Teach Kids About Money–The Free Guide

by Neal Frankle, CFP ®

If you have children, you owe to them and yourself to teach kids about money. If you’ve faced financial trouble sometime in your life, you probably want to do everything in your power to make sure they don’t relive your difficult experiences.

teach kids about moneyIf our goals are not to worry about money so you can have a life that’s happy joyous and free, you simply have to focus on the youngsters out there before it’s too late.

Believe it or not, it’s more difficult to raise money savvy kids if you’re in a good financial situation now. I know that sounds crazy but it’s really true. You learn a lot more about money when things are bad. When I was a kid I was just about homeless. So I learned first hand the importance of money and financial security. I had to learn. The consequences of not “getting it” were dire.

My experiences were drastic of course. So while you hopefully didn’t grow up in a situation like that, you probably had it tougher financially than your kids do now. Hopefully, your little ones don’t know what it’s like to go without. That’s great. But the downside is that they have no concept of how to save, invest, work and stay out of debt. How could they? It’s up to us to teach them.

So, how do you make sure they walk the straight and narrow when it comes to money?

1. Spill Your Guts

Tell your kids your money story. I’d wait until they reach age 11 or so but I wouldn’t wait much longer. Tell them about the difficulties you and/or people you know had to cope with. Explain what caused the problem and what you could have done to prevent the problem. My father didn’t have enough life insurance and didn’t have a life insurance beneficiary plan. Well, 2 years after my mom died his plane crashed. He had no will, no trust, no money and only a little life insurance. As a result, my siblings were disbursed and my family was destroyed.

Do you think my kids know that story? They do. Do you think they understand the value of having life insurance? A family trust? A financial plan? A budget? Yes…they do.

By putting the importance of financial education in context, your kids will be eager to learn. Tell them your story and keep talking. Talk about credit card debt, how hard it is to get out of debt once you’re in and why. Talk about how to NOT get into debt in the first place and why that’s so important. Tell them the dangers of borrowing money. Talk about good and bad investments you’ve made. Be open and tell lots of stories. As other situations come up (good or bad) talk about them with your kids. The more stories you tell them, the more they’ll learn.

2. Get Plugged In To Their Mindset — Don’t Expect Them To Magically “Get It”

Kids think that money is like electricity. When they need to recharge their iPad, they plug it in to the wall. When they want money, they go to the bank – which is us. We are the giant wall socket of money. They have no idea how we make money and what we have to do to hold on to it. Don’t expect them to “get it” either. It doesn’t happen by itself. Be gentle when they make unreasonable demands but be firm. Look for opportunities to put them in charge of their own finances.

When my middle child told me she wanted to go on a trip after her first year of college I told her it was a great idea and then I shut up. Of course she was expecting me to talk about the cost but I didn’t – because I had no intention of paying for it. Her jaw dropped but I didn’t say a word. It was great. Finally, after several minutes of silence, she understood. This was a great moment because she got a very liberating message. She understood that she could do whatever she wanted to do as long as she could pay for it.

This works great with a 19 year old and there is no reason why it shouldn’t work on a 9 or 10 year old too. If you have young children, you can teach the same lesson by explaining they get to use their allowance for purchases they want. The only stipulation is that they have to earn their allowance. They get to decide how much money they spend and on what. If they want to live up to their responsibilities, they get the cash. If not, well…that’s there decision. That’s pretty liberating and exciting for a child.

3. Teach Them to Enjoy Spending

This is actually an extension of point #2. If your kids want something, they should get it. But they should work for it. Too often kids think that saving is the opposite of spending and it’s not true. If you spend now, you won’t be able to spend later. If you don’t spend now, you will be able to spend later. The only question is, which do your kids prefer to do? Do they want to waste the money on some silly toy now or save up for the item they really want? This introduces the concept of scarcity – and further busts the myth that you are the giant wall socket of money. Two birds with one stone. I like it.

4. Budget Baby, Budget

Set up a written agreement of what you expect them to do and what they’ll get in return. Once they earn their money, let them spend it as they see fit. If they make a bad decision do not bail them out. Let them have the lesson they need. Believe me, you’d much rather that they waste their money on a piece of junk and learn their lesson now rather than have them repeat the same lesson over and over again into their 40’s.

I total up all the money it costs to send my kids to school and I divide it by 12. This includes tuition. Then I send each of my college-age kids a check every month. They know that they better not do anything dumb because if they do, they won’t be going to college next semester. Give your kids every opportunity to be responsible and work with limited resources.

I also give each child a copy of “You Need A Budget“, a software package that helps track spending, so they can track their own expenses easily.

5. Jobs.

I haven’t been really good at this but that won’t stop me from giving you good advice. Encourage your kids to get jobs. In the best of all worlds, they’d find a side job that turns into a side business. They can easily use Craigslist to find a second job. The lessons they learn will far exceed anything they’ll learn in college.

Finally, you might be asking yourself how to deal with your children during periods of financial crisis. There is one word that sums it all up:


Your kids know what’s going on because they can read your face. As bad as things really are, your kids imagine things are much worse. That being the case, talk to your children about what is happening and why. Put it in perspective. Share your plan on how you’re dealing with the issue and what’s likely to happen. Tell them what caused the problem in the first place and what you’ve done to make sure this doesn’t happen again.

Tell them what is going to change and what isn’t. Maybe you’ll have to sell your house and move in to a smaller one or live with your brother for awhile. But you won’t be moving into the car or the street. Believe me, they need to hear this.

What has been the most effective way you’ve introduced finances to your children? Do you think the tactics mentioned above are too much too soon?

photo credits

1. FALHakaFalLin, Flikr



Subscribe & Get Your Free E-Book and E-Course as My Gift to You!

Investing Your Money Made SimpleOnce a week you'll get unique tips to make smarter money decisions about your investments, retirement, taxes, and career. You'll also get encouragement and ideas to help you get out of debt, earn more money, and generally stop worrying about your money.

Neal Frankle is a Certified Financial Planner™ with over 25 years experience. Subscribe today and tap into this wonderful, free resource!

Become a Fan! Follow @NealFrankle

{ 4 comments… read them below or add one }

Neal@Wealth Pilgrim March 8, 2011 at 8:27 AM

Thanks Bill! Sounds like you and your family are on top of this and already seeing the benefits. I w/check out Owen’s book. Much appreciated.


Bill at FamZoo March 7, 2011 at 6:32 PM

Terrific, practical post Neal.

I like your comments about making explicit budgets with our kids. That has proven to be a great learning experience for our kids. We like to start that in high school with a clothing budget – clothing is something most kids care about (at least after they get their first boy/girl-friend 😉

I encourage you to do the webinar – more info out there on this topic the better.

BTW: One of my favorite resources for this topic is The First National Bank of Dad by David Owen. Works for Moms too, of course!


Jerry March 4, 2011 at 1:41 PM

I think teaching your kids to work for what they want is the most important thing there. All other things may lead to that. If they understand the value of work then they may not be inclined to waste their money. Of course, there’s no insurance they will ‘get it’ so you have to do your best and hope for the best.


Jessica07 February 28, 2011 at 6:32 PM

Great post… and so dear to my heart. 😉


Leave a Comment

Previous post:

Next post: