Smart Parents Teach Their Kids These Financial Lessons

By Dawn Kellogg

Talking to your child about money does not have to be awkward. This series of blogs will help you navigate through the conversations and make them not only educational, but interactive and fun. Yes, money can be fun!

Lesson #1: Showing your kids where money comes from.

“Money doesn’t grow on trees” is an expression that we have all heard at one time or another. Unless they know differently, children’s perception of money may be that it is a never-ending pot that magically fills up all by itself.

It’s important to explain to your children where money comes from, and you just can’t get more whenever you want.

Hard Work

Early on, money does come from parents generally through an allowance or money they are given when they ask for it. So, it’s logical that early on kids think that money comes from The National Bank of Mom and Dad. The first source of money that kids need to understand is: money comes from work. You work, you get paid. You don’t work, you don’t get paid. It’s that simple. It’s important to instill that work ethic into your children. Teaching kids the value of work is a primary lesson.

Let your kids work for their money. Create a system that pays them for the work that they do (chores, good grades, etc.). Don’t just give handouts, give them money when they have earned it, or when there is a reason for it (birthday, bar mitzvah, tooth fairy, holidays, etc.)

Explain the amount of work required to earn money for a specific reason. If your child learns that it takes an average of 40 hours of work to buy a new gaming system, for example, ask them how willing they would be to work that many hours, on top of the time it takes to pay for necessary things like food and housing. This can help them appreciate the amount of work necessary for the things that they want.

New ideas

Kids should understand that ideas can ultimately lead to money. It’s great to dream big and have ideas. Ideas lead to businesses, innovation, and investing.

Although it’s rare, there are kids that have made millions from having an idea, dreaming big, getting great advice, working hard (but not without a little risk).  These are kids who believed in themselves, educated themselves, discovered their strengths, worked hard, and made some mistakes or had some failures along the way.

Little kids can have big ideas!

Risk and/or reward

It’s important to teach kids the concept of risk vs. reward.  Risk vs. reward is a part of every area of personal finance.

Money can make money. It’s not instant and there is a risk involved, but $100 can turn into $200. On the other hand, it can also turn into $2.  Money is also needed to start a new business. Some businesses are successful, while others fail.

Take a moment to show your kids how money can make more money. Start with a conservative investment and let them see how the interest accumulates (even if it’s just a little).

The generosity of others

Charities have money because of the generosity of people. Some people have money and things because of the philanthropy of others.

Teaching kids that some people only have money, food, or housing because of the kindness of others is important. Due to a variety of reasons, gifted or donated money may be the only money some people will ever have.

Giving isn’t just about money, but about the needs provided for, and the things given. It’s important for your kids to understand the link between giving $5 of their own money away, and someone having a hot meal, or a place to sleep, for example.

Take your kids to charitable organization and let them donate their money. Then, show them what that organization does with the money. This way, they can understand that their money played a role in making whatever thing that the organization does happen.

Luck (Rare, but it does happen!)

Sometimes, money does come from sheer luck: a lottery ticket, gambling, finding money, an unexpected inheritance, being at the right place at the right time, etc. It’s not really the best way to get money and it’s not regular or reliable, but kids need to understand this because they will have questions when this happens to other people. How do you show this to your kids?  You don’t need to go out and buy a lottery ticket or watch Powerball tonight. Explain to your kids how the lottery and gambling works. They’ll think it’s exciting at first, but explain that you are more likely to be hit by lightning or become a pro basketball player than to win the lottery (seriously).

At the end of the day, kids need to understand where money comes from as early as possible. When they understand it’s something that is worked for and created, they can start coming up with their own ideas for how to make money. Money shouldn’t be the primary factor in your kids deciding what they want to do in life, but they can gain some awareness as to how money relates to the bigger picture, and a basic understanding of where money comes from.

The Summit Federal Credit Union, Elevating the ordinary™ since 1941.