Teaching kids about money.... (how to handle it, and hopefully how to save)

A while ago I wrote a BLOG post describing how my wife Cheryl and I tried to teach our kids the value of saving...and how to put money away for later purchases. (or a rainy day)

The idea was to make them see the value of saving, and the value of interest paid for doing so.....I just had to exagerate the interest so that they would "see" how it works in a short time.....vs over 20 years.

Well, there are plenty of other aspects of handling money that we need to teach our kids....and I remembered that when I read this article that was written to explain just that.

But let me say this about all of that.....I truly believe that money is but a tool. We must not let it rule us.....but we MUST rule it, or at least respect the place it has in our society. (and take responsibility for ourselves)

My dad used to say, "Money doesn't make the world go around, but it sure greases the wheel." I believe that, and it means we at least have to make it a part of our sphere of responsibility. We don't want to worship it, but need to take responsible of it in our lives.

So teaching our kids about it is important if we ever expect them to do the same.

Quickie Idea: Open a Roth IRA for your kids!

There are two questions that come to my mind when I think about my kids and their handling of money.

First, have I taught them about how to avoid debit, how to save, and how to spend within their means.

Second, have I taught them that it is never too early to start thinking about retirement. (which sort of builds on the first item and gives them purpose for the first item)

Well, the one thing that I have always learned is to always try to walk the talk....but in this case, it is impossible to go back in time and/or even show them movies of you saving at their age.....but you might consider making the first contribution to their retirement accounts...and doing it with their involvement!

The article I just read describes contribution to a Roth IRA, and how growth in that sort of IRA is the most beneficial. (very tax efficient because it is started with after-tax money it grows tax FREE)

So get the ball rolling on their future....but don't just blindly give them the money, "teach them to fish" and get them involved in the process and explain it every step of the way. This sort of teaching will last them a lifetime. (and teach them how important it is for them to pass on the knowledge!)

Teaching kids about money and saving....

When I was a kid, I remember my parents teaching me about money and the value of saving. But I also remember that they did more than just "tell me" what to do...they would walk the talk as well.

My parents were not wealthy....and they started life from very humble beginnings. My mother had a high school education, and my father finished college in his mid-thirties.

Both of them had to work to make ends meet, but they were always happy and never in debt. They kept telling me that the key to it all was being frugal and having a mind to save!

So when my wife Cheryl and I had kids, we talked a lot about what we wanted to teach them...and how we would also try to practice what we preach. (I hope we are at least a little successful)

We wanted to give our daughters an appreciation for how saving could be done, so we decided to start by giving them an incentive to save. It all started with their receiving an allowance for doing their chores. We tried to connect the chores with the allowance, though I don't think we ever held it back if chores were not all completed. (they sort of worked on salary I guess...but they did their chores)

But how to teach saving....well, I thought that I would introduce them to the idea of making interest in money saved. But kids have a short attention span....they were not going to see the value of earning 10% per year....so I raised the ante and offered them 10% a month! (and I rounded up to the closest dollar)

We would get together at the end of each month, look in their saving box and I would pay them the interest right on the spot. It started out giving them a buck or two, but when they saw it growing, they naturally started holding the money. They quickly saw that they could actually make more in interest payments than in allowance....and if they were patient enough, they would be buying candy with interest alone with no need to touch the new allowance or principle!

Soon after that, they noticed that their saving would allow them to have enough to buy some pretty cool things they wanted. Kristen actually bought Elijah (her dog) for $600 at one point!

What did I do when their savings level hit $500 and I was giving out $50 a month....I kept it up because I saw it was working and they were really thinking about whether they wanted to "blow" money on something or save it. (besides, if I quit, they certainly would have had an incentive to just spend it)

I think they both ended up with about $1000 in savings each, and this was what they used to open up their bank account that they have to this day.

I guess the lesson I myself learned is two fold.....first, if you want to teach your kids something, you have to be proactive and do it. You can't expect them to somehow "pick it up" along the way. (It's the parents responsibility)

Second, once we started, we had to keep it up, and more importantly....we had to ourselves be consistent......to live by example ourselves. So Cheryl and I always tried to save, and to include out girls in on that thought.

So far, both of our girls have turned out to be very good with money, and very frugal as well. I believe it was at least in part due to our little lessons along the way.