Teach your kids money lessons early, so they can grow up to be successful independent adults.
Financial independence is a huge part of a successful life.
Your kids need to know how to save, spend and invest money for the future.
Our most important lessons are gained through experience so here are some lessons and hands-on activities to do with them:
1. Money lesson – How to negotiate
The lessons to learn:
Price reduction – find the seller’s true price range, not their starting bid. What is the lowest price they will take for their goods and services?
They also want to learn to get the highest price when they are selling or negotiating a salary.
Bundling – when you pay full price or are buying more than one item, ask for additional services or “add ons” to increase the value of your purchase.
Walking away – teach your kids that even though they may have sunk time and energy into a negotiation, (aka sunk costs) they can still walk away from the deal.
Some activities to teach these skills:
Show and explain – have them watch you and discuss afterward. For example, your child can watch you at a Farmer’s Market. You buy a variety of fruits and vegetables at one stand and ask for an “add-on.” You may say something like, “Would you throw in a bunch of mint?” as you point to all the things you are buying.
Discuss the transaction in the car on the way home and explain “bundling.” Make a salad with watermelon and mint to enjoy your success!
Now it’s their turn to try it. My suggestion is to start someplace the stakes are really low such as a Yardsale or flea market and with an item or items where they aren’t emotionally connected. Sellers want to move merchandise at Yard sales!
Practice all these skills – price reduction, bundling and walking away. “Will you take $1 for these?” They can practice respectfully walking away, too.
Sell items (with your close supervision) on Facebook Yardsale or another service. In Utah, many people use KSL want ads. Teach your kids to start a higher price and see if they simply get it! Know their bottom line selling price going in and negotiate with the buyers. Allow people (your buyers) to bundle if appropriate.
2. Deferred Gratification – Waiting is a powerful financial skill
The lesson to learn – saving for the short and long term as well as making smart spending choices.
Teach your children to save up and then spend wisely on what is important to them. To do this, use their weekly allowance. (*Note – I believe in allowance tied to chores. If they don’t do their chores, they don’t receive an allowance but they need money to work with to learn about money.)
Some activities to teach these skills:
If you can afford this in your budget, give your kids their age each week in allowance. Start it when they are old enough to know a little about money such as a nickel is worth less than a dime even though it’s bigger.
In this example, a ten-year-old gets $10 per week. It’s easy to remember!
They don’t get it all though. Transfer 50% of their weekly allowance to a savings account in their name to save up for a future parent-approved more expensive and awesome thing. For my kids, it was a high school trip.
This way they learn to manage their cash each week. So in my example, the 10-year-old has saved $5 a week for long term and has $5 to spend this week or soon.
Work with them each week on what they want to spend their money on. Should they save up for two weeks in a row and buy a toy that costs $10? Or spend it now on candy or something that costs $5. Just be sure if they do spend it and now want something else, not to “bail them out.”
Once it’s spent it’s spent. Be strong Moms and Dads! Let them understand the consequences and maybe feel a little pain now and then.
The keys here are giving them money to work with, saving some for something big later that they’ll really enjoy, and making some mistakes that can be learning experiences.
3. Speaking up – learning to dig into the details
The lesson to learn – not being afraid to ask questions.
Learn the ins and outs of your purchases so you can make wise money decisions.
Some activities to teach these skills:
Take “show and explain” a step further. Show, explain and participate in family discussions on money purchases. For example, if you are considering buying a new dining room table. Go through the discussion with the family of buying a more expensive heirloom table versus a less expensive second-hand table that is functional.
Ask such questions as:
- How long will be in this home? What would be the cost per use?
- If we move, will it fit into a future home (so we might wait for the heirloom?)
- Do we want to worry about spill or rings on the expensive table?
- Would we get a great deal of enjoyment in having special family meals or dinner parties with a beautiful table?
- Are there other places we’d get more value for our money with our family? What could we use the extra money for if we buy the second-hand table? Maybe we should buy a camper instead!
Ask their opinion and help them learn to think things through. This teaches them to analyze purchases and to share their opinion (even though they know the parents have the final vote.)
Blind taste test – choose some store brand or generic products as well as brand name products and test them not knowing which is which. Determine when it’s best to purchase a brand name versus a store brand in taste or use. Compare prices and determine when to save the difference in cost. Some products to use are food items such as cereal, juices, and cookies.
4. Spending – give Tweens and Teens responsibility for a spending category.
Tweens and teens want control over their lives – give some to them and turn it into a money lesson.
The lesson to be learned– how to make wise money choices.
Stretch your household dollars. Tying the number of hours worked to the cost of an item.
Some activities to teach these skills:
Put your tween or teen in charge of something such as toiletries. Give them a fixed amount of money per month to manage this “cost center.” Let them keep the difference!
A tween who isn’t buying their own hair care products may tend not use them up, want the latest products and spend on highly marketed and expensive products.
Give them a budget for shampoo, body wash, toothpaste, etc. and set them loose to purchase. They may start using the entire product (watering down at the end of the bottle to get every drop), buying on sale, generic brands and use coupons since they get to pocket the savings.
Gradually give them more and more money responsibility such as a clothing allowance and fuel when they are driving. When it’s “their money” they are spending and they can keep the difference, the lesson is more effective.
5. Materialism doesn’t bring happiness.
The lesson to teach – money doesn’t bring fulfillment and joy.
Money helps to reduce financial stress and can enhance our happiness. But true happiness lies elsewhere.
Some activities to teach this skill:
Hours worked formula. Take a field trip to the mall or store. Choose a whole list of things they’d like to have or dream of having and write down the prices. Use their wages per hour (for chores, babysitting, and part-time work) to determine how many hours they would have to work to pay for an item.
At $10 an hour for babysitting, your daughter would have to work 12 hours to purchase this specific pair of leather boots or a stylish jacket. Don’t stop at clothing, use electronics – iPad, computer, or phone. Looks at precious gems – diamond ring compared to costume jewelry.
Research different professions and what they make. Look on Payscale.com or Indeed.com and determine their hourly rate. Divide their annual rate by 2080 to get an hourly rate. Determine how many hours they’d have to work per profession.
In conclusion:
If we teach them how to manage their money at an early age, when they take their first job, they will naturally start to fund their 401(k) from day one. They will save up for emergencies, they will avoid credit card debt, and they will think through buying a home versus renting a home.
In short, they’ll have a better chance to be financially secure in an uncertain world.
Additional resources:
Sites
AICPA 360 Degrees of Financial Literacy
Book
Dave Ramsey – Smart Money Smart Kids
Article
WSJ – Apps and Websites to Teach Your Kids About Money
Resource