Kids and Money

Spokane is a great place to raise a family.  The schools are great, traffic is manageable, and nature is all around.  

Despite all the unique qualities of Spokane, some things are the same everywhere.  I meet with clients across the country who attribute their early-career money mistakes to a lack of education.  Local clients often echo the same sentiment.

A lot of us figure it out eventually but rarely do we pass those lessons to the next generation. Many parents have no idea how to teach their kids how to earn, save, and spend money wisely. 

But if you want your children to become money-savvy adults, you’ve got to help them understand money and the role it plays in our culture.

Needs vs. Wants

When helping kids understand money, it’s a good idea to explain financial decisions within a simple framework.

We all need food and we need a place to sleep. When it comes to toys, are those needs or wants? 

List some of the goods or services you’ve paid for recently and ask your child to classify each as a want or a need. It’s a simple exercise that gets your child thinking about financial decisions.

Once they have understand this concept, it will help them to prioritize financial decisions.

Address the Role Money Plays in Your Life

One way or another, kids will end up with an opinion about money.  So, it’s important that you help them create an informed opinion.  Explaining how money flows can go a long way.

If you’re employed, then you receive a paycheck. Is it based on hours worked or a salary? (You can share this information with your kids without divulging exactly how much you earn.)

What do you do with your paycheck? Does it go into a bank account? Some kids may understand what a bank is, but many do not. With the rise of online banking, the notion of banking can seem downright esoteric.  Many kids have never seen the inside of a bank.

Talk with your kids about the ways you interact with your bank. For instance, your employer pays you, then you deposit some of the money into a checking account. Maybe some of it goes to a savings account. Maybe some ends up in a retirement account.

At this point, maybe it’s worth your time to explain what a retirement account is and what retirement is. No joke, my son thought his grandpa was retiring because he “got tired again,” i.e. he kept getting tired so he stopped working–of course!

If you don’t explain this stuff to your kids, they will find creative ways to fill in the gaps in their knowledge.

Where’s the Interest?

Interest rates are kind of magical. You keep money in a bank and eventually you can take out more money than you put in.  It’s not exactly intuitive.

So how do you get a kid to grasp its value? 

The best way to teach children how interest rates can help or hurt is to experience it first hand.

If your child wants a new toy, offer to lend them the money… with interest. Offer to loan them $20 today, but explain that they will have to pay you back $22 at the end of the month.

Or, better yet, offer them the opportunity to earn some interest in their money. For every $10 they save from their babysitting gigs, you give them an additional $1. Being the bank is nice because you can offer more generous rates than most banks are currently offering.

More importantly, this allows to really emphasize the value of interest. It’s preferable for them to learn this from you now instead of from credit card companies later.

Accounting 101

No one talks about money management skills. Even speaking about money is often considered taboo. And because of that, few parents educate their children on money. 

That is a cycle we need to break.  I think it’s terrific that we’re seeing programs like Junior Achievement that provide financial literacy for local students.  But these programs are a starting point not a substitution for parental guidance.

The most important thing you can to today is to simple start the conversation with your children.  Share with them your own experiences with money and what you’ve learned along the way.  The longer they have to understand the impact of financial skills, the better.

And that’s how you ensure that your children arrives at adulthood be in a better position than you did.