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Teaching Kids About Passive Income

By: Steve Johnson

9/2/2008 - 42 Comments

There are so many things about money that I want to teach my kids within the few years I have them.

I want to teach them about income, taxes, saving, interest rates, investing, real-estate, budgeting and many more.  But, kids are only able to understand many of these concepts as them grow older, which is why money concepts need to be taught as they increase in age.  As kids age, they need to be taught more of these concepts in order to prepare them for managing their own family finances.

Allowance

One of the very first methods that most parents use to start teaching their children about money is to get some money is their hands by giving them an allowance.  I’m not going to get into the debate about whether allowance should only be given after kids have done their chores or without having to do chores. Both ways have advantages and disadvantages.  In the end, allowance produces a stream of money flowing into your children’s hands that can be used to teach them how to manage money.

My two older children are now nine and seven, and will turn ten and eight by the end of this year.  We have been giving them allowance for two years and they also earn money from chores at their grandparents.  We have also opened a savings account for both of them and show them their interest earned each quarter with the few hundred dollars they now have in their accounts.

This year for Christmas, I’m considering an idea to get more money into their hands so that I can increase their understanding of passive income.  I’m considering giving each of them $1000 this year for Christmas. Now before you get too excited about this idea, hear me out.  What I want to do is teach them the value of savings, by putting the money in their savings account so they can watch the interest grow.  I’m not going to let them spend the money, so it’s really just like moving some of my savings into theirs.  Eventually, I will let them spend the money as they get into the teen years, but for now it will be a good lesson in watching money grow.  The primary concept that I hope to teach them is the value of saving money by showing them the interest they earn each quarter.  I want them to learn at an early age how saving money can produce passive income.  

Good Books

Here are a few good books that I have found on teaching kids about money. 

Here are a few of the most interesting ideas that I have learned from these books.

Starting too early or too late – It’s important not to try to teach your kids about money before they are out of diapers. Sometimes parents try to teach money concepts too early and risk their kids learning to hate money by not letting them be just be kids. As they grow, it's important to teach them more and more money concepts, and realize them you also only have a few years when they can comprehend the majority of money concepts that will led them through some of the most important years that will set their financial future for decades to come. The college and young family years are critical years for making good financial decisions.

Not helping them make decisions – Thinking through decisions about how to spend, save and invest money is very important.  Kids don’t realize they are being marketed to by the entire consumer economy and they don’t understand how much money they will need in the future.  Teaching children about money is perhaps one of the most important things a parent can do to improve their children’s future.

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Debt Free Living

Debt has dominated the financial direction of our society over the past sixty years. Credit card offers flow into our mailboxes virtually every day. Countless families give the false impression of being wealthy while drowning in a sea of debt. Debt-Free Living was designed to equip individuals with sound biblical principles and solid practical advice so they can dig out and stay out of debt. Bestselling author Larry Burkett skillfully teaches these principles through the real-life experiences of several couples on the brink of financial ruin.

Family Financial Workbook

Finances are the leading cause of marital breakdown and strife. Countless families give the false impression of being wealthy while drowning in a sea of debt. Family Financial Workbook is the best tool a family can have to manage their finances with God's direction. With a comprehensive collection of easy-to-follow worksheets, practicality is key feature of this great resource.

Raising Money Smart Kids

With each generation the children seem to have more money available to them than their parents. With this should come responsibility and learning how to spend or save wisely. The problem is that most just learn to spend as soon as they get it, get it by begging parents or an allowance with no responsibilities involved or similar. Enter Janet Bodnar, deputy-editor of Kiplinger's Personal Finance, mother of three, and writer of the Money Smart Kids column in Kiplinger Magazine. This book is provides a framework within which parents can use good common sense to handle any situation.

Financial Parenting

In todays consumer driven culture that doesn’t teach kids anything about money, this is a practical book to get your kids to understand what to do with money. This book is loaded with chapters on stewardship, giving, borrowing and lending, saving and budgeting, including lots of activities and interactive questions with each chapter. Perfect for children ages 5 and up.