Smart Money Smart Kids

1. Work is the foundation of financial success

Money comes from work.

Instill work ethic early. Children should learn from a young age that money is earned through effort, not given freely. Implement a commission-based system where kids earn money for completing age-appropriate chores. This teaches responsibility and the connection between work and reward.

Encourage entrepreneurship. Support children in starting small businesses or finding ways to earn money outside the home. This develops problem-solving skills, creativity, and financial independence. Examples include:

• Babysitting
• Lawn care services
• Pet sitting
• Selling handmade crafts

Prepare for real-world jobs. As teenagers, encourage part-time work to gain experience and develop a strong work ethic. This prepares them for adult responsibilities and financial independence.

2. Spend wisely and learn the value of money

When the money's gone, it's gone.

Teach delayed gratification. Help children understand the difference between wants and needs. Encourage saving for larger purchases rather than impulse buying. This develops patience and thoughtful decision-making skills.

Allow natural consequences. Let children experience the results of their spending choices, both good and bad. This provides valuable learning experiences without long-term negative impacts.

Model wise spending. Demonstrate responsible purchasing decisions in your own life. Discuss the reasoning behind financial choices with your children to help them develop critical thinking skills around money.

Key spending lessons:

• Comparison shopping
• Evaluating quality vs. price
• Distinguishing between needs and wants
• Understanding opportunity cost

3. Save for the future and set financial goals

Few people save every month in their Roth IRA on impulse. These are acts of maturity.

Start saving early. Introduce the concept of saving as soon as children begin earning money. Use clear containers to make savings visible and exciting for younger children.

Set savings goals. Help children identify short-term and long-term savings goals. This teaches planning and delayed gratification. Examples include:

• Short-term: Toy or game
• Medium-term: Bicycle or electronics
• Long-term: Car or college fund

Introduce investing concepts. As children grow, explain basic investment principles like compound interest and diversification. This lays the groundwork for long-term wealth building.

4. Give generously to develop gratitude and perspective

A heart filled with gratitude leaves no room for discontentment.

Model generosity. Demonstrate giving in your own life, whether through charitable donations, volunteering, or helping others. This shows children the importance of using resources to benefit others.

Encourage regular giving. Implement a system where children set aside a portion of their earnings for giving. This develops a habit of generosity and helps children think beyond themselves.

Create giving experiences. Involve children in hands-on giving opportunities, such as:

• Volunteering at local charities
• Participating in community service projects
• Sponsoring a child in need
• Donating toys or clothes to those less fortunate

These experiences provide perspective and help children develop empathy and gratitude for what they have.

5. Budget to control your money and achieve goals

A budget is telling your money where to go instead of wondering where it went.

Introduce budgeting early. Use a simple envelope system for younger children to allocate money for spending, saving, and giving. As they grow, introduce more complex budgeting tools and concepts.

Teach zero-based budgeting. Show children how to assign every dollar a purpose before the month begins. This develops intentionality and prevents wasteful spending.

Key budgeting skills to develop:

• Tracking income and expenses
• Categorizing spending
• Setting financial priorities
• Adjusting the budget as needed

Practice budgeting together. Involve children in family budget discussions when appropriate. This provides real-world context and prepares them for managing their own finances as adults.

6. Avoid debt to maintain financial freedom

The borrower is slave to the lender.

Teach the dangers of debt. Explain how debt limits future options and can lead to financial stress. Use age-appropriate examples to illustrate the long-term consequences of borrowing.

Encourage cash-based living. Model and teach children to save and pay cash for purchases rather than relying on credit. This develops patience and financial discipline.

Dispel credit myths. Address common misconceptions about credit, such as:

• Needing credit cards to build a credit score
• Viewing credit as "free money"
• Considering some debts as "good debt"

Help children understand that true financial freedom comes from avoiding debt altogether.

7. Plan and save for college without loans

Your child can afford to go to college, but it's not going to happen by accident—and student loans are not the answer.

Start planning early. Begin saving for college as soon as possible, using tax-advantaged accounts like 529 plans or Education Savings Accounts (ESAs).

Explore all options. Consider alternatives to traditional four-year universities, such as:

• Community college for the first two years
• In-state public universities
• Trade schools or apprenticeships
• Online degree programs

Maximize scholarships and grants. Encourage academic excellence and extracurricular involvement to increase scholarship opportunities. Research and apply for as many scholarships as possible.

Work during college. Encourage part-time work during school and full-time work during summers to help cover expenses and gain valuable experience.

8. Cultivate contentment to resist consumerism

Content people may not have the best of everything, but they make the best of everything.

Address the root of discontentment. Help children understand that happiness doesn't come from possessions. Encourage gratitude for what they have rather than focusing on what they lack.

Limit exposure to advertising. Reduce children's exposure to commercials and marketing messages that fuel discontentment. Teach critical thinking skills to evaluate advertising claims.

Foster non-material sources of joy. Encourage activities and experiences that bring happiness without relying on purchases, such as:

• Developing hobbies and skills
• Spending time in nature
• Building strong relationships
• Serving others

Model contentment. Demonstrate satisfaction with what you have and avoid constantly pursuing the "next big thing" in your own life.

9. Build strong family relationships around money

If you want to raise money-smart kids, you have to raise kids who are content.

Communicate openly about finances. Have regular family discussions about money, tailored to children's ages and maturity levels. This builds trust and financial literacy.

Present a unified front. Parents should agree on financial principles and consistently enforce them. This prevents children from playing parents against each other on money issues.

Balance love and discipline. Show children they are valued for who they are, not what they have. Set clear boundaries and consequences around financial behavior while maintaining a loving relationship.

Address family dynamics. In cases of divorce, remarriage, or blended families, be intentional about creating fair and consistent financial practices for all children involved.

10. Pass on a legacy of financial wisdom

You are going to change your family tree.

Share your financial journey. Be open about your own successes and failures with money. This provides valuable lessons and builds trust with your children.

Create teachable moments. Look for opportunities in everyday life to reinforce financial principles. Use real-world situations to illustrate important concepts.

Gradually increase responsibility. As children grow, give them more control over their finances while still providing guidance. This builds confidence and competence in money management.

Prepare for generational wealth transfer. Teach children how to be good stewards of inherited wealth. Emphasize the importance of continuing to work, give, and manage money wisely regardless of family resources.

By consistently applying these principles, parents can raise financially responsible children who are prepared to build wealth, give generously, and pass on a legacy of financial wisdom to future generations.

Last updated: September 13, 2024