How We’re Teaching Our Kids Good Money Management Skills

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

As we work our way out of tens of thousands of dollars in consumer debt, we’re keeping our kids informed of nearly every step along the way. We’ve been open with them about our situation from the beginning of our debt payoff journey, from the starting debt numbers to the drop in debt, to some increases in debt due to family crises and the subsequent drop in debt again.

We’re keeping them involved in hopes that they choose to avoid debt and not make the same money mistakes that we’ve made over the course of our marriage. We’re using several different strategies in order to teach the kids good money management skills while they’re under our roof, hoping that they’ll bring those skills with them as they head out into the adult world. Here’s a list of some of the more important things we’re teaching our kids about good money management skills.

We Teach Them About Debt’s Consequences

When we first began our debt payoff journey, we sat down with the kids and explained the perils of our debt situation. We started with a sixty-five percent debt-to-income ratio and LOTS of consumer debt. We told the kids our debt numbers and how much in monthly payments we were paying each month. We also explained to them what interest was and how much of our monthly payments were going to the loan and credit card companies via interest each month.

When we first began our journey, our interest payments totaled nearly $1200 a month. The magnitude of that dollar amount and what other more fun things we could be doing with that money shocked them, just as it shocked us when we sat down and figured it out.

We want our kids to know how much an excessive amount of debt affects current and future wealth-building goals so that they work to avoid debt, especially “bad” debt.

We Don’t Let Them Borrow from Us – Usually

One of the house rules for our kids is that if they want something, they have to save for it. We want to teach them to get into the habit of saving for things instead of borrowing for things. Yet on occasion, if one seems set on borrowing money, we’ve let them borrow it.

This has only happened once, and with our oldest. She was taking an interest in archery and wanted a bow and arrow set of her own. The price? $257. This was not in our budget at the time, so after much pleading and negotiating we allowed her to use her birthday money ($100) to purchase the set and to borrow the rest of the money from us.

She was only twelve at the time so she didn’t have a job. The money she earned at the time came from her small allowance and other miscellaneous paid-for chores, as well as from Christmas money that year.

Madelyn hated every bit of the three months it took her to pay off her debt. We required fifty percent of her allowance each week, which meant her own spending cash was cut in half. We also required all of her Christmas money that she received that year to get the debt paid in full. It may sound harsh, but we wanted her to understand the feeling of bondage that debt can have, and at the end of the experience, she did.  She said, “I’m never, ever borrowing money again.” We hope she sticks to that promise.

We Have Them Help us With the Monthly Budget

Each month we show the kids our monthly budget so that they understand where our money is going that month. We also ask for their input about changes we can make to the budget that can help improve our situation. Not only does this help them to understand the restraints that debt brings, it helps them to understand why we say “no” to certain extraneous purchases. When they see where the money goes each month, they don’t complain when we’re not going out to eat or shopping frivolously for clothes or toys.

We Teach Them the Importance of Saving and Investing

Using online savings calculators and our own savings and retirement accounts as examples, we show our kids the results of saving money and the ups and downs of investing. We explain the benefits of saving, such as having money available for car and home repairs and other bills. We also encourage them to put a portion of their own money into savings.

I’m sure that each of our four kids will manage money in a different way, but we take comfort in knowing that we’ve taught them responsible money management methods and that we’ve taught them of the dangers of debt and the importance of saving. I have a feeling they’ll do much better than we have with money.

How about you all? What money management skills do you feel are important to teach to children?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/62030038@N02/8402437512/