teaching kids about money

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finley
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teaching kids about money

Post by finley » Tue Jul 30, 2013 10:52 am

I was hoping to get some advice on how to teach my kids about money. I currently have twins that are 6 years old and would like to teach them to be responsible with money. My wife would like to start to give them a small allowance each month. Some to save, some to give away and some to spend on whatever they want. I am not sure if we should introduce chores in exchange for the money. Or if these should just be expected things to do. Any thoughts would be greatly appreciated.

AndrewJackson
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Re: teaching kids about money

Post by AndrewJackson » Tue Jul 30, 2013 11:14 am

Bump. Interested in this as well as the wife and I are expecting a little soon (I know a little early but I am just excited). I listen to dave ramsey a decent amount and his theory is that you need to teach your kids to associate money and work together and I believe he is in favor of a work allowance as well as dividing money into three categories (giving/spending/saving)

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nisiprius
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Re: teaching kids about money

Post by nisiprius » Tue Jul 30, 2013 12:06 pm

I don't think there are rules. My kids seem to be good money managers so I think we did OK. The problem with pay for chores is that whereas most kids go through a stage where they really want to earn some money, stuff you do for your parents doesn't feel authentic.

I think the keys are: be sure you talk about money, in hopes that some of it will happen at teachable moments. That means just kind of giving running commentaries, age-appropriate. "Oh, dear, LOOK at that gas price, I can't believe it just cost me forty bucks to gas the car." Take them into your confidence with respect to the family finances to the extent you feel comfortable with. Certainly, tell them how much you are paying for the new car, refrigerator, whatever, and even if they can't quite understand it, bring in things like "I decided to buy rather than lease" or "I guess I'll put this on the credit card, I think we should be able to pay the balance when it comes due and not get hit with a finance charge." Don't explain if they don't ask, just put it out there.

Let them handle money to their ability. Let them make mistakes with money (be as tough or as kind as you would be with respect to other mistakes).

Here's an example of a money lesson from Samuel Butler's 1903 (written in the 1870s) novel, The Way of All Flesh,
I inquired if there was a shop near where they could buy sweeties. They said there was, so I felt in my pockets, but only succeeded in finding twopence halfpenny in small money. This I gave them, and the youngsters, aged four and three, toddled off alone. Ere long they returned, and Ernest said, "We can't get sweeties for all this money" (I felt rebuked, but no rebuke was intended); "we can get sweeties for this" (showing a penny), "and for this" (showing another penny), "but we cannot get them for all this," and he added the halfpenny to the two pence. I suppose they had wanted a twopenny cake, or something like that. I was amused, and left them to solve the difficulty their own way, being anxious to see what they would do.

Presently Ernest said, "May we give you back this" (showing the halfpenny) "and not give you back this and this?" (showing the pence). I assented, and they gave a sigh of relief and went on their way rejoicing.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Rodc
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Re: teaching kids about money

Post by Rodc » Tue Jul 30, 2013 12:38 pm

This is one of those topics that can get people going, like most parenting topics.

My personal take is not far different from nisi.

I suggest at first to pick just one or two lessons you want them to take away. You have to work to earn money could be one. You do not get paid to help family, that is just what family does, could be another. Hard to teach them at the same time. Fortunately life is full of teachable moments so over time you can find a way to cover them both, just not both at the same time at age 6 from allowance. Tailor how you do allowance and talk about allowance around the lesson.

I like to let kids make mistakes. Better tears over spending your only $10 on a piece of junk that breaks at age 6, than to do it with $1000 at age 16 or with $10,000 at age 26.

And talking without lecturing as nisi suggests is good too. You have many years. Things will slowly sink in without much fuss if you just keep the lessons in the air.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

eas
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Re: teaching kids about money

Post by eas » Tue Jul 30, 2013 12:45 pm

nisiprius wrote:I think the keys are: be sure you talk about money, in hopes that some of it will happen at teachable moments. That means just kind of giving running commentaries, age-appropriate. "Oh, dear, LOOK at that gas price, I can't believe it just cost me forty bucks to gas the car." Take them into your confidence with respect to the family finances to the extent you feel comfortable with. Certainly, tell them how much you are paying for the new car, refrigerator, whatever, and even if they can't quite understand it, bring in things like "I decided to buy rather than lease" or "I guess I'll put this on the credit card, I think we should be able to pay the balance when it comes due and not get hit with a finance charge." Don't explain if they don't ask, just put it out there.
I think this is one of the most important things. My parents treated me and my brother as adults with regards to finance matters from a young age, and gave us information regarding financial considerations that the family was going through. I look at other friends of mine where I know that the family was secretive with money, and they have blinders on.

