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.
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.
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.