By the time your kids are old enough to throw a penny in a wishing well, they’ve already started to learn about money and its importance in the world. Even having to decide how many M&Ms to trade my brother to let me pick the music we listened to in the car was a financial lesson.
When kids are little, they pick up on the basic idea that you need money to get things. But the finer points of that education are a life-long process. You’ve already set an example as your kids approach middle school, when they’re becoming increasingly savvy but before their responsibilities become too great.
Here is how to teach middle school kids about money.
Talk about money all the time. Talk about money like you talk about what’s for dinner. Make it a natural part of your conversation with them, if you haven’t before. This will not only help them learn skills when they’re young, but get them comfortable talking openly about money when they’re older.
Walk them through some bills. At this age, kids don’t need to know about every bill and every penny, but picking a few monthly bills to show them can reinforce the concept of wants (an iPod, cable) vs. needs (utilities, insurance). Teach them how to read a bill, including due date, late charges, and checking the bill for accuracy before paying it, as well as looking for a number to call if they have a question or dispute.
Start a bank account. Teach them how to make deposits and withdrawals at a branch and an ATM, and how to check their balance and read a bank statement. Ask your bank if they have a child-friendly account, such as the Kidz Saving program at Union Bank for children 8-12 that features sticker rewards for making deposits that your child can exchange for gift certificates.
Give them an allowance. Love it or hate it, an allowance gives children a chance to practice making their own money decisions, and gives you practice in biting your tongue and letting them make some poor decisions along the way. Remember that poor decisions now (while the stakes are low) can help your child learn for the future, so resist the temptation to “bail them out” if they spend their money early and don’t have enough for something else they want to buy. If you want to teach your kids about earning, you can easily put conditions on the allowance (such as chores). CNN Money has a good article about things to consider when setting an allowance.
Teach them to do a unit/price comparison. By middle school, kids are capable of sophisticated enough math to determine the cost of an item per unit rather than just by the overall sticker price. Plus, if they happen to have an iPod or smartphone, this is a real-life application of the handy “calculator” feature for more precise comparisons!
Give them a chance to make mini-budgets. At ages 10-13, kids may not be able to determine how to spend a grownup-sized paycheck, but they can practice making a trip to the grocery store with a “goal” (say, dinner for 5) and a limit ($20). For younger kids, have them go through the store with you for that purpose alone (rather than during a large weekly grocery trip). Older kids with a little practice can be sent through the store on their own to tackle that mission while you’re making a larger trip.
Don’t forget charity, gifts, and donations. The question here is often whether to force, or merely “encourage” gifts and donations. One option is to require children to donate a portion of their allowance or savings but allow the child to decide what they would like to donate to. Another option is to encourage, rather than compel, gifting; some parents choose to “match” whatever portion the child donates or pay “interest” on that amount to sweeten the deal, and to hope the feel-good benefits of giving condition your child to make it a lifelong habit. Regardless of the details, remember that the example you set in your own life is likely to be one of the strongest shapers of your child’s generosity as an adult.
Taxes 101. Introduce the concept of taxes by briefly explaining the various taxes paid on types of income; one basic method is to show your child a paycheck (your own, or a sample from the internet). Help them figure in sales taxes when they are saving for a purchase.
Teach delayed gratification. Many parents teach kids about money by requiring them to pay back the cost of an item they want. Kids will usually start out motivated to earn the money, but once the item arrives, motivation can drop precipitously; as a parent you have to decide whether to “repossess” the item in question if “debt payments” fall behind. Instead, start having your child earn the money – or at least a significant percentage – for an item they want before they can buy it. You can help them create a savings plan and identify potential sources of income such as allowance, birthday money, or extra chores. This teaches persistence, planning, and delayed gratification, and reduces impulse purchases. Your child may even decide they don’t want the item that badly if they don’t get it right away, and choose to save for something they value more!
Looking for ways to make it fun? Check out some money games for kids!
How did you learn about money as a kid?