Family Series Part 3 – Teaching Kids About Money

Much the same way that different teachers can use different methods to educate their students, parents can use a variety of methods to educate their children, specifically when it comes to money.

Some of the most prevalent teaching styles include:

Experiential Learning – A philosophy & methodology where teachers engage students in direct experiences with focused reflection to enhance knowledge and develop skills. Essentially “learning by doing”.
Didactic – A teaching method focused on delivering structured lessons and information to students, often in a lecture format where the teacher controls the flow of information and content.
(Parental) Modeling – The process where parents demonstrate desired behaviors, attitudes, and values that they hope their children will emulate.

So which method works best? As with most things in the world of personal finance, the answer is “it depends”. It depends on what style of teaching parents are comfortable with and probably more importantly, what style of teaching their children are most receptive to. Even within the same family and amongst siblings, more than one teaching method may be required.

The Squire

Teaching kids about money is an interesting undertaking, and for my wife and I, this is a constant work in progress as to the exact approach we want to take.

My Childhood Money Memories

As a kid, I remember getting an allowance, and being proud of saving up for items I really wanted. Some of my purchases were better than others. I also remember enjoying trips to the grocery store with my parents, and learning to price items to get the best deal (back before they showed the price per ounce on the price tag). These money lessons have carried with me to this day.

Another key money memory was working for my last couple years of high school, putting almost all of my earnings towards college. My parents were always available as money knowledge resources, but I can’t say that I took the time and foresight to ask all the questions I could have.

Current Method

For me, learning through my own experiences has helped me more than any other approach. Of course, since everybody learns differently, my wife and I hope to come up with a method to help each of our kids learn about money in ways that work for them, and be able to change tactics as needed. We have quite a ways to go on this front with our 7 and 10 year olds.

Our current tactic is to teach our kids about money through modeling, when the subject comes up. We share our own approaches through our knowledge and experiences, but try to always remind them that they very well may take different paths. I do like to ask leading questions from time to time, but I try to let it go if they don’t bite.

Talks and Experiments

Recently, we had a short discussion about donating, after driving past someone asking for money or food, and then past a group of kids asking for donations to travel to a national volleyball competition.

My 10 year old happened to ask about putting money in a bank. This turned into a discussion about inflation, rates of return between different types of accounts, and eventually owning a small piece of a company, and investing in stocks. We now track several stocks he selected at the beginning of the year compared with the S&P 500 to see how much stock prices can change over both short and long periods of time.

Future Approach

At some point in the future… to be determined when exactly… we would like to include more experiential learning when it comes to money. Eventually it would be nice to start to let them take control of some spending and investing decisions in their own life.

A current idea is to put a certain amount of money aside for each kid into one or more categories that they would like to take control of in their own life (clothes, investing, donations, fun, etc). Based on decisions they make, we could then slowly modify and add categories according to each child’s readiness and desire. This may or may not be included with allowance, which we will go into more in Part 4 of the Family Series.

Whether we decide to do something similar to this or something completely different, it will take some time and collaboration with my wife and I, of course working together with our kids. I imagine we will modify our approach over time as well. My hope is to start implementing something within the next couple years.

Scout

My wife & I have primarily used modeling to teach our kids about money. For the most part we go about living our daily lives without much financial discussion. On occasion we’ll point out something specific about money or bring it up in a conversation, but not too often.

I want my kids to experience the impact of our money firsthand, how our family handles it, and hopefully realize the fortunate financial situation we are in. I am cautious of bringing up the topic of money too often though and seemingly placing it on a pedestal – I’d like my kids to understand the importance of money as a tool (to live a good life), but not something to be overly glorified or obsessed with.

What I Learned About Money Growing Up

I grew up in a household where money was never discussed, so by default I guess this could be considered modeling. Perhaps due to the fact that money was never brought up, it was never a huge factor in my life – neither overly positive or negative. In a sense, this steadiness and lack of putting too much emphasis on money may have been a good thing because I never had to deal with any financial trauma or baggage growing up. The only downside was that I also had no real knowledge or experience with money until after I left my parents’ house.

I learned on my own beginning a little in college and then really ramped up when I started my first full-time job soon after. I used both experiential learning (getting a paycheck, paying bills, investing, etc) and didactic teaching (reading books & listening to podcasts). I fully acknowledge that I was very fortunate that I had an interest in personal finance & investing since it helped motivate me to continuously learn about these subjects on my own.

My goal is to provide a better financial background for my kids than what I experienced myself, all in the hopes that they’ll get off to a much quicker & more successful start with money when they leave the house.

Our Method of Choice

I prefer modeling over didactic teaching because my kids get enough lecturing and structured information all day at school. Sometimes kids just need time to be kids without coming home and feeling that everything in life needs to be a teaching opportunity. And specific to my kids, I’ve found that in many instances they don’t take well to direct lecturing/advice from me – they either choose to just tune me out or think that I don’t know what I’m talking about.

In my own experience, simply sitting back, observing, and absorbing information (either consciously or subconsciously) through modeling can be a very powerful & effective learning tool.

Other Teaching Opportunities

The only instance where I directly teach money lessons is by having my kids help pay bills each week – both utility and credit card bills. I want them to have a general sense of how much things cost and specifically with credit cards, I also want them to see exactly where we spend money. I’ve found that utility bills are a great teaching tool because beyond merely viewing the amount due, I can use it as an opportunity to discuss why this number fluctuates from month-to-month (i.e. natural gas usage may be higher during colder months or the water bill may be higher in the summer when we water our lawn).

My daughter started helping me pay bills when she was age 7 or 8, and she picked it up rather quickly & perhaps even seemed to enjoy working with all the numbers. Since math is one of her favorite subjects this didn’t surprise me at all. My son took the reins a few years later when he got to age 7 or 8 himself, and he’s actually still helping me to this day with bills at 10 years old as one of his weekly chores. While he doesn’t like it as much as his sister, I do see him getting better & better at this task, which has been my sole goal all along.

Plans for the Future

Aside from modeling, I believe that experiential learning or “learning by doing” is highly effective. No matter how much kids are told something and/or how much they read about it in a book, there’s no way to replicate the experience of actually doing something and learning directly from the resulting success or failure. Unfortunately there aren’t many opportunities to provide kids with experiential learning at a young age since parents tend to provide almost all financial resources and control much of the household spending.

Note: The one area where we currently do use experiential learning is associated with allowance. I won’t go into detail here because this topic will actually be covered in Part 4 of the Family Series.

With their allowances, my kids are learning about saving & spending, but when they get a little older I plan to take the next step and teach them about investing. At the moment my plan is to start educating my daughter on this topic when she gets to high school. Although she’s a smart kid and would probably pick up the concepts of investing rather easily, I also don’t think there’s a huge rush – even by waiting to start in high school, she would have 4 years of learning followed by (I assume) at least 4 years of college before she’s completely on her own and starts a full-time career. It’s also my assumption that the concepts of investing would be more relevant & timely for her the closer she is to actually earning her own money.

Links/Resources

Reader Questions

What money lessons, if any, did you learn from your parents growing up? What teaching method(s) did they use and which one did you find the most effective?
Have you taught your kids about money? What teaching method(s) did you use and which one did you find the most effective?

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