As parents, we want the best for our kids. We want them to avoid the mistakes we made in our own lives. Whether you have a toddler or a 17-year old, there are a number of things you can do to set the stage for your child to make smart money decisions in adulthood...
The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food. She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.
As parents, we want the best for our kids. We want them to avoid the mistakes we made in our own lives. While we really have no control over the decisions they make as adults, we can teach them lessons and raise them in a way that will hopefully encourage them to make smart decisions, especially when it comes to money management.
Whether you have a toddler or a 17-year old, there are a number of things you can do to set the stage for your child to make smart money decisions in adulthood. Just remember, the earlier you start these lessons, the better!
Pay Them An Allowance Based on Chores
There is a lot of debate within Internet parenting groups about this, but I’ve always been firmly in the allowances-are-paid-based-on-chores camp. As an adult, if I don’t work, I don’t get paid. I want my kids to make that connection earlier. If you don’t help around the house, you don’t get paid.
Each of my kids has basic chores. My 13-year old has to empty the dishwasher every day, and my 9 and 7-year olds have to pick up and tidy the living room every day. Those are their minimum chores, but there are plenty of extra chores they can do to make additional money. One of my kids takes advantage of the extra chores to earn more money every week. The other two? Not so much.
Offer a Savings Match
As an adult, I’ll be honest, I really dislike putting money away for retirement when money in our monthly budget is so tight. However, I’m greatly motivated by employer matches because, hello! Free money! My husband and I max out how much we can save for retirement through work so we can get that valuable employer match.
We’ve put in place the same system for our kids. We ask our kids to save 10% of their allowance per week to invest in a college fund. We then match what they put into the fund. This motivates my oldest, who is only four years away from college, tremendously. He loves watching his money grow because it’s doubled with our match.
Buy Stock
Another thing you can do is teach your child the power of compound interest and investing. Our teen puts all of his investing money in a separate investment account. Not only is he getting a match from us, but he’s investing in the stock market and watching his money grow. This is the best way to teach him about compounding interest. He’s fascinated watching how the money grows over time.
When he’s old enough to get a part-time job, my husband and I also plan to match any contributions he makes to a Roth IRA. If he opens a Roth at age 16 and we match his contributions, he will be well on his path to a comfortable retirement thanks to compound interest. Even better, he’ll have to contribute much less for retirement over his lifetime thanks to starting early.
Play Money Games
One of the best ways you can teach your kids more about money is by playing games. There are a variety of kids’ money games available:
Online Games
On this site, your kids can play games such as memory match and Save Perry’s Pennies. These games are for younger kids (under 10), and you can set the difficulty level from easy, moderate or difficult. These games teach kids about saving and expose them to common economic terms such as “debt”, “inflation”, and “gold.”
Other games include World of Cents, which teaches kids ages 5 to 10 the value of money by teaching them the concepts of earning, spending, and saving and Hit the Road which is geared toward kids ages 10+ and has kids go on a virtual vacation. They’ll need to earn money, buy food and gas and avoid going into debt.
Board Games
- Money Bags
- Money Bags teaches kids about coins, addition, and managing money. It is recommended for ages 7+.
- Life
- The Game of Life seems like it’s been around forever, but the lessons it teaches are still valuable. Players save for retirement, buy houses and cars, and establish families. The player with the most money and investments at the end of the game wins. Recommended for ages 8+.
- Monopoly
- Learn all about real estate and money management with the classic board game, Monopoly, for ages 8+.
- Cashflow 101
- Created by Robert Kiyosaki (Rich Dad, Poor Dad author), Cashflow 101 is designed for ages 14+ and teaches investment principles as well as accounting and finance.
- Act Your Wage
- Created by Dave Ramsey, Act Your Wage, is suitable for kids ages 10+ and teaches Ramsey’s financial basics such as paying off debt, retaining a $1,000 emergency fund, etc.
Let Them Make Mistakes
This is a tough one for many parents, but be willing to let your kids make financial mistakes. If you go to the movies and your child blows all of her money on popcorn and candy, let her. Chances are, all week she’ll lament not having any more money until her next allowance. As humans, we often learn best thanks to the mistakes we make. Don’t protect and shelter your kids from making mistakes.
Prepare for College
As your child gets into her teen years, let her take responsibility for the biggest upcoming expense she will face—college. There are several ways to do this.
Scholarship Applications
Some parents have their children apply for college scholarships rather than work a part-time job. The rationale makes perfect sense. If your child is able to score a scholarship or two or three, she can make much more money than if she worked part-time at a fast food restaurant in high school.
A guaranteed place they can earn college money is RaiseMe. Teens choose the colleges they are interested in attending, and then they get compensated based on activities that they are already doing. For instance, if they get an A in algebra class, they might earn $120. The catch is that students don’t actually get the money until they enroll in the school.
Utilize College Scorecard
Another task for teens is to utilize College Scorecard. This program lets students enter the major they plan to pursue as well as the college they want to attend. For example, if a student wants to pursue a Liberal Arts Bachelor’s degree at the University of Michigan and uses College Scorecard, he will see that 90% of the students graduate and that the average salary for that field after graduation is $60,100. Families making $48,001 to $75,000 can expect to pay $9,761 per year.
This tool can help teens measure the value of both the colleges they’d like to attend as well as the degree they would like to pursue. Hopefully, they can make a smart decision about the college they should attend in part based on this tool.
Conclusions
If you want your kids to grow financially responsible in adulthood, you must plan to have regular conversations with them about money and implement some or all of these strategies.
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