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Every parent’s goal is to save money for their kids future. There are a few effective ways to save money for kids. One of the most effective money management tips might be allowing them to make mistakes… Here’s how to teach your kids about money.
How to Teach Your Kids About Money… Let Them Fail
When it comes to parenting, every parent wants their kids to be better off than they were (at least the good ones!).
Whether this means encouraging them to work hard and apply themselves in school, or giving them the life opportunities and experiences they never had growing up, the ultimate goal is to raise a healthy, happy, well-adjusted young adult who’s ready to leave the nest at an appropriate age (read: before they’re 35 and have lived in your basement for 15 years).
When it comes to giving their kids a solid financial foundation, most parents often don’t know where to start. Maybe they take their kids to open a bank account when they’re teenagers.
Perhaps they encourage them to start a paper route or get a job so they have some spending money.
Or maybe it’s the old standby allowance routine of giving their kiddo a lump sum of money, occasionally tied to some sort of work around the home, that they can spend on whatever their heart desires.
And that’s usually where the financial education ends. Junior applies to college, takes on the anchor of a student loan, and after 4 years gets a job in order to pay off the debt he’s just incurred.
A little while later, he gets married, takes on another massive debt load (a mortgage) when he buys a house and spends the better part of the next 40 years trying to climb out of the hole he’s dug for himself.
Depressing? Yes, but it doesn’t have to be this way. Parents are in an incredibly powerful and unique position to set their kids up to have the type of financial success that most people only experience in their dreams.
But how can you as a parent give your kiddo the skills and tools they’ll need to be money rockstars? Well, oddly enough, it all comes down to striking a fine balance between letting them fail and being there to support them (notice I didn’t say SAVE them) when they do.
The Foundation of Money Management for Kids
Your child needs you to give them the basic tools to have financial success. No, I’m not talking about showing them how to set up a Roth IRA or open their own brokerage account.
They don’t need to know about all the finer points of investing, interest rates, or inverted yield curves (not sure what that is or why it’s important? Don’t worry about it, and neither should your kid).
No, all your child needs to learn in order to master their money are 5 simple Pillars of Money which will have them light-years ahead of their peers.
Here they are in no particular order (Check this out If you want to learn more about HOW you can be intentional about teaching your kids these Pillars!)
- How to work – Your child needs to learn to earn, to connect working with making money. Not that this is the only way you can make money (in fact, the truly rich are those who have learned how to make money with their money). But working hard and developing grit are lessons that almost all money masters have down pat. And your kiddo should be no different.
- Savvy Spending – In our world of hyperconsumption, kids need to fully grasp how to spend wisely. At its core, this comes down to understanding the difference between needs and wants. Master this and you won’t need to worry about traps like credit cards or payday loans.
- Saving – Teaching your child to save is all about hooking them on the idea of getting what they really want. To do this, they’ll have to save money (or use credit, and we’re DEFINITELY not going there). The two keys to making this happen are using automation to overcome our terrible impulse control and making the long-view come alive.
- The Gift of Giving – Even though it’s the 4th Pillar of Money, it should always come first. Why? Well because it’s the most important of all the Pillars of Money. Why you might ask? Because a person’s generosity demonstrates their true relationship with money and whether they’re the master of it or it’s the master of them.
- Money Isn’t Everything (It’s important, but not everything) – Pardon? Yes, you heard right. A personal finance writer telling you money isn’t everything. Because it’s not, and your child needs to see that. Don’t let your kiddo grow up with childhood memories of everything ALWAYS being about money. Rather, SHOW them what a balanced life, and life well-lived, looks like.
See Related: How to Save Money on a Night Out
How to Lay the Foundation: Let Your Kids Fail with Money
O.k. great, so you know what you need to teach but HOW should you go about doing that? As a teacher and school administrator with close to 15 years of classroom experience, I can tell you with 100% certainty that it doesn’t involve a whiteboard, lecture, or flowcharts.
No, the first thing that all parents need to do is to allow their kids to make mistakes with money.
What? What about the well-crafted lessons, stunning visuals, interactive games or online platforms? Nope. The thing your kiddo needs most from you is the freedom to make real-world mistakes.
