kids earning money

One of the most common questions I get from clients is how to do money better with their kids then their parents did with them.

Here’s the first step: Buck up and have the hard talk. No, not sex. Money!

In a survey by T. Rowe Price, 74% of parents admitted to being at least somewhat reluctant to open up to their kids about money. But kids really need to understand money. We are in the information age. Your kids are hearing about the impact of jobs, debt, and foreclosures everywhere.

So what should we say and do to set our children up for a healthy financial future?

Here are 3 key strategies to get you started:

1. Be a good role model.

Albert Schweitzer said “Adults teach children in three important ways: the first is by example, the second is by example, the third is by example.”

If you don’t have a healthy relationship with money, your children will pick up on that. So if your finances are a mess, the first thing to do is to get them under control. “Do as I say and not as I do” doesn’t work in reality. If you have no spending plan or savings, and consistently live beyond your means, it’s not likely just telling your children the way to go will get them on track.

kids role model

Once I was shopping with a friend and her 4 yr old son. The little guy glanced at a toy he wanted, pivoted around and excitedly asked: “Mommy, is it pay day today!”. Even a four year old notices if you are living paycheck to paycheck!

So step one (and step two, three, and four) is to be a good role model.

2. Tell the Truth.
If you are struggling through tough times, let your children know in an age appropriate way. Explain, for example, you won’t be going out to restaurants, but you will make fun things at home. Young children need specifics, but always reassure them that they will be taken care of.

Children sense when something is wrong. If you stay silent when you’re
facing challenges, your children may imagine a scenario that’s much scarier than the truth.

talk to your kids

3. Make Allowance Hands-On
Start when your children are young to teach them how to save, spend, and give. With your youngest ones, use cash to establish the connection with “real” money (vs. electronic funds). Concepts such as delayed gratification and spending priorities mean more when real money comes out of kids’ own pockets.

I firmly believe that allowance should not be tied to chores or grades. The children’s job in the family is to do their best in school and to help at home, just as your job is to work or run the house. That way, chores aren’t negotiable.

Teach money management. Have them consistently dedicate a portion of their allowance to savings, a portion to spending and a portion to giving.  A purchase that comes from months of savings is greatly cherished!

Fortunately, there’s a wonderful teaching resource available: Money as You Grow, a series of 20 age-appropriate financial lessons developed by the President’s Advisory Council on Financial Capability. It’s worth reading.

Parents are kids’ first money mentors, and money lessons we learn early in life form the foundation for lifelong habits. What you say and do now can offer your children the key to a future of financial health.

So buck up and have the hard talk — about sex, yes, but first, about money!