What Should I Be Teaching My Kids About Money?

Money is definitely something that you need to be teaching your kids about. The problem is that most people don't know where to start. Heck, most of us here are teachers. We teach for a living, but we don't know what or how to teach our children about money.

The sad fact is that less than half of parents in America talk with their kids about saving and investing for retirement. Unfortunately, too many parents are themselves uneducated when it comes to managing their personal finances. This whole blog is designed to give you enough background knowledge and confidence to take charge of your own finances so that you can pass this knowledge on to other teachers, but more importantly, your own children.

So where do I start?

The Basics

The first conversations about money with your child should focus on what money is, how you earn it, and where it goes. Start with talking to them about your check and how you earned that money. It's very important that your child understands that the money you earn comes from you giving your time to your employer. It isn't just "given". After they see your paycheck, they will probably think that you are rich! The next step is to explain to them where the money goes. This money allows them to have a place to live, lights, food, etc... Explain to them that all of these items need to fit in your budget. A budget is an important part that many people skip and even fewer follow. They need to understand that without a budget, you can't move into the next step of financial literacy.

Savings

Now that your child understands the basics. You can dive deeper into budgeting with them and show them that you should NOT be spending every dollar you earn. Start with a simple idea of a savings account. This is an important step for children. We live in an instant gratification society where people get what they want when they want it. Kids must learn the concept of delayed gratification and teaching this at a young age is paramount. Try to keep it very simple. Have them think of a reasonably priced item that they really want. Now it is up to them to save enough money to buy it. If your child is 8 or older, you could give them a small allowance for doing chores around the house. This is a golden opportunity for them to learn the concept of work for pay. Just like if mommy and daddy don't go to their job, if you don't do your chores, you don't get your allowance. An important step of this is to make sure that you give them the money that they've earned. They need to have the ability to spend it when you go places. They need to see all of the temptations in everyday life. We've all made impulse purchases before. Your child needs to see that there are going to be things out there in the real world that are going to try and "persuade" you to give up your hard earned money. Whenever your child wants to spend on something that isn't their "goal", remind them of what they really want to get, but don't stop them. If they do decide to spend on something else, keep talking up that "goal" that they have to create a little buyer's remorse. They need to feel that at a young age. Better to feel some buyer's remorse now on a $10 toy than 20 years from now on a $20,000 one! Once they've learned that lesson, it's time to move on to the next step.

Investing

Now the real fun begins. Remember when you talked with your child that the way you earn money is by working? Now they need to learn that real wealth is made when your money makes money for you! To me, the best way to teach this lesson is to actually open an investing account for your child. I believe that a Roth IRA account is the best vehicle to do this. We talked about Roth IRA's in this post. A Roth is a great choice because the money grows tax free and is NOT taxed when money is withdrawn. Your child can also withdraw any principal invested at any age. The con is that they may NOT withdraw any growth on the money until they are age 59.5. This investment also gives you a chance to talk with your child about retirement. Wouldn't we all like to retire at age 59.5 with enough money to live our best life? Starting a Roth at an early age will allow your child to do that. Now this is the ultimate in delayed gratification! One caveat with a Roth is that your child can ONLY invest $6,000 or what they claim in earned income during a calendar year, so your child will need to have a documented job to invest in a Roth. Sorry, their allowance doesn't count. Oh, your child has a mowing "business" that they are paid to mow your yard and a neighbors. Hmm. We may have something. Consult your personal CPA before committing to that. The Professor is NOT a certified CPA. 

Conclusion

Every parent wants their child to have a great life. Teaching them about money at an early age is a vital role for you as a parent. As a teacher, you KNOW that your children are NOT being taught these types of lessons in school. Ironically, high schools and colleges will teach students how to manage money in a business, but not your own personal finances! So, take the steps necessary to put your child on the right path here in Money 2020! Nobody will care about THEIR money more than THEM!

Keep Stackin!