Do they want to blow their money on some ridiculous impulse purchase you know they’ll regret? Let them.
Do they have grand plans to run a car wash in the chilly January air? Stand back and watch the madness ensue.
Did they hear about how they could “invest” in baseball cards, Star Wars collectibles, or cell phones? (Don’t laugh, it’s a real thing).
Let them buy-in and wait for the values to reach for the stars.
You can even allow them to manage small parts of the family budget that relate to them, clothing for example. Start small by giving them a specific amount of money each month to be spent on their clothes.
If they waste their money on a designer pair of jeans (a want) and don’t have money left for a new raincoat when it starts to pour (a need), let them walk around like a damp dog for a few weeks.
Don’t be the helicopter parent who swoops in to save the day when your kid’s plans go sideways.
Why not? Well, in order to learn, your kid actually needs to experience disappointment and pain.
Psychologists actually have a name for this uncomfortable feeling we get when we mess up. It’s called non-catastrophic painful failure. The pain of regret isn’t necessarily a bad thing.
In fact, making money mistakes can actually be a powerful motivating force behind the growth and learning needed to be a money genius.
See Related: Using Financial Technology with Kids
Not Easy, but Necessary
For many parents, letting their kids fail can be one of the most difficult parts of raising kids. And I have to be honest, as a father to two cute little munchkins, I TOTALLY get why this is so tough.
We want our kids to thrive, to excel, to succeed at whatever they do in life, and it kills us when they don’t.
Now there are two ways to help our kids find success. The first is easy but leads to eventual ruin. It’s called snow-plow parenting and it’s basically what it sounds like.
These parents go ahead of their kids and try to remove every obstacle or consequence that their kids face so that they can breeze through life without any difficulties and be “successful”.
The other style of parenting can seem quite cruel by comparison. These parents don’t rescue their kids from difficult situations. No, if their child makes a bad choice, they let them experience the consequences of their decision.
This non-catastrophic painful failure (you don’t want SERIOUS harm to come to your kids, but it’s important that they do feel the pain of their failure) helps kids build their resilience and lower anxiety.
Why? Because kids who have the chance to experience non-catastrophic painful failure are able to develop the skills and character needed to meet the challenges that life WILL throw their way.
Now if you live up north like I do, you know a thing or two about snow plows. Snow plows come along after a heavy snowfall and they remove all of the snow from the roads so that cars have no obstacles in their way.
They enable people to drive along very comfortably, whether they’re rolling around in a Tahoe or a Prius.
But here’s the thing. Not all the roads are plowed. Some roads are, yes, but others aren’t. If you’re driving a tiny compact car, you don’t have a prayer of getting through when the going gets tough. And it’s the same with kids who have grown-up with snowplow parents.
When the child is grown and leaves the nest, if they haven’t had the chance to learn and grow from making mistakes, they won’t have the skills and abilities needed to overcome the adversity that life will throw their way.
And when it comes to money, they won’t have learned the lessons as a kid that will make them financially successful adults.
A Work in Progress with Your Kids (And That’s Okay)
I’m working on this with my own kids. My two kids have very different money personalities. My daughter, well she’s a saver/spender.
She loves saving her money and seeing it build up, but she does so with a goal in mind, something she wants to spend her money on. My son, on the other hand, he’s only 3 but already I can see a bit more of a spender’s mentality.
We’ll be out and about and we’ll get them a small candy treat or something. My daughter will eat it slowly, saving some for later so that it’s not gone too quickly.
My son, on the other hand, he’ll want to devour the entire thing right then and there. Then, while she’s enjoying the fruits of her delayed gratification later on, he’ll be upset that she has some and he doesn’t.
This is the PERFECT opportunity to let him learn from his mistake and teach him about the power of patience and delaying gratification.
Sure, I could buy him another treat so that he doesn’t have an epic meltdown (and I have to tell you, I’m tempted to do this EVERY TIME).
But if I do, I’ve just lied to him and told him that if he’s impulsive, he can get what he wants with no consequences. And this could get him in a lot of trouble down the line (hello credit card debt!!).
