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I love my girls.
In my love for them, I always want them to be happy. I also know that if I say yes to everything, I won't have any money, they will become spoiled brats, and I'll have to figure out how to house a unicorn in my backyard. (I might say yes to everything, but unicorns are not allowed in the house!)
In addition to happy children, I want financially responsible kids. I don't want my girls to become Veruca Salt.
When I think of spoiled kids, I think of Veruca Salt. She's the brat from Willy Wonka and the Chocolate Factory. (I had to look up her name.) She sang the song, “I want it now”.
You can see the video here: Veruca Salt – I Want It Now (Willy Wonka and the Chocolate Factory 1970)
Is it really Veruca's fault that she's spoiled? (I wouldn't mind a golden goose.) Or is it the dad, who says “yes dear” to everything?
I don't want to be Veruca's dad, and I don't want my girls to grow up to be Veruca either.
Which brings up the question, how do you raise financially responsible kids?
Earn: Teach Kids the Value of Hard Work
When I was 9 years old, I sold holiday wrapping paper in the summer in order to buy my first 10 speed bike. I earned $2 for each package of wrapping paper I sold. Knocking on doors in the neighborhood asking people to buy Christmas wrapping paper in July wasn't the easiest thing in the world, although selling as a kid did have advantages. I think I had to earn around $100 which meant selling around 50 packages to pay for my bike.
The bike was a sleek red roadster with curved racing handlebars. I would speed down the hill next to our house like I was in the Tour de France. Riding for hours and hours, switching gears, and racing the wind, I loved that bike.
It's the first thing I remember working to earn and I still feel pride when I think about it.Earning is learningClick To Tweet
When kids are rewarded for hard work, they gain a sense of accomplishment. Pride from their effort helps them to learn financial responsibility.
Tie allowance to weekly chores. If the chores are not complete, no allowance.
A friend of mine doesn't pay allowance for normal activities. Their view is that having a clean room and picking up toys are household responsibilities and don't need to be rewarded. The kids can earn money but they have to do additional tasks like weeding, mowing the lawn and raking leaves.
Whatever your view, chores help to build character and lead to more financially responsible kids.
Help your kids to find part-time jobs. In the early years, these may mirror tasks they have done at home.
Mowing lawns, raking leaves, and washing cars can help kids to earn their first income. Income earned from someone other than you will help them to better understand working for money. It also helps out your wallet!
Start a business
Children can be very entrepreneurial.
My daughter recently asked me if she could start a business so that she could be like me… so cute! When I asked what type of business she wanted, she said that it should have to do with Shopkins. (In case you haven't stepped on one in the middle of the night, Shopkins are little collectible character figures of ordinary items.) So now we are brainstorming Shopkin focused businesses. More to come on this in the future!
Even the basic lemonade stand helps kids to learn key financial concepts, like sales minus costs equal profits. Helping your child to start a business will present all kinds of opportunities to teach them about financial responsibility.
Save: Beyond the Piggy Bank, Introduce Real Savings for Kids
Saving money is a cornerstone life skill. If you want your kids to become financially responsible, teach them to pay themselves first.
Kids get a surprising amount of cash. Birthdays, holidays, and generous grandparents can help them to amass significant sums.
You can give them a fantastic head start in learning to save by helping them save a portion of the cash they've earned or received.
Set Up a Savings Account
When I was young, I had a passbook saving account. It was a little passport looking book that contained my balance. Every time I deposited money at the bank, the teller would take the book and print the transaction, interest earned, and the new balance in the book. I don't know of any passbook savings accounts still around, but you can do the same educational activity by reviewing the statements every month.
Open up a saving account for your child. Having an account at an early age builds positive saving habits and introduces them to banking. Unfortunately, savings accounts today don't pay as high interest as they used to, but kids can still see the balance increase over time.
Spend: Help Kids to Make Good Buying Decisions
Sometimes I feel like my highly impressionable kids are walking infomercials. My girls have asked for Pillow Pets, Snuggie Tales, and just about every toy on TV. My oldest even suggested that my next car be a Chrysler Pacifica because it had an entertainment screen for each child.
Snackeez: “You can have your drink and favorite snack all in one hand! And no more mess!”
Pillow Pets: “Dad, it's a pillow and a pet!”
Snuggie Tails: “It would keep me warm and snuggie. I could get the Mermaid one and my sister could have the Penguin!”
