Think of this as “Money 101” for Kids. My daughter started solving word problems involving money just recently. I mean she understood what the value associated with a dollar, a quarter and so on was, but she didn’t really get that everything costs money and that you have to work hard to earn it.
Revelation time for me. I must teach my kids about money because they will not learn the practical use and value of it in school. Here are four financial lessons that children need to learn at home regarding money.
1. Everything costs money…these are not just things that I magically give you – Yes, now that my daughter is 10 years old and has the maturity to understand concepts like money, she has had her own revelation about money. She realized that we, her parents, pay for everything: the house, the water, the electricity, the phone, her precious tablet and internet, the car, the food, the clothes – I mean everything. And then she deduced that mommy and daddy work so they can earn money, and then they can pay for these things that we need to live a happy comfortable life. These days she’s more cautious about what she asks for because she has realized that we can only get it if we can afford it.
2. Credit cards are free money, right?! – But then came objection #1, how come we have and use credit cards. I explained that if we don’t have the money available, we can use a credit card but then we have to pay back the company that loaned us the money and also pay them back a little extra money if we don’t pay them back on time. I explained it in simple terms – I told her, let’s say you want to sell bracelets to make money, but you don’t have money to buy the materials to make the bracelets to sell, so you come to me and ask me for a loan, and I give you $50 to buy your supplies with the condition that you will pay me back the $50 within 30 days. If you don’t pay me back within 30 days, you are going to have to pay me a little more for being late – in this case I said 1% of $50 which is $5, so she would have to pay me back $55 in total.
3. You pay the government money too?! – My daughter did point out that I don’t pay for her school. To which I replied that yes, I actually do because I pay taxes. Taxes what?? OK, I gave her a very high level explanation. We have to pay the government a certain amount of money so that it can provide services like schools, roads, parks, libraries, etc.
4. Budget who? budget what? … – At one point she was a little depressed because she realized that as an adult you have to pay for so many things, so what do you do when you want to buy things for you? That’s when I introduced the all powerful “budget” and she was like “budget who? budget what!?” – Yes, my sentiments exactly. I showed her a simple budget that we use for the house. I explained that we track how much money comes into house (i.e. what mommy and daddy make from working), all the things we have to pay, and then what’s left over is what we can use to save, to buy, to go out, to entertain ourselves. Pretty simple, but really eye opening.
I know that I’ll have to continue having this financial conversation with her every year until she pays her own way but by being exposed to these four financial lessons, she will have a better chance of making good financial decisions when she’s older. All I can say is try talking about these 4 financial lessons with your kids, if you start while they are young, you’ll be surprised at the good financial decisions they’ll make as adults.