I knew would hit home.

The “Tax Man” Cometh

Whenever they got a treat like ice cream or cookies, I would be sure to take a bite first. When they complained, I would tell that it was a way for me to teach them about taxes. They probably didn’t understand federal income and state taxes but they definitely understood that part of their cookie was gone and there was little they could do about it.

Now I can just see your face now. It sounds like borderline child abuse to deprive them of a portion of their treat. But let me ask you, can you think of a more impressionable way to explain how taxes work?  If so, definitely drop me a line in the comments.  I’m always up for learning new ways to teach. My method also has the side benefit of being pretty tasty for me.

When children learn at an early age that they don’t get the entire cookie, it gets them thinking about how to make the most of the cookie that’s left. Even now, my oldest still remembers those “lessons”.

When children learn at an early age that they don’t get the entire cookie, it gets them thinking about how to make the most of the cookie that’s left.

Money is Tied to Productivity

Dollar bills are notes of appreciation that people or businesses give you when you do things for them. This is the mantra I would regularly recite to them. I’d tell them that earning money is actually pretty easy. All that’s required is helping people solve some problem they’re dealing with. The more people you help, the more money you earn.

I impressed upon them that it really doesn’t matter what you do for a living. It’s your approach that matters. You can be a janitor that cleans one building or you can own a janitorial company that cleans several. You’re still cleaning buildings but the scale of the approach and the money you’re able to earn is entirely different.

While I did regularly give the “you can be anything you wanna be” talk, I impressed upon them that certain careers are more lucrative that others. Outside of entrepreneurship, careers in technology, medicine, engineering and marketing are usually good choices. 

As awesome as the Internet is, we’re still in its infancy. Unless genome hacking becomes safe and legal, we’ll probably need doctors and nurses for a while. Engineering is a decent choice because someone has to design and build the future. I also mentioned marketing because there will always be a need for the person who knows how to create the thing that sells the thing.

It really doesn’t matter what you do for a living. It’s your approach that matters.

Give Them with Opportunities to Earn

Regardless of what they end up deciding to do with their lives, I regularly reinforce the importance of being problem solvers. It’s important to constantly look for ways to provide value to others. People that do that, never have trouble becoming wealthy.

When you talk to your children about the importance of productivity, it may motivate them to find ways earn money around the house by helping out. If they do, you should encourage it. It’s important to impress upon them that working hard has a tangible benefit to it.

When we moved into our current home, I wanted to get the lawn into shape. Because it was new, the lawn was filled with weeds that needed to be taken care of. I would regularly go out and manually pull weeds to slowly get the lawn into better condition.

Our youngest took note of this and offered to assist in the weeding work for the nominal fee of $5 per bucket. I couldn’t turn him down. 

earning money
Weeding the lawn

Based on the current state of the lawn, I’d say he did a pretty good job.

I’d encourage you to support your kids if they look for ways to provide value. That trait alone will go a very long way towards helping them be successful in life. Ambition is rare these days so always look for ways to foster and grow it in your children.

The Three Uses for Money

Probably the only thing worse than your children growing up to be debt-loving spendthrifts is having them turn out selfish and entitled. To help prevent this I’d constantly repeat a maxim about the proper use of money.

There are really only three things that any well-balanced person does with money.  They save it, spend it, and they regularly give some of it away. Several years ago, I opened investment accounts for each of them as part of this lesson. 

There are really only three things that any well-balanced person does with money.  They save it, spend it, and they regularly give some of it away.

As children, their “job” is to be a good student.  So, their means of generating income is not as straightforward as working adults.  However, I still want to impress upon them the three uses of money every chance that I could to reinforce this concept.  Therefore, we used the money they received from their grandparents, birthdays and extra chores. 

Whenever they had extra money, I encouraged them to spend some on themselves. To meet the giving requirement, I suggested that they use a portion of the money to do something nice for someone else. Finally, I’d have them commit a percentage of their money to their investment account.

Giving and Investing

For most children, convincing them to spend money on themselves doesn’t take too much work.  I do try to challenge them to think before spending it though. I encourage them to ask themselves the following questions:

  • Do I have to spend the entire allotment? 
  • Might I want to consider saving it all? 
  • Is the purchase something I can delay? 
  • Do I really need what I’m about to buy?
  • Does the item represent good value for the money? 

As you can imagine, giving and investing are much harder teaching points for kids because it requires that they think about someone else and about their future.  Two nebulous concepts especially since children are mostly ego.  For them it’s all about “ME, ME, ME”. 

For the giving aspect, I would always tell my kids that you give money away to benefit other people and yourself. When you’re a giver you’re subconsciously telling your brain that there is always enough surplus. 

Focus on Giving

You’re reinforcing the importance of helping someone other than yourself. This is a great way to help your children develop a mindset of abundance.  It also encourages kindness and selflessness, both valuable traits in future leaders. 

Specifics on Investing

 Investing was probably the most difficult lesson to teach them. It’s difficult to impress upon most children the power compound interest and dividends. What seemed to work was relating the story of the golden goose that lays eggs.  I would tell them that investing allows you to create this goose or money machine that will create income without any real work on your part.  The only way the process works though is if you continuously feed the goose. The sooner you start, the more eggs it will lay for you.

As they became teenagers, I believe they got it because when they would get money, they’d ask me to put some of it into their investment account without my pushing them to do so. I’m glad that my story seems to have worked well enough to cause them to regularly invest. Let’s just hope the habit of investing holds out when they become adults, especially when they are surrounded with advertising that highlights consumption over saving. 

Another method I used to drive home the importance of investing is by occasionally listening to audiobooks on the topic while they were in the car. You can’t do this too often or you’ll likely end up with a revolt on your hands.  

investing laying eggs
Investments Produce Golden Eggs

That said, hearing the same message from other people and in a different format helps make an impression. Doing this helps reinforce that investing and money is a topic they should care about.

Tying it Together

 Hopefully you picked up some good tips on how to talk to your kids about money.  Even when we think they are too young to understand we can still subtly mold them.  Keep in mind that they’re constantly subjected to negative influences around the subject of money. From the “all rich people are evil” message often pushed by Hollywood to the false image of life supplied by “reality” TV.

If we don’t regularly talk about the importance of money and life, our kids will only hear the message of consumerism.

If we don’t regularly talk about the importance of money and life, our kids will only hear the message of consumerism.

What are the methods you’ve used to teach your children about money? Can you think of a better way of explaining how taxes work than my method?  Let me know in the comments below!

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