Grt2bOutdoors
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Re: teaching kids about money

Post by Grt2bOutdoors » Tue Jul 30, 2013 12:48 pm

I take my kid grocery shopping - prior to leaving for the store, my wife is clipping coupons (introduce the idea of getting value for your needs and save money), we purchase what is needed and much less of what is wanted. I show him how to swipe the credit card though the machine and how I pay the bill when it gets delivered home. He gets it! I take him into a brick and mortar bank - he knows what a teller is, how an ATM works and identifies that I go to work to earn money. As he says "money doesn't grow on trees". :wink:
Get them a piggy bank - give them coins or low denomination bills, much easier to save/spend. Giving to charity is nice, however, it's much easier to teach about money through your actions first, later on you can introduce "giving".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Quickfoot
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Re: teaching kids about money

Post by Quickfoot » Tue Jul 30, 2013 12:52 pm

My 6 year old owns $360 of TZO (iShares target date retirement fund for 2035). From the time she was little I've discussed money with her, she has her own savings account. We talk about how much things cost and she saves up for things she wants, her last purchase was a dream light (she saved up for 2 months), prior to that it was a $200 android tablet (I matched her 100% so she only had to save $100).

She wound up accumulating $360 in savings so I explained stocks and bonds to her and she was very excited to tell me she wanted to invest her money. I put her in TZO because she wont need it until around 2035 and I want her to experience losses and gains so she is desensitized to normal price movement at an early age. The #1 enemy of investing successfully is emotional reaction to price swings.

In general *talk* to them about money and family finances, it's OK to tell your kid they have to wait to do something until the next time you get paid (I say that all the time), to tell them how much your car costs, the rent / mortgage payment is, etc so they can start getting the concept of money. There are tons of people who NEVER talk to their kids about money and it sets them up for a difficult financial future.

Talk to them about you saving for retirement, having an emergency fund, living beneath your means, and why those things are important. Look for examples of people living with a heavy debt burden, or living beyond their means and point out the consequences.

Most kids are far more intelligent than the average adult gives them credit for.
Last edited by Quickfoot on Tue Jul 30, 2013 12:56 pm, edited 2 times in total.

Grt2bOutdoors
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Re: teaching kids about money

Post by Grt2bOutdoors » Tue Jul 30, 2013 12:56 pm

Quickfoot wrote:Talk to them about you saving for retirement, having an emergency fund, living beneath your beans, and why those things are important. Look for examples of people living with a heavy debt burden, or living beyond their means and point out the consequences.

Most kids are far more intelligent than the average adult gives them credit for.
I certainly hope "not to live beneath my beans" for quite a long time. :wink: On the other hand, if I did tell my kid that, the response would likely be that is "impossible" since I'm not dirty with soil. :D
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Quickfoot
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Re: teaching kids about money

Post by Quickfoot » Tue Jul 30, 2013 12:57 pm

Multi-task fail :). I grew up extremely poor and am now blessed enough to be quite successful. I learned a lot from being poor and I'm endeavoring to teach our children those lessons without them having to experience it. My wife also was very poor and tells our kids we are poor, we do spend money but we do wisely and kids see that.

At 2 years old my daughter started grabbing her back and groaning every time she bent over, took a while to realize my ex wife does that and my daughter had copied her. So make good decisions, be open about money because they'll learn a lot from watching you.

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nisiprius
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Re: teaching kids about money

Post by nisiprius » Tue Jul 30, 2013 1:09 pm

Incidentally, something else I don't know whether I've seen discussed much: an awful lot of family communication occurs through eavesdropping. Both ways. Well, in the families I've been part of, anyway.

