Financial Education for Kids – where do you start?
How do I teach my child about finances?
Often a parent’s first introduction to talking to kids about money is:
Mommy, are we rich? Are we poor?
How much money do you make?
Why couldn’t you be a doctor or lawyer so I could have a horse?
Conversations about how to talk about money with your kids can turn your stomach into knots and leave you speechless.
You don’t know where to start. You’re intimidated by the complexity of the subject. You are uncomfortable with being judged by your kids about your financial realities and challenges.
Even though my daughter is under 1, I think about these types of questions. How I’m going to respond to her.
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And then I came across the book The Opposite of Spoiled.
It’s written by New York Times money columnist Ron Lieber.
And I now feel completely confident with how I’m going to handle myself with these questions and so much more.
This book not only examines how to talk about money with your children.
It also discusses best practices for raising financially literate children.
Lieber covers all of the fundamentals: allowance, the tooth fairy, chores, charity, savings, birthdays, holidays, cell phones, splurging, clothing, cars, part-time jobs, and college tuition.
The book also deals with how to instill good values like patience, generosity and modesty through these money talks.
The book is smart, honest, practical and comprehensive. There are loads of anecdotes. If you have or are planning to have kids, this is a must-read.
Here’s a snapshot of the tips to teach financial education to kids in The Opposite of Spoiled.
1. Use “Why do you ask?”
Here’s the answer.
Whether it’s mommy, are we rich or are we poor, Lieber says that in his years of research, there is one answer that works best for every money question:
Why do you ask?
Your tone is important. Say it in a way that’s encouraging and not as if you’re showing disapproval for the comment. You want to cultivate their sense of curiosity.
The reason for this question?
- It’s a great stalling tactic.
- You can find out what the root of the comment is so you can provide an answer within this context.
For example, if your child asks “Are we poor?”. You ask them why. You might find out it’s because they’ve noticed that other kids in school have things they don’t have.
The younger kids might think that the reason is because they’re poor. Lieber says you can be frank with them. If you’re not poor, you can tell them “People who are poor don’t have everything they need like food and clothing and medicine. We have those things, so we’re not poor.”
If you’ve recently lost your job or are unemployed, particularly if the inquiry comes from an older child who has more of an understanding, the child might just be wondering what happens next.
Lieber advises that you can tell them that the future is unknown. You can promise that no matter what happens, you have family and friends who are helping and you are doing your best to improve their situation.
Lieber mentions a lot more examples within his book.
2. Use the allowance as a teaching tool.
Children are often given an allowance when chores are completed. Lieber disagrees with this practice; he thinks that children should attain an allowance independent of chores.
Tying chores to money develops an expectation that people should be paid for chores. But chores should be done for the same reason parents do chores – BECAUSE THEY HAVE TO BE DONE.
If chores are done poorly, you can take away something they view as more valuable than money like a toy.
He thinks an allowance can be used as a learning tool to help kids learn to save and spend money. Practicing this skill earlier in life is useful as the inevitable mistakes don’t matter much. Through these exercises, they’ll also learn patience, which is valuable in our current environment when everything is easily accessible.
Alternatively, if you don’t want to give your child an allowance because you feel they haven’t earned it, you can give your child money for finding and solving a household problem.
One example given is how a child noticed all the fallen leaves in the backyard and offered to rake them at a negotiated price. He then noticed his grandparent’s dirty car, which inspired to create a car washing business. You can use an allowance to inspire creativity and entrepreneurialism in your child in this way.
3. Guide them how to split their allowance.
If you’re planning to go the regular allowance route, Lieber discusses how you should start it by Grade 1 or earlier if your child is asking questions concerning money. With children under 10, $0.5-1 per week is a good starting point with a raise each year on their birthday.
You can use 3 clear plastic containers, one for:
For example, if their allowance is $.75, you could guide them to put $0.25 into each jar. Over time, you could give them more control over what amount to put in each jar.
You could establish an incentive for saving like giving them monthly interest on any money in the savings jar. You could establish a tax on the spend jar when a certain amount of money is removed. After a few years, you can bring them to the bank to open a savings account for their savings jar money.
Through using and building the funds in each jar, kids learn a lot of valuable lessons.
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4. Give them guidelines for spending and giving.
While Lieber discusses letting his own children have the independence to spend their own money so they can learn and realize the consequences of their decisions, he does point to some guidelines you could set.
For spending, here are some tools:
- Tell your kids to apply the “hours-of-fun-per-dollar test” so they can have a gage for which toy they’ll get the most playing time out of.
- Tell them about the “more-good/less-harm rule” to remind your children that every dollar spent supports a business or brand. For example, if that business is harming the environment or animals, you might consider not purchasing from them.
- Introduce tools like coupons or thrift store shopping.
- As kids are susceptible to advertising, you can turn the watching of commercials into a game to see who can say first what subliminal messages the company is trying to send viewers.
For giving, explain to your kids what charitable causes you give to and why so they have a baseline for how they can spend their give jar. You could also give them the idea of buying food and necessities for people in need. Maybe giving can start with volunteering or donating their clothes.
5. Have your kids work.
While back in the days kids used to work full-time on the farm at the age of 12, now many kids don’t work until they have graduated from college or university.
The reason is partially because it’s difficult for teenagers to get jobs, but also there’s this conviction that jobs hinder kids’ academic performance. However, parents don’t need to worry.
Lieber came across a study that shows how part-time jobs are correlated with good grade point averages as long as the teenager doesn’t work for more than 15 hours a week. Through work, kids develop “grit” that will help them achieve success in their future.
If you don’t want your kids to work at a traditional part-time job in a restaurant or retail store, have them start a job in your home. Young kids are capable. Lieber points to examples like the contestants on MasterChef Junior. Sarah Lane, a 9 year old girl, who can cook Beef Wellington, started using a vegetable peeler by age 4.
The author also interviewed a family who lived on a farm. Their youngest – a 6 year old boy – is in charge of washing the bottle nipples for the calves and steering the tractor!
6. Nurture gratitude.
Lieber says to foster a culture of gratitude, you could say simply say grace before a meal.
If you’re uncomfortable with the religious connection, you could instead ask everyone at the table to discuss one thing that happened that day that made them feel grateful. Or ask everyone to give a toast to someone they met that day.
This simple practice of showing appreciation on a daily basis is a valuable lesson for kids. They learn to appreciate what they have and not focus on what they don’t have.
Furthermore, many studies have found a relationship between gratitude and higher academic success, satisfaction and social integration. There’s also a correlation between gratitude and lower levels of envy and depression.
7. Nurture perspective.
It’s also valuable for kids to gain perspective on their situation so they become more sensitive and aware. They develop a curiosity about people who are different from them and an understanding of what it might be like to have more or less than what they have.
They can gain this perspective
- by meeting and befriending kids from different socioeconomic backgrounds through sports and activities
- through regular conversations about money, tradeoffs, and the values behind our financial decisions
There are many great stories and learnings in this book. I’ve only mentioned a handful of its valuable lessons. I can see myself constantly referring back to this book as my daughter grows.
I want to say a big thanks to Ron Lieber for putting this comprehensive and important book together. If you are a parent or soon-to-be parent, I highly recommend getting a copy of The Opposite of Spoiled.
You can listen to The Opposite of Spoiled for free through Audible’s 30 day FREE trial, which gets you 2 FREE books! Audible,an Amazon company, has the world’s largest selection of digital audiobooks. Even if you cancel within the free trial period, the books are yours to keep!
Alternatively, read The Opposite of Spoiled at a discounted rate through Amazon’s FREE Kindle reading App. This allows you to read your book on most devices including PCs, smartphones, and tablets.
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