How to Teach Your Children About Money

Last month I opened things up to my email subscribers by asking for any suggestions for future writing topics that I’ve yet to cover here. By far the most popular and repeated question came from parents and grandparents who would like to know how to instill good financial habits into their children and grandchildren.

It’s an interesting topic for me to ponder because it’s something I’m trying to figure out on my own, as well. I have a 16 month old daughter who’s growing up way too fast. I’m constantly worried about dropping the ball by not teaching her the right things or completely messing up as a parent. So far, being a parent feels like a constant tug of war between joy and fear. I don’t see that ever going away.

This is one of the reasons that making rational financial decisions when it comes to your children is so difficult. First of all it’s very difficult to keep your emotions out of your financial decisions. And second of all it’s also impossible to keep your emotions out of the decisions about your kids. Every parent thinks their baby is the cutest one on the planet. I know I do. I’m completely biased but it’s impossible to turn that bias off in this case. Put the two together and the probability for irrational decisions goes through the roof.

One thing I learned even before my daughter was born is that everyone else who’s ever had a child before you is going to offer you advice whether you ask for it or not. This can be either extremely helpful from the right sources or extremely annoying from the parents who don’t understand that no two children are the same. Some people don’t seem to realize that not all children respond the same way to every parenting method that’s worked for them. There’s something of a trial-and-error process where you try to take what’s worked for others and apply it to your own very unique situation and child.

Anecdotal advice and evidence from other parents is the most helpful aspect of my favorite book I’ve read so far on the topic of children and money — The Opposite of Spoiled by the New York Times’ Ron Lieber. Lieber offers some really great advice in the book about some of the tactics he’s used with his own children to try to help them become financially literate. But he also uses countless examples from other parents in discussing things like allowance, chores, the tooth fairly and answering the difficult money-related questions most kids like to ask.

My biggest takeaway from Lieber’s book is simply to communicate more with your children about your finances. This can be a difficult task for some because it can require a hard look in the mirror about their own financial habits. Money is a taboo subject matter because so many people make terrible choices with their money. It’s tough to pass along good financial habits when you don’t have any yourself.

Here are a few other lessons from Lieber’s book:

  • Be as honest as you can with with your kids about money to establish trust. Have an open door policy and don’t skirt any big issues.
  • Ask them questions instead of ignoring their inquires about money. Figure out why they’re asking you a specific question about money before clamming up and brushing them off.
  • Try to involve them in some of the more mundane financial tasks we’re forced to deal with on a regular basis to show them how important personal finances can be people’s lives.
  • Money can also be a great tool to teach children how to give to others. Lieber’s four biggest topics are earning, saving, buying and giving. Generosity is the one with the biggest crossover potential for teaching them how to be a good person.

My favorite quote from the book is when Lieber says, “Every conversation about money is also about values.” I like the idea of using money as a tool to teach your children about the right values. Money doesn’t have to be the root of all evils if you frame it correctly and put it into perspective.

There’s still a lot for me to learn when it comes to this topic, but I’m glad that so many other parents and grandparents out there see the value in teaching our children about money. Maybe the best thing we can do is teach them our mistakes so they don’t repeat them in the future.

Check out Lieber’s book here:
The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money

Further Reading:
A Roth IRA For the Baby?
Priorities

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What's been said:

Discussions found on the web
  1. Pete Nikolai commented on Jul 29

    After raising four kids, I can attest to the importance of conversations. With limited time and an abundance of important topics, every conversation communicates priorities.

    One clarification: The love of money is the root of all evil – not money itself. Priorities of the heart are preeminent–and hopefully those priorities come out in conversations rather than just trivial matters that will make little difference in the years to come.

    • Ben commented on Jul 29

      Well said. I’m a huge believer in making sure your priorities are in line.

  2. Robb Engen commented on Jul 29

    This year my oldest daughter turned 6 and I introduced a weekly allowance to try and teach her about making smart choices with her own money. It went well for a month or so and then, to be honest, I skipped a couple of weeks and she didn’t seem to notice or care. That’s okay – we’ll come back to it and I’ll keep emphasizing how to use the three jars for spending, saving, and giving. The biggest challenge is with gifts from friends and family for birthdays and Christmas. Not every gift needs to be a toy, and not every cash gift needs to turn into a trip to the toy store.

    • Ben commented on Jul 29

      I like the jar technique too. That’s good to know that these things can take time to figure out on both sides.

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  4. Financial-Fitness commented on Jul 31

    Like with most things, leading by example may work best.

  5. Ellie Frey Zagel commented on Aug 03

    This topic is so important due to the incredible wealth transfer occurring right now. School doesn’t teach our children about personal finance, and the ease of using credit cards makes leading by example hard and confusing for children and many young adults. Currently, my husband and I are working on aligning our values with our actions for our youngster by first identifying our own financial values and then matching our current actions to those values. We have found a few gaps where our actions were not even close to matching our values. Now that we have identified those gaps, we can either change our behavior or have a conversation with our children on the mixed message.

    • Ben commented on Aug 03

      It’s always been crazy to me that something as important as running your personal finances is not taught in our schools. I like the idea of using these conversations to sort out your own actions and values. Sounds like a great place to start.