I remember being astonished at some of the things my kids would talk about on the phone, to their friends, when I was within earshot. Then I remember that when I was a kid I somehow believed that my parents didn't hear anything I was talking about on the phone. I don't know whether I truly believed that, or whether it is part of some strange communications channel in which it is easier to tell people some things if both parties pretend you are not telling them.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

German Expat
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Re: teaching kids about money

Post by German Expat » Tue Jul 30, 2013 1:25 pm

The key to teach your children is the concept of delayed gratification. Sounds easy but is harder to do. There was a famous 'marshmallow study' done at Stanford.

http://en.wikipedia.org/wiki/Stanford_m ... experiment

I think if your child can learn to delay gratification by e.g. saving their weekly allowance of 5$ to buy one 20$ item at the end of the month they will learn the value of saving to reach a goal (and if it is just buying a bigger toy rather then 4 small toys). Most of us here save for retirement and saving in itself is not a goal but having enough money to afford something (and if it is a good retirement).

For a 6 year old I would suggest doing it weekly, most recommendations I have seen are tending towards weekly until the age of 10. We are giving our 7 year old 5$ per week and do not make it dependent on chores. I am not that big a fan of money for family chores. We as adults also only get paid at work and don't get paid cleaning the house. It is just something you do and life skills you need. Also lets say your child has to take the trash out daily. So what if she/he decides not to do it and forfeits 1 day of allowance ? There are things that just need to be done and you might also get into a trap if you give them more they have to pay you more. But this is a hotly debated topic but I am in the camp of giving an allowance not tied to chores. Chores are separate. I did read some concepts though that for extra things that are not part of the daily routine, e.g. clean up the basement after 5 years of putting all stuff in it as a one time deal can justify paying for it. Or washing your car rather then letting the car wash do it.

I personally think that most important is the concept of delayed gratification and if you can teach this to your child they should be at least conceptual on a good start. Later on you can then work explaining why saving for retirement or not having credit card debt is good.

keq1381
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Re: teaching kids about money

Post by keq1381 » Tue Jul 30, 2013 2:22 pm

The best thing I have been able to come up with so far is the concept of "family jobs" and "money jobs." "Family jobs" are chores that the child must perform as a member of the family, whereas "money jobs" are extra tasks I give them the option of performing for money (usually $1). I can't comment on how effective this idea has been since my kids are still young (newborn, 3, and 5).

sesq
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Re: teaching kids about money

Post by sesq » Tue Jul 30, 2013 2:26 pm

I give my daughter an allowance in the hope that she can make some decisions about spending versus savings. My wife was adamant that it not be linked to chores ("what they contribute to be part of the community"), which I accepted.

She gets 50 cents for each year she is old, so $3.50/wk at the moment. I make her give $0.25 to charity (church), and put $1.25 into long term savings. The remaining $2 she can spend or save. Its all automated (except the donation) via Ingdirect's kids accounts (now Cap One). If she asks for any money it I just shift it from her account to mine. She has her own login to check it. We are going to give her the long term savings account as spending money when she gets to college. I want her to learn that with the passage of time, steady contributions can add to a larger number.

So far she has favored savings over spending. A few times when she has done something unusually wrong (e.g. cut her own hair at school and try to lie about it), we have made her pay for it out of her money, which has had a real impact.

We are starting my son in the fall when he turns five. Should be interesting since I suspect he isn't quite the saver my daughter is inclined to be.

Being sensible about money is an important thing I want to teach my kids. We generally talk pretty openly in front of them about money. Although for the big ticket items we don't always discuss specific prices.

At some point I will want to teach the earning side with sidejobs and the like.

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tadamsmar
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Re: teaching kids about money

Post by tadamsmar » Tue Jul 30, 2013 3:10 pm

This seems like a good web site on the matter, but I have not used it to teach, my kids are grown now:

http://moneyasyougrow.org/

FannyBrawne
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Re: teaching kids about money

Post by FannyBrawne » Tue Jul 30, 2013 3:18 pm

My kids are 4,6, and 7. What I have realized (slowly) is that it's easy to speak negatively about money in front of kids. "God, that's so expensive" ... "We could never afford that"...etc. I catch myself and rephrase it to something more positive. For example, I drive an old, beat up car and instead of complaining about it, I've told my kids that we're able to do more things as a family because I've chosen to keep driving the old car in lieu of buying a newer, nicer one. My 7 year old totally gets it.

donall
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Re: teaching kids about money

Post by donall » Tue Jul 30, 2013 6:18 pm

Good advice on this site, but keep in mind that no matter how well you teach your children, the results may be different than you expect. Our neighbors had two wonderful kids, both well taught about money. The kids have now grown up and one is careful and has an incredible savings attitude and the other will spend money as fast as made. So don't get discouraged if things don't go as planned and enjoy your kids.

