Good personal finance habits start young. Today you’ll learn how to make your kid a money master with Eva Baker.
Our children don’t get much personal finance education in school so it’s up to parents to provide that education. There are things we can do throughout their childhood to turn our kid into a money master.
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Teens Got Cents
Eva started Teens Got Cents as a home school project. Her mother started listening to audio books by Dave Ramsey and Eva got interested in personal finance because she never wanted to have to dig herself out of the kind of hole those who need Dave Ramsey have gotten into.
She started doing some research but found that most information was geared toward adults and there wasn’t much to help kids.
Eva saw a gap and decided to fill it and that’s how her site started when she was just 16. Eva blogs about how teens can shop smart, get a great part time job, go to college debt free, save money, and start their own business.
In 2015 she founded The Teenpreneur Conference. This annual conference brings together teen business owners as well as teens who want to start their own business in a community that truly is by teens, for teens.
Even very young kids notice things happening around them and are interested in them. If you’ve ever had a kid who used a swear word they overheard you say at an inopportune moment, you know just how much they absorb, even if you don’t think they’re paying attention.
If your kid only ever sees you swipe a credit card to pay for things, they notice. What they might notice is that money is infinite. A little kid can understand that if you have $1 and you spend that dollar, it’s gone. You handed it over to the cashier and they kept it.
When you swipe that card, the cashier hands it back every time so obviously, you can buy an infinite amount of things as long as you have one of those magical cards!
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Even kids this young can absorb personal finance lessons. And some of those lessons are best taught at this age because any mistakes the children make will be minor and not life to destroy like they can be later in life.
The envelope system is a great way to teach kids how to budget. Give your kid three envelopes, one for spending, saving, and giving. Let them decorate each envelope in a way that represents what each one is for.
Some parents give allowance like Universal Basic Income. The kids get a certain amount of money just for existing. Some parents give money in exchange for chores and some combine the two; the kids get a certain amount of allowance independent of chores but can make more if they do chores.
The envelope system is great for little kids because it lets them see the cash and see when the cash is gone. There are a few ways to implement the system. Some parents insist that the money is split evenly between the envelopes. Some let the children divvy up the money any way that want so long as each envelope gets some portion.
Buy your child a wallet to keep their spending money in. When you go shopping with them and they want to buy something, you can use it as a teaching moment. Maybe they want to buy more than one thing but don’t have the money for all they want to buy. You can explain that no one has the money for everything they want so they have to make a choice.
If they want something they don’t have money for you can explain that they need to save up to buy it. You can offer to let them to chores to earn extra money to buy that thing. This shows that we have to delay gratification and work in order to afford the things we want.
For kids this small, some extra parental input is needed when deciding what to do with the saving envelope. Should you tell them they are saving that money for college?
Maybe not at this age. College is a pretty far away, dim concept for a 5-8-year-old. Let them save for a bigger purchase like a bike but one that is not so far in the future and more concrete.
The giving envelope is important for kids at this age. This is when they start to learn to be generous to others and that some people (or animals) are less fortunate than others but the child can help by donating money that will be used to help them.
You can continue the envelope system at this age but can also assign chores that teach responsibility in other areas. By this age, kids should not be congratulated or paid an allowance for keeping their rooms clean, that is just part of being responsible and living in a family.
But you can give them allowance for things like cooking one meal a week or doing a portion of the yard work.
This is also a good age to introduce them to games like Roller Coaster Tycoon because it can help them understand some of what goes into building and running a business. Or do what past guest Adam Carroll does with his kids, play Monopoly with real money.
Teaching your kids personal finance habits doesn’t have to turn into some elaborate, pre-planned lesson plan. Teach them by involving them in day to day things like budgeting for groceries or Christmas presents. Let them help plan and budget for a vacation.
This is the time that you can start talking about bigger, longer term uses for the save envelope like saving for a car or college.
By now your kid should get the point of the envelope system and are ready to graduate. This is a good time to open a bank account, ideally a checking account that comes with a debit card. It’s a good precursor to a credit card and you can use it to teach the lessons of using a credit card responsibly without the risk.
A part time job can teach kids all kinds of valuable lessons, not just in personal finance but for life in general, how to write a resume and apply for a job, how to interview, showing up on time, learning new skills, learning how to get along with bosses and co-workers, how to file taxes.
This is also a good time to encourage your kids to start a business. It can be a babysitting service, a house cleaning or yard work service. There are lots of independent jobs that people will hire teenagers to do.
And this can teach them even more than a part-time job; how to advertise and hustle for business, how to juggle multiple clients, maybe even how to hire additional employees and be a boss to other people.
If your teen is interested in starting a business, check out Eva’s upcoming conference on teen entrepreneurship.
By now, parents should be more insistent about the saving portion of earnings. If your child intends to go to college (and it’s not for everyone) they should be saving heavily toward that so they don’t have to take out so much in student loans.
Don’t assume teens aren’t interested in money. They are old enough to notice when parents are struggling. You can be honest with them, especially about the mistakes that you’ve made. One of the biggest money regrets people have is that they did not start investing earlier. This is a good time to start a conversation about investing because there is no substitute for time when it comes to growing wealth.
How much guidance should you give your teen when it comes to money? Help them every step of the way, only step in when they are about to make a mistake, or only when they are about to make a big mistake, never step in but help them understand the lesson they just learned the hard way?
That’s a question for each of us to answer individually. If you have been teaching your kids money lessons all along, hopefully, they won’t make any mistakes so big that you have to step in. When you give your kids the opportunity to make their own decisions, they may surprise you.
It Starts Early
It’s really never too early to start teaching kids about money. Even a toddler can understand that having five strawberries is more and better than having two strawberries.
The earlier you start talking to your kids about money, the more time you have to guide and shape the habits that will be with them for their entire lives, and in a lot of ways, shape the course of their lives.
Giving them a credit card the day they leave for college with the admonition to “only use it in an emergency” is not enough and too late.
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