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How to Teach Your Kids About Money

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Let's face it: teaching anyone about money is awkward, especially when you're not confident about your finances.

But if you don't have those conversations with your kids, who will?

If they don't learn early in life, you're setting them up for a difficult financial future.

This guide will show you exactly how to teach your kids about money. It's never too early (or late) to start.

Here's what we'll cover:

  • The basics of money: what it is and how it works
  • How to earn, save, and spend money wisely
  • The importance of giving back

By the end of this guide, you'll be equipped with all the knowledge and resources you need to start teaching your kids about money.

At least, they can avoid the common mistakes that lead to financial hardship.

So let's get started!

Why do you need to teach your kids about money?

You might think, "My kids are too young to learn about money. They'll figure it out when they're older."

But that's not necessarily true.

Four scenarios playout when you're unintentional about teaching your kids about money:

Scenario 1: They learn about money from their friends; risky!

Scenario 2: They never learn and have to figure it out independently; difficult!

Scenario 3: You teach them, but it's too late; they've already formed bad habits.

Scenario 4: You teach them early and often; they make great decisions with their money.

Scenario 4 is the ideal situation. But how do you make that happen?

It starts with having honest conversations about money with your kids.

Not sure where to start? We'll cover that next.

The Basics of Money: What It Is and How It Works

Money is a tool; it's a way to exchange goods and services. That's it.

You can earn money by working, selling things, or investing. And you can spend money by buying, investing, or giving it away.

But money is the most powerful tool; it can buy almost every other tool.

The earlier your kids understand this concept, the better.

Here are a few ways to explain it to them:

Show your kids how money is made. Make them participate via chores and an allowance.

First, show your kids how to earn and spend money.

If you work for someone, explain how you get paid. If you own a business, show them how you make and sell products or services.

The idea is to show you're exchanging something (good, time or effort) for money.

Now allow them to make and spend their own money.

You can do this by giving them an allowance for completing chores.

Make a record of their earnings and spending so they can see their choices' consequences.

I use Notion to keep track of my kids' expenses, but you can use simple excel or any basic tracking method.

Keep it simple, so they understand.

Budgeting: help them understand how to spend.

Now, your kids know there are consequences to their spending choices.

It's time to help them understand how to spend wisely; budget.

There are two parts to this:

  • understanding their needs versus wants, and
  • living below their means.

You don't want them catering to every whim, but you also don't want them to deprive themselves.

For "needs," tell them you provide food and shelter; those are non-negotiable.

For "wants," they can have toys, gadgets, and nice-to-haves; but only if they can afford them.

You can match the dollar amount or give a set percentage depending on the purchase.

We use a 20/30/50 rule. They can spend 30% of their income.

For example, if they want to buy a $100 toy, you can give them $70, and they have to save up the $30.

Set financial goals to grow financial intelligence

While saving, your kids will want toys, gadgets, and other nice-to-haves.

Show them to save towards capital expenses.

It's a great opportunity to talk about delayed gratification and setting financial goals.

Also, they'll understand the value of money and the things they own.

They'll realize it takes time and effort to save for things, but it's worth it in the end.

The 30% they save can go towards capital expenses and expensive purchases.

Investing: help them understand how to grow their money.

Now they know how to make money, budget, and spend wisely.

The next piece of the puzzle is understanding how to grow their money--investing.

We teach them how clear jars work. They have three jars: save, spend, and give.

But the save jar is always empty because we need to teach them interests, compounding, and ROI.

Instead, we act like a bank or wealth management--without the management fees.

We save 50% of their income with a 1% monthly return.

They can access their money anytime, but they need to give us two weeks' notice.

By doing so, we instill the habit of delayed gratification and long-term thinking.

These are essential money skills they'll use for the rest of their lives.

Giving: instill the habit of giving early.

The final piece of the puzzle is giving.

We want our kids to be generous and give back to the community.

So we make it a habit early on.

They put away 20% of their earnings into their gift jar.

And we match their contributions dollar for dollar.

This not only instills the habit of giving but also teaches them the power of compounding.

Plus, it helps them understand that they can make a difference in the world--no matter how small.

The Bottomline

Teaching your kids about money is one of the most important things you can do for them.

It's a lifelong skill that will serve them well in the future.

Use the tips above to help you get started. And remember, keep it simple so they can understand.

What other ways do you teach your kids about money?