5buffalo
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Re: teaching kids about money

Post by 5buffalo » Tue Jul 30, 2013 7:21 pm

When I was a kid I got a weekly allowance of a few dollars, which I kept in the "bank" (my parents' wallets). They kept a record of how much I had saved and calculated "interest" on the money each month. This only really works if it's an unrealistically high interest rate because otherwise a kid won't notice the effects, so I think my parents made it 10%.

There was some brief disgruntlement when I learned the interest rate I'd get at a real bank, but it didn't interfere with the lesson.

It made an impression on me to see how the money increases when you save it, and got me used to the idea of using banks. I'll probably do it with my own kids if end up I having them.

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Re: teaching kids about money

Post by spotty_dog » Tue Jul 30, 2013 7:48 pm

My son is 6 and my daughter is 4. Their allowance is not tied to chores explicitly, in that there isn't a "check off the chart and get paid" system. Rather, I expect my kids to be helpful commensurate with their ages and abilities. If they are not regularly helpful through the week, they don't usually get their allowance. (It's not punitive -- for example, one week during the school year I asked him on payday if he felt he'd been helpful and he said no, he didn't think he should get his allowance because he was too busy with schoolwork to do chores. We agreed next week would be better.) If they are particularly helpful then they have pride in their work (eg. "I worked REALLY hard cleaning up the toys today, I KNOW I am getting my allowance on Friday!") If they have a goal to work toward they might even check in with me throughout the day to see if they can clean the litterbox, run the cordless vacuum, or otherwise make themselves useful. If they have a REALLY urgent goal, they can request special tasks that are outside the bounds of being helpful family members. Right now the main option is "fill a two-quart bucket with weeds, tap root and all, and earn a quarter."

I also agree that financial concerns and the cost of goods should be discussed regularly.

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meowcat
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Re: teaching kids about money

Post by meowcat » Tue Jul 30, 2013 8:32 pm

Watch and ye shall learn.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson

MN Finance
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Re: teaching kids about money

Post by MN Finance » Tue Jul 30, 2013 8:36 pm

We have 4 under 8 yrs. From the time they could talk we started teaching about money. Like all topics some got it right away, others didn't. We started allowance at about 3, a dollar per year old, meant to give it weekly but ended up being about monthly. It's not tied to (age appropriate) chores which are expected regardless. We let them earn money doing unexpected things (last night my 3 and 5 year old helped fold laundry unsolicited, so mom gave them each a dollar before bed). They save for things they want and go through the checkout at Target themselves. When it's someone's birthday the others take their piggy banks to the store and buy presents with their money. They're required to split money into 3 pools - share, save, spend. They give the share money at church, save goes into a savings account (not a piggy bank) and they have to write down a goal for the money (like buy a Wii, or a new hockey stick, which my son both accomplished), and spend is theirs to do whatever they want whenever they want. We don't talk about investing yet but have accounts (ret and college) but will in the next year or two. I bought the older two shares of stocks which hang on the wall, so that will be the starting point.

Texas hold em71
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Re: teaching kids about money

Post by Texas hold em71 » Tue Jul 30, 2013 8:42 pm

keq1381 wrote:The best thing I have been able to come up with so far is the concept of "family jobs" and "money jobs." "Family jobs" are chores that the child must perform as a member of the family, whereas "money jobs" are extra tasks I give them the option of performing for money (usually $1). I can't comment on how effective this idea has been since my kids are still young (newborn, 3, and 5).
+1

There are chores that are required and "free to me" just because they live here. That list has grown as they age.

There is a list of items that they can do at anytime for money. It is titled Help Wanted. These are real jobs in my house - usually MY chores - Money attached to these is reasonable- what it is worth to me to NOT have to do it myself. We are periodically told certain chores are underpriced. As they have gotten old enough to work for neighbors, my list has become even less desirable.

