Teaching your kids about finance is important, but take a lesson from me: it’s easier the earlier you start.
My 3-year-old has been telling me I need to save more. And I write about saving money for a living! In fact, I told her that I needed to grab some money for groceries and she said, “Save your money, Daddy — that would be better, right?”
My finance-dad heart melted. But I did need the groceries …
So don’t wait another second; start talking with your kids about their finances immediately to help them better prepare for the future. Then build up your own isolated parental economic system. It’s fun! I’ll teach you how.
First though; why should we teach kids about finance? Two reasons:
It gives them a competitive advantage. Kids often struggle to understand why most things are important but, as a finance dad, I really think that helping your child understand that personal finance is key to being successful in life. Many people avoid discussing money with their children to protect them from the complicated world of economics; but that’s a disservice. If you can teach your kids the basics of finance when they have no money, then it leads to good self-driven decisions when they do have money. Fast forward a few years and they’ll be wealthy and you can mooch! Now that’s investing!
It helps them become a better person. Young children can be financially rewarded for doing chores to instill the value of hard work from an early age. However, the most important financial lesson you can learn at any age, is the value of saving. Kids love instant gratification and, in the long term, that leads to a consumer mindset. But by teaching your child that saving money leads to more happiness, they’ll begin to realize that life is better when you have a stuffed piggy bank — and they’ll realize that life can be better when you don’t act impulsively.
Getting started: Monkey See, Monkey Do
One last point to address before we start teaching our toddlers: act the part! By practicing what you preach, your children will learn by example. As they watch you stow your money away in a savings account each month, they’ll begin to understand what wealth really looks like.
Start Educating Your Child Today
So now, you get it; children who learn to respect money and the incredible power it holds have a considerable advantage over other children.
Experts agree that an allowance helps teach kids financial literacy early on. While I am against an allowance, we can use a pseudo-allowance with our toddlers to teach these skills and have some fun at the same time. Here’s how:
Teaching a Toddler Finance
Toddlers aren’t great at many things other than being cute, so don’t push your luck. You need to drive home one primary concept: the benefits of saving.
So first we start with motivation.
It doesn’t matter what you choose; all that matters is that they want it. Badly.
I used candy. I try to keep my kids off of junk food, but this was worth it.
So candy is the carrot in this scenario, and there is no stick. Yay!
Here’s how I use candy to teach about saving:
The Routine
Every day after breakfast we have a special routine. After breakfast, my kids get money if they have finished their food by themselves and they cleaned up their toys the night before. It’s a simple set of chores but it makes our lives much better; the simple nighttime clean-up makes the house nicer, and we hate fighting with our kids about eating.
So I do a little morning inspection. Heck, my kids run ahead of me and clean up straggler toys they missed; it’s fine with me. They seem like they’re working hard and that’s what really matters. Just like a real job!
The Money
Next, we give them their money. But it’s not real currency; it’s special money that’s only good for candy exchange. If they saved, we double the amount saved every day and praise them.
Why double the amount daily? Because it’s simple and motivating.
As an adult, I know if my money doubled daily I’d be floating in cash — but for a two-year-old, waiting a whole day for chocolate is a hard decision. Even if the chocolate they can get the next day is five times larger.
Here is the redemption system:
- A single smartie for one coin
- A chocolate bar for three coins (that is, one day of saving)
- Something epic for 10 coins
That’s all there is to it. It might take a few weeks to start setting in but if you’re following the system that 14 smarties. Who cares?
Our oldest has only once saved up for the epic level but now she consistently passes over the single smartie level. I’ve never been more proud as when she beams about how she plans to save her money.
What about you? Do you have any child finance success stories to gloat about? Please share the glory!
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Author Bio: I’m Leif Kristjansen, founder of https://FiveYearFIREescape.com where my wife and I blog about how we felt busy as hell and took a hyper-time-efficient path to retirement in our early 30s. We have kids and a house in a high cost of living city but we succeeded via saving, life hacks, and lots of rental houses. You can follow me on Twitter here.
Photo Credit: stock photo
I always enjoy reading how parents try to teach their kids about the importance of saving money. Sounds like your plan is working well!