Updated: Dec 7, 2020
Over the weekend, a friend tagged me on Facebook in a discussion one of her friends was having on how to teach kids about money. The friend-of-a-friend wanted to know what parents were using for bank accounts for their kids and how they were teaching their little ones how to manage their money.
My friend, Jennifer, tagged me and asked if I had any thoughts.
Why, yes. Yes, I did have some thoughts.
While I don’t believe there’s any one way to teach kids about money, because damn if the little sponges aren’t going to learn about the world of finance whether or not you specifically intend to give them lessons, there are some strategies that I believe will set them (and you!) up for success. We use these in our own house as part of the intentional financial education I’m giving my kids.
The important thing to remember about these strategies is they don’t have to be perfect to help your kids learn how to manage their money. You also can ignore or adapt any of these strategies to fit into your life, since they are what works for me rather than commandments from on high. The important aspect of teaching your kids about money is giving them some building blocks they can rely on in the future. Your building blocks might look different from mine, and that’s totally okay.
Here are the 3 strategies I personally use to teach my kids about money:
1. Teach Them How Money Feels With Cash
The world may be going increasingly cashless, and your kids will definitely need to understand how to handle digital payments eventually—but I truly believe that kids need to start their financial education with cash (and possibly an old-school piggy bank).
Here’s why: for kids to first understand money, they need to feel the loss of spending it and the rush of earning it, which is much more muted when you are using cards/apps/digital spending. (Think about how much easier it is for you to spend $100 on your credit or debit card without realizing it than it is for you to spend five $20 bills without realizing it. One can happen without much conscious thought, while the other feels almost viscerally painful).
Money is already an abstract concept. It’s difficult enough to help children wrap their heads around the huge amorphous idea that is money when there are pieces of paper and metal disks attached to it. Add an additional layer of digital abstraction to the imaginary nature of money’s value, and it will be very difficult for young children (and even older children) to understand the finite nature of money.
This is why I give my kids their allowance in cash, even though it can be kind of a pain to make sure we have cash available every week (and more on that later). I want them to have a baseline understanding of what it feels like to earn and spend tangible money before we transition them to using digital currency.
Make It Work For You
Using cash isn’t going to work for everyone. There is nothing wrong with opting for a simpler method that requires fewer trips to the ATM. Just recognize that using a digital payment system like Greenlight or FamZoo or the like might require a little more effort on your part to help your kids recognize the tangibility of money entering and leaving their accounts. Using cash is an easy way for my kids to “naturally” feel the pain and joy of spending and saving without me having to make the lesson explicit. Choosing a digital method makes one aspect of this strategy easier (pay allowance with the click of a button!) and another one harder (talk to your kids about what the money is worth).
2. Teach Them to Track
Whether you are giving your kids cash or having them use digital payments, it’s important to pair your financial lessons with some sort of tracking. Getting your kids in the habit of tracking their income and spending will help them to understand that managing money requires paying attention to it.
Since I am an old school paper maven, we use this learning ledger for our boys to keep track of their allowance and spending. I’m a big believer in writing things down with pen and paper (and I still keep an old fashioned check register) because of the studies that show writing things down helps you to process and remember them better. Taking the time to track your finances by hand makes it more likely you’ll remember how much you have in your account.
What that means for our boys is that we get out their ledgers every time we give them their allowance or they spend money. The process, every allowance day, is as follows:
Check their current balance in the ledger to double check it’s up-to-date (in case they purchased something in the past week)
Count out their allowance
Calculate how much that will raise their balance
Count out what’s in the piggy bank plus the allowance to make sure our math was correct
Update the ledger with the new balance
This entire ritual helps the kids to understand that tracking their money is an important component of earning their allowance.
We do the same thing anytime they want to spend their money, although this will get more complex soon as we plan to give the boys wallets for Chanukah. Our 7 year old, who is a spender, has been asking for a wallet, while our 10 year old, who is very much a saver, has no interest in carrying his money around with him. We think they both will benefit from the lessons of having responsibility for some of their money out and away from home.
Once the kids have their wallets, we’re going to encourage them to request and keep receipts when they spend money away from Mom and Dad so that we can continue to track their money choices when we bust out the ledger each week.
Make It Work For You
If the idea of filling out an old-school Bob Cratchit-style ledger is about as appetizing to you as performing dentistry on a Great White shark, then there’s no need to force yourself or your kids through it. If you already do tracking another way, whether through Mint or your bank’s money management app, or simply by checking your balance regularly to make sure you’ve got enough to cover upcoming expenses, then just find a way to adapt your current system to your kids’ allowance and spending. Your tracking works for you, so you can find a way to teach it to your kids.
That said, if you’ve never tracked your money before, now is an excellent time to start. Invite your kids to help you find a system that will work for all of you and make a project of it. They’ll have fun learning along with you.
3. Find Something You Can Be Consistent About
No matter what financial choice you make for your kids (an app, cash, allowance, chores-for-money, etc.), the most important thing is to be consistent about some aspect of your financial teaching.
For instance, I’m sadly not very consistent about giving my kids allowance every week. (The downside of my cash strategy!) But I can be consistent about always keeping the ledger up-to-date whenever we do handle allowance or spending. So that means I can easily see if we skipped a week of allowance and owe the kids two weeks’ worth.
I’ve always been a money nerd who loves to track my income and expenses, so it’s what I’ve started with in terms of instilling financial habits to my kids. That’s the consistent baseline I’m giving them as we all work together to get better at teaching them other aspects of managing money.
Make It Work for You
If you can’t consistently keep up with tracking (and that’s totally fine!), then figure out what you can do consistently.
Are you good at remembering to pay allowance every single Friday without fail? Great! That will help your kids to learn how to manage a steady income even if tracking is not your forte.
Are you good at requiring your kids to put half of any financial gift they receive into a savings account for college? Great! That will teach your kids how to painlessly make savings a habit.
Are you good at having a monthly money conversation with your spouse? Great! Bringing your kids into this conversation can help them learn how to prioritize various needs and wants within a family.
Are you good at clipping coupons and finding the best deal? Great! That will help your kids learn how to make their money go as far as possible.
Are you good at recognizing how merchandising and advertising are designed to influence your purchasing decisions? Great! Sharing your thoughts with your kids will help them learn to spot advertising’s effects.
Basically, whatever aspect of money you already do well can be the consistency that you offer your kids to help them learn. Lean into what you’re good at and teach your kids what works for you. That provides the baseline they need to branch out and find their own methods for managing money, while still relying on the solid basis you gave them out of your own competencies.
Teach Your Children Well
It may feel like teaching kids about money has to be perfect since the stakes feel pretty high, but that’s just not the case. Simply bringing our imperfect and weird selves to this lifelong lesson will equip our kids with the tools they need to manage their money.
No matter how you proceed with your money lessons, starting with the understanding that your kids need to feel the meaning of money, need to know some method of tracking (whether it’s pen-and-paper active or check-your-balance-online passive), and need some sort of behavioral consistency, will be enough to ensure your children learn what they need to know.