We don't give an allowance.

Between birthday money from grandparents, help wanted money, dog sitting, plant watering jobs for the neighbors, they do alright. One likes to work and spend. The other works a lot less and LBHM. We have a forced saving amount (not a percentage). One funds the savings months in advance. The other has gotten behind and watched all of his earnings go into the account until he is caught up.

They are teenagers so the jury is still out on a lot of things including this.

Texas hold em71
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Re: teaching kids about money

Post by Texas hold em71 » Tue Jul 30, 2013 8:49 pm

I should also add that my kids have watched a LOT of personal finance news items especially during the recession. They know a lot about our finances- generally along the lines of nisi's post above. When they ask questions, we are honest. They were shocked when we told them that when politicians talk about "the rich" they mean us. We live well below our means but they are also growing up in a town that is a bit of a bubble.

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Re: teaching kids about money

Post by sschullo » Tue Jul 30, 2013 8:52 pm

This Vanguard resource is primarily for teachers: http://www.myclassroomeconomy.org/
The resources are free to any teacher from K-12 grade.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

lhl12
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Re: teaching kids about money

Post by lhl12 » Wed Jul 31, 2013 6:54 am

It probably doesn't apply to most readers of this forum, but I always loved this quote:

"The best way to teach your kids about money is not to have any."

I'm not sure who said that - would love to know if anyone else does.

charley
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Re: teaching kids about money

Post by charley » Wed Jul 31, 2013 8:12 am

My wife turned me on to this website, and while we haven't had a chance to put it into practice yet (kid too young), I like the site. They give some practical ideas to talk about money and some benchmarks for different ages.

http://moneyasyougrow.org/

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Re: teaching kids about money

Post by sschullo » Wed Jul 31, 2013 8:35 am

lhl12 wrote:It probably doesn't apply to most readers of this forum, but I always loved this quote:

"The best way to teach your kids about money is not to have any."

I'm not sure who said that - would love to know if anyone else does.
Yea, I have borrowed this quote as it surely applies to many Bogleheads who were raised in a one bathroom home way back when, and some used an outhouse before! And the word frugal or living below one's means were unheard of.
From a British Journalist, Katharine Whitehorn: "The easiest way for your children to learn about money is for you to not have any."
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

Rodc
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Re: teaching kids about money

Post by Rodc » Wed Jul 31, 2013 2:52 pm

donall wrote:Good advice on this site, but keep in mind that no matter how well you teach your children, the results may be different than you expect. Our neighbors had two wonderful kids, both well taught about money. The kids have now grown up and one is careful and has an incredible savings attitude and the other will spend money as fast as made. So don't get discouraged if things don't go as planned and enjoy your kids.
True in all or almost all areas. One thing for sure is that nurture is not everything and kids have their own minds and natures. We can only do our best to guide our children.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

jlawrence01
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Re: teaching kids about money

Post by jlawrence01 » Wed Jul 31, 2013 5:23 pm

meowcat wrote:Watch and ye shall learn.

I think that is the most accurate answer yet. You teach children more by how YOU handle your money than anything else.

That includes involving your children in preparing taxes, grocery shopping, car negotiation and the like as they reach the right age.

finley
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Re: teaching kids about money

Post by finley » Thu Aug 01, 2013 7:02 am

Thanks for all the advice. We decided to introduce the allowance now ($1 per year old/wk) without a requirement to save or give away (atleast not yet). And we are not going to introduce chores for money either. Lots to think about and hopefully we can be good models for them over time.

ThatGuy
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Re: teaching kids about money

Post by ThatGuy » Thu Aug 01, 2013 7:10 am

I have a Scrooge McDuck lithograph in my living room.

Image

I commonly hold my toddler up to this and talk about how Scrooge worked hard to get that bag of gold, and saved it instead of spending it all like everybody else. I also talk about how Scrooge parlayed that bag of gold into a bigger bag making smart business deals.

His favorite part is pointing at the drunk in the mud and sayiing "uh-oh". ThatGal complains that I'm brainwashing him :D
Work is the curse of the drinking class - Oscar Wilde

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