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  • 5 Ways to Teach Your Kids to be Money Smart

    This fantastic guest post is from Kyle James, who owns Rather-Be-Shopping.com, a website that specializes in helping families save money with coupons, frugal living tips, and personal finance advice to make their paycheck go as far as possible every month.

    As a father of three kids, (age 5, 8, and 11) I have always struggled with the best way to teach them to be smart with money and understand what a dollar truly represents. I don’t want to send them off into the real world with the notion that they are entitled to certain “things” and don’t have to work hard for what they want. I feel that would be a huge disservice to them and could very well lead to a life of battling credit card debt and financial misery. So I put a plan into place to teach them to be money smart.

    They Gotta Earn It

    My daughter loves horses. I mean really is completely horse crazy. She takes weekly riding lessons at a cost of $35 a pop which adds up pretty quickly. My wife and I found the perfect way for her to earn the money for her lessons. Our neighbor is out of town for 2 weeks out of the month and needed someone to take care of his three horses and various chickens. My daughter stepped up to the plate to take care of the animals and the money earned equates to the cost of her riding lessons. It is the perfect situation as she sees the value of hard work and earning the money herself for the lessons. If you can find similar situations for your kids it is a great way to introduce the idea of having to work towards a goal.

    Allowance, Yes or No?

    I am not a fan of giving kids a weekly allowance without jobs or chores attached. My wife and I give our kids a list of jobs that need to be accomplished in order to receive an allowance and it removes any sense of entitlement. You want some money every week? I am cool with that, but here is what needs to be done to earn it.

    The Power of Savings

    My wife and I opened a savings account for each of our three kids soon after they were born. When they receive money from family members on birthdays, or Christmas, we tell them they have to save a percentage of it. Then when the bank statements show up in the mail I make a point of having them look at them. It is a great way to introduce the concept of investing and compounded interest. They are always fascinated that the bank pays them money to keep their money safe. Even if the interest rate pays them pennies, they still think it is pretty cool.

    In Order To Receive, You Must Give

    Do you have a child who is constantly whining about wanting a certain toy or video game? I think all parents can relate to this in one way or another. Try the tip of telling them that in order to receive something they first have to do something selfless for someone else. Ideas include going through their closet and donating gently used toys or clothing to children in need, or helping an elderly neighbor with chores around their home. Be doing this you instill the idea of just how lucky they are to have what they have and the many blessing in their life. At this point you can choose to reward your child for their selfless acts.

    Personal Responsibility

    I feel the idea of personal responsibility with money is incredibly valuable to teach kids. If they choose to blow their allowance on a cheap toy that breaks within 15 minutes, well, that was their choice and they have to live with the consequences. I have seen this play out many times in my home and amazingly the choices always get better and better. It can be very hard to watch your child make a bad decision but in the end I feel it is the best way to teach them to make good ones. It is deep in our DNA to learn from our mistakes and not make them again.

    These tips have worked with my kids but I can’t guarantee they’ll work with yours. I’d love to hear what does work with yours! Different thoughts and opinions about teaching kids to value money and what it represents will make us all better parents and eventually create money smart young adults. I look forward to your comments.

    Ed. note: What do you think, CFO readers? I’m on the fence about allowances, especially …


    1. I like Kyle’s thoughtful approach and how it reinforces his family’s values. Bravo! On the allowance front, I personally like the mix of a regular allowance, unpaid expected chores (with penalties assessed for blowing them off that deduct from allowance), and a set of paid extra jobs for big/irregular tasks. I like the idea of basing the allowance amount on a simple budget that roughly guesstimates the expenses the child is expected to cover. That budget might start very small/simple for a young kid (periodic knick knacks) but grow to cover things like clothing/entertainment/etc for a teen. The teen might be expected to cover some (or even all) of those expenses from outside work like a summer job. That all said, I think being explicit, systematic, consistent, and communicative with your kid about money habits is the real key – as long as the details of your “system” match up with your family’s values and financial situation.