These requests are then followed by repeated “Please, please, please…” about 158 pleases until you give in or just go crazy.
A major part of raising financially responsible kids is teaching them positive spending habits.
Money Doesn't Grow on Trees
Have you ever heard yourself saying this phrase?
Whenever I hear myself say something like this, I feel myself slowly turning into my father.
It's right up there with “didn't you hear me?”, “leave your sister alone”, and “what were you thinking?”.
The phrase isn't wrong. In order to raise financially responsible kids, you need to communicate that money is finite.
If you don't want to sound like your folks, try explaining where money DOES come from. Work earns money. We put some in savings, use some for things we need, and the little bit left over we can decide where to spend.
Work earns money. We put some in savings, use some for things we need, and the little bit left over we can decide where to spend.
Needs vs Wants
Explaining needs versus wants to a child is very difficult. Most of their actual needs are covered by you, so everything falls into wants, but they tend to think of everything as needs.
Just try asking them, “Do you really need a….?” The answer won't be no.
One of the best ways I have heard to teach the concept is to make a list.
Take a piece of paper and draw a line down the center. On the left side list needs and list wants on the right side.
Tell them needs are related to their health, things like clothing and food. Wants are things that they could live without even if it was tough, like books and toys.
Take them through the house listing key items on each side. Have discussions about items they get wrong and why they believe something is a need or want.
The exercise might seem silly or even a little forced, but it's worth it. Understanding the difference between needs and wants is a core skill that will help them to be financially responsible.
Invest: Teach Kids the Power of Growing Money Over Time
It's never too early to teach your kids about investing. Investing helps them to learn the power of compounding and how money can grow over time.
When I was young my grandfather gifted me some stock. At first, I was just excited about getting something in the mail with my name on it. Gradually I came to see that the dividends were reinvesting and my account balance was growing.
My grandfather's gift had a large impact on my life. It helped me to understand that money could grow by itself and that investing was a powerful force.
Buy stock for children to give them a headstart on their investment education.
Opening a brokerage account for a child is easy. You can set up a UGMA (Uniform Gift to Minors Act), where you are the custodian until the minor turns 18 or 21, depending on the state.
You can teach your kids to invest by opening a custodial account with Stockpile. The minimum account is just $5, so it's perfect for teaching your kids about investing.
Put some money in the account and work with them to select holdings. For younger children, you might want to pick a small number of holdings from companies that they are familiar with. (Stockpile makes this easy by showing kids the logos of popular brands they know and then connecting the brand to the parent company.) For older children, you could look at index funds and individual holdings as part of a core and explore strategy.
Whatever strategy you choose, review the performance on a monthly basis and make sure to explain the impact of any trading or management fees on the account value.
Family Stock Market Game
The SIFMA Foundation has a fantastic learning tool called The Stock Market Game (SMG). SMG is used in classrooms but it can be used by parents as well. Elementary to high school age children can learn the fundamentals of investing.
There may be a small cost to enter, $15-25 for my state, but it's worth it to help you raise financially responsible kids!
Give: Help Kids to Feel the Joy of Charity
Mine, mine, mine…
The hallmark of spoiled brats is that they are incredibly selfish.
Generosity and compassion are the opposite of selfishness. Charity is all about thinking of others. To raise financially responsible kids, teach them to share and care for others.
Some Ways to Get Kids Involved in Charity
- Park, trail, and neighborhood trash cleanup
- Donate old clothes, coats, and toys
- Raise money for disaster relief
- Make greeting cards for nursing home residents
- Play with animals at the local humane society (be careful to avoid taking some home!)
- Deliver food items to the local food bank
Read the book, “Kids Can Change the World: A Middle Schooler's Guide for Turning Passion into Progress” with your kids. Middle schooler Adom Appiah shares stories and steps to use your passion and talents to benefit others.
No matter what activities you choose, make sure to get involved yourself, talk about the good you are doing, and give praise.
Live: Set a Good Example
The number one way to raise financially responsible kids is to set a good example. Your kids are watching you constantly. That's where they pick up mannerisms and learn new words, sometimes not the ones you want them to learn.
It's the same with money skills. They are watching you! If you make poor choices with money, it will be hard to teach them good ones.
Teach, show, and include them in your money life and you will stand a good chance of raising a financially responsible kid.
Making sure that your kids don't become spoiled brats is like winning a golden ticket!