A kid puts a coin into a piggy bank.
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Your Kids Need to Learn About Money Before It's All Gone

Financial education can be as important (albeit less awkward) than the birds & bees talk

By the time I had my first bank account, at a credit union where my parents co-signed with me, I'd already had multiple jobs and was driving my own car. My financial life before that was asking my parents to pay for things with their credit card or checks (remember those?), and moving the cash that I'd accumulated with summer and short-term jobs between a shoe box and my overstuffed wallet.

I was financially illiterate and remained so until well after college when I suddenly found myself in charge of all my bills, paying rent, and living completely alone for the first time.

The lesson of saving money is also the lesson of delayed gratification.

I decided a while back, when my kids were hitting their preteen years, that they weren't going to be as bad with their money as their dad was at their age. Every year, they received cash from family members for their birthdays and Christmas and I would watch that money vanish as they freely spent on toys, candy, food for their friends, and clothes they would wear once and then never again.

I still have to bite my tongue when I see them spend money (their own, not mine!) on things I feel are a waste. But I'm proud of the progress we've made. Here are some of the lessons I've learned along the way.

You have to show them how to save. Kids are notoriously bad with impulse control, just like adults who are addicted to sex or who never learned how to save money. In the days of yore, you bought a kid a piggy bank to show them the value of storing small amounts of money that would eventually add up. For a while, my kids had an electronic version of that: a plastic toy vault with a pass code that would accept their dollars and coins.

These days, you can offer to stash money for your kids so they don't spend it all, but there are also digital ways to approach that. Greenlight is an app and service that gives kids their own debit card and allows you to track their spending. Their accounts earn interest and reward cash back bonuses with purchases, but be mindful that there’s a monthly $5 fee after the first 30 days. Presumably, YOU will be paying for that, so make sure your own budget can accommodate it.

The lesson of saving money is also the lesson of delayed gratification, so it might be worth a deeper conversation with kids about the virtues of saving money for a longer-term purchase they can look forward to.

Demonstrate sound financial decisions. I hate to keep saying it again and again, but kids really do model their behavior after their parents. And if they see you spending money recklessly on frivolous things you don't need, they will do the same when they start having money to spend.

Make it a point to tell your kids about smart money decisions you're making. Things like, "It would be nice if we had a new, bigger TV set now, but I'm going to save my money and wait for them to go on sale closer to Christmas so I won't spend so much." Or you could say on a weeknight, "I really like going to restaurants, but I'm going to cook tonight so we can save some money. We'll dine out this weekend when we have more time to enjoy it." It's important for your kids to know that even though you have money for things, you don't have to spend it all the time or always pay full price. Make frugality a virtue in your family.

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Help them start a bank account. If you feel your kids are old enough to understand what it is to save money and you're comfortable having them make their own spending decisions, it may be time to get them their own bank account to manage.

You can do this online, of course, but I thought it was much more rewarding to do it in person at a local bank branch. Do it on a Saturday when it's less busy and have them sit down with you and the bank professional and go through the process of opening up a basic savings and/or checking account. They can ask questions and have terms explained to them. You will probably want to make sure you have overdraft protection set up on the account, but it's important for your kids to understand what happens if they spend more than they have. It's up to you whether you trust them to have a debit card they carry around, but it's good for emergencies, or for online purchases. Make sure you have access to their account to help them or monitor their spending.

Teach them how to start a business. If you want to level up their financial knowledge even more, you could offer to help them start a business. This could be as simple as a short-term endeavor like helping you run a garage sale or opening a neighborhood lemonade stand. Or it could be an online business if your kid is crafty and likes to make things. A few years ago, my younger daughter surprised me by telling me she wanted to use money she got for Christmas to open up an Etsy lip gloss store. We worked out how much it would cost to get her materials, how much she'd sell them for, and how much work it would take to photograph her items, set up her web store, and ship her products. 

To our surprise, the shop did pretty well and she had a lot of orders placed. But as often happens with kids, she lost interest pretty quickly and decided to close up shop before she'd made enough money to recoup her expenses.

There's a lesson there, too. It's less important to win at making money than it is to learn how money works and to understand what happens when you don't manage it well. Teach those lessons to your kids before the harsh real world teaches them instead.