Kids may learn a bit about money by playing Monopoly, but the best lessons come from real life -- and it's never too soon to start teaching them the fundamentals of personal finance. So rather than just forking over cash every time they pester you for it, consider these 10 money lessons kids should know by age 10. Whether it's how money is earned or the fact that it's finite, this wisdom below will set them up for life.
Lesson #1. Money is reward for hard work
Why it's important: "It starts to teach children the relationship between money and work, money and buying, and about the concept of money," says Andrew Housser, CEO of Freedom Financial Network. "Children don’t naturally understand how things 'appear' in their homes or lives. Starting early, simply, gives them that education."
Technique to teach this: Give out allowance for chores. More chores, more allowance! "From about when kids are early elementary school-age and up, parents can help them find a way to earn money," says Housser. "Children in elementary school might earn allowance money through doing household chores. Older kids can babysit, take care of a neighbor’s pets while they are on vacation, mow lawns, or shovel snow. When old enough to get a 'real' job, parents can help and support them."
Lesson #2. Money doesn't grow on trees
Why it's important: "Many kids look at money as an endless source that comes from mom and dad’s back pocket," says Rachel Cruze, author of Smart Money Smart Kids. "Kids need to realize that money is finite: When it’s gone, it’s gone."
Technique to teach this: Don't just hand out money every time they want something. If your child spends all of their money, don’t continually give them more," says Cruze.
Lesson #3. A penny saved is a penny earned
Why it's important: Money saved is as good as money earned -- and a lot less work! "Learning the benefit of saving a part of every monetary amount that comes into their lives -- Christmas or birthday gift, money earned from mowing the lawn -- will teach them lifelong habits," says Housser.
Technique to teach this: Give them a savings account where they can put their money and watch it grow. Or even a piggy bank would work. "The best ones are the ones that have an LCD displaying the amount of money deposited; they help your child become solid with his money handling and the cool display is appealing enough to encourage your child to continue using it," suggests Jarred Saba at Lease Advisors.
Lesson #4: Money saved can grow over time
Why it's important: It serves as added incentive to save.
Technique to teach this: Have them open a CD where they can track the accrued interest; explain to them that that's money they've earned with zero effort. Or, "since a bank's interest rate may not be enough gratification to teach a lesson, parents can match their child's contributions to a savings account," says Mark Loewen, a child therapist in Richmond, Virginia.
Lesson #5: Avoid impulse buys
Why it's important: "It helps children make more calculated purchases," says Loewen.
Technique to teach this: "Suggest a wait time before your child wants to buy a larger item," explains Loewen. "If they still want to buy the same toy after a week, it's their choice to spend their money."
Lesson #6: Keep money in a safe place
Why it's important: This teaches responsibility -- and keeps them from losing their cash!
Technique to teach this: "Make sure your child has a wallet that holds money safely," suggests Loewen. "They may also have a drawer with a lock."
Lesson #7. Rewards and incentives should not always be money
Why it's important: "This teaches proper values to your kids," says Fran Walfish, a therapist in Beverly Hills and author of The Self-Aware Parent. "Materialism should not be reinforced as the ultimate goal the way it is perpetuated in our culture, media, and advertising. It is much better to teach human kindness."
Technique to teach this: "Implement rewards that are person-to-person activities such as a trip to the ice cream parlor with mommy or a fishing trip with daddy," says Walfish.
Lesson #8: It can be more rewarding to give than receive
Why it's important: "In our materialistic society, kids who donate their money learn how money can help them develop a life of purpose and happiness," says Elizabeth Lombardo, PhD, author of the upcoming book Better Than Perfect: 7 Strategies to Crush Your Inner Critic and Create a Life You Love.
Technique to teach this: Have your child pick a charity online to donate a small portion of their money to, and have it be meaningful to them (for instance, if your kid loves dogs, try the local animal shelter). Ideally the charity will have some method of thanking your child, either in person or by written correspondence, to drive home how much their gift is appreciated.
Lesson #9: Don't get it if you don't have the cash
Why it's important: This drives home that you shouldn't go into debt to get something you want.
Technique to teach this: Have your kids use cash instead of a credit/debit card, and do so yourself sometimes. "Teaching young kids, and even teenagers, about money is difficult when you use debit and credit cards," explains Steven A. Boorstein, a certified financial planner at RockCrest Financial. "When you go to the store with young children, have them pay for things in cash -- like pizza or movie tickets, sporting goods, etc.). Understanding that there is real money that changes hands when they buy something helps them appreciate how much things cost."
Lesson #10: You can't have it all -- or as soon as you want it
Why it's important: This teaches kids how to delay gratification, and save up for big purchases.
Technique to teach this: "Together, make a list of all the items your child wants to buy," says Loewen. "Then calculate how much it would cost. Compared to the amount your child is able to spend, discuss which purchases are possible, and which are not, like maybe two smaller items instead of one more expensive one."
What money lessons did your kids know by a certain age?
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