As parents, the thing you need to remember and emphasize with your kids is that mistakes aren’t just ok, they’re awesome! Because it’s through mistakes that we learn. And if kids aren’t allowed to make them, we actually stunt their growth!
See Related: Best Online Jobs for Teenagers
How to Support Your Kids with Money When they Fail
If you give your kids opportunities to handle money in real-world situations, you can guarantee that they’re going to fail.
Whether it’s spending on wants before needs, spending money they don’t have, or just being disorganized with what they’ve spent, the mistakes will be plentiful, especially early on in the experience.
That’s why your support as a parent is so incredibly critical. Most people struggle to learn from their own mistakes.
We are, most of us anyways, stubborn to the point of stupidity, repeating our mistakes or variations of them, over and over again (or maybe I’m the only one).
As a parent, your job is to gently guide your child towards the hard-won wisdom that can be gleaned from these mistakes.
And the best way to do this is by having open, honest non-judgemental money conversations with your child.
But as any parent knows, getting your kiddo to talk to you can be tough at times. That’s why you need to be prepared to fully take advantage of life’s teachable moments and to stack the deck to make them happen.
See Related: Top Quotes About Financial Planning
Managing a Budget for Your Child
In order to give your kiddo experience in handling money and to open up the door to great money conversations, try this. (I recommend starting this between age 9 and 12)
Sit down with your child and determine a monthly budget with only one category. As I mentioned before, clothing may be a good place to start.
As their parent, you’re going to be buying them new clothes when they grow out of their old stuff anyways (making them pay for new shoes as their toes are scrunched up or poking out of their old ones is just cruel).
Have a conversation about how much they think they should get every month to buy new clothes. Then figure out how much you’ve spent on their clothing over the last year.
If you don’t keep a regular budget, just estimate this number (if you already budget, it’ll be a lot easier!). Then divide it by 12. Chat with your tween about the number and go back and forth until you settle on a final monthly budget amount.
This will then open up the door for one of the most amazing REPEATABLE teachable moments you’ll ever have with your kid about money.
Every month, sit down with your kiddo and have a budget meeting. Explain to her that as the President, CEO and owner of the “company/family” (and the one providing them with the funds to manage), you need a monthly report on the state of affairs for each division.
Have them report to you on what items were purchased, how much they cost, how much is left in the account and what purchases are upcoming.
As you kiddo proves that she’s responsible with her clothing budget, you can give her more responsibility for other items, things like extracurricular activities, cell phone bills, going out with friends, gifts, and lots more.
Not only will you be building your child’s ability plan for the future and avoid impulse purchases, all skills critical in managing money, but you’ll also be taking a whole boatload of things you normally need to buy off of your plate and giving the responsibility to your child!
(don’t get too excited though. Remember, it’s still your money…and you need to get them to the mall. But, you’ll be raising a money genius!).
Help Your Child Thrive with Money
Most kids never get the chance to make any really consequential money decisions before they leave the nest.
When they do finally head out into the real world as young adults, they’re faced with choices regarding student loans, employment, buying a home and car and much more.
Without the solid financial foundation to thrive, they flounder and often times struggle to keep their heads above water for their whole lives.
But that’s not how it’s going to be for your child. No, your kiddo is going to thrive with money. How do I know? Because you’re going to do things differently. And because you’re here.
What are your favorite money management tips for kids? Let me know in the comments below. I’d love to hear from you.
Author Bio: In addition to being the husband of an amazing wife and dad to two awesome munchkins, Matt Matheson is a teacher and school administrator with almost 15 years of classroom experience and a passion for teaching kids. Since he had his own kids, he’s been working hard to pass on his money values to them. It’s his love of teaching and desire to help parents raise money rockstars that lead him to develop Family Money School, a course designed to help busy, overwhelmed and confused parents teach their kids about money.
If you’re serious about taking control of your child’s financial education, about being intentional in laying the financial foundation they need to truly be the master of their money, take the next step and enroll in Family Money School, the premiere money course designed by busy parents for busy parents. Because you shouldn’t have to worry about your child’s financial future.