How to teach your kids the value of money

Michael QuanEducation, Family, Misc4 Comments

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Teaching Kids About Money

Kids these days are growing up in a world that is vastly different from the one their parents grew up in.

The internet, social media, and technology have made it easier for kids to get their hands on things they shouldn’t have without even realizing it. So, teaching them the value of money can be a real challenge, but there are some simple ways you can teach your child about how to manage and spend their money wisely.

In this article, we’ll explore 5 strategies to help you teach your child about money and set them up for a bright financial future, and put them on the fast track to financial freedom.

1. Establish a Performance-Based Allowance

An allowance is great. It’s a way for a kid to experience their first taste of income. However, an allowance shouldn’t just be given by default. Instead, you have a choice as a parent to create an allowance that is tied to your child’s performance.

In our case, we like to have a set amount of chores as the requirement for earning an allowance. So each day, our kids are tracking their performance with specific tasks to help the family or themselves. This could be:

  • Helping with the laundry
  • Prepping a meal
  • Cleaning up after a meal
  • Brushing and flossing
  • Completing homework
  • etc.

Kids are not perfect of course, so they are still able to earn the majority of their allowance if they can hit 90% of the tasks. If it falls below this threshold, the amount of allowance goes down proportionately.

The lesson here is that money is earned when value is created for the family or themselves.

2. Teach kids about income and expenses and review each week

When you pay your kid’s their allowance each week it’s a great opportunity to review the family finances. It’s important for them to understand that income = money earned and that expenses = money that’s spent.

It’s okay to show them the bills that are paid each month and the income needed to cover them.

Next, review their allowance and allow them to participate in the family finances.

We have our kids contribute about 35% of their allowance to family expenses like the mortgage, groceries, and utilities. Furthermore, we ask them if they’d like to donate a portion to their favorite charity.

They are free to do what they like with the excess… spend it, or save it, or even invest it.

There are a couple of ways to help them learn about budgeting. I’d suggest using cash and coins when they are younger (up to 7 years old). You can use envelopes or special containers for savings, spending, and giving. This way they can conceptually see the organization.

As they get older, I’d suggest moving them to a more digital platform. If you’d like to gamify money for your kids, there is incredible software available like Money Time that makes learning money fun and super interactive.

3. Set them up with a debit card and savings account

Around age 7, it’s a great time to set them up with their own savings account and debit card that they control.

If you’ve spent the time teaching them about budgeting with envelopes and containers, it will be an easier transition.

I recently got our kids Chase debit cards for them, which was free since I already have accounts with them.

Alternatively, there are other products that accomplish the same or similar. Here’s a great article (Find the Best Debit Card for Your Kids) from my friend, Jim Wang’s site,

The nice thing is once your child has a savings account they control they can log in and see the transactions that have occurred.

I will still sit with them weekly to cover their income and expenses, but doing this electronically now makes it even easier.

3. Encourage them to work for what they want

It can be difficult when you’re a child, and all your friends have an iPhone, the latest gaming system, or any other expensive toy. It can seem like no matter how hard you work, it’s not going to happen for you. But the truth is that anything is possible if you put in the effort. We don’t want our children to grow up into adults who believe they are entitled to things without working for them. That’s why we need to start teaching kids now about what it takes to get ahead and fulfill their dreams little by little.

In addition to an allowance, we give our kids additional opportunities to earn money. This may be tied to extra chores, getting out of their comfort zone, or being entrepreneurial on their own. That way they know they can save even more towards something that is important to them.

Our daughter for example is saving up for an iPhone when she is 12. This is 3 years away, but she is already diligently saving for this and earning a little extra interest with her savings.

Give your kids a way to track their larger spending goals. We like to do this with a dedicated savings account that can track their goal.

By encouraging your kids to work for what they want they begin to understand the relationship between their actions and the results they want in life.

4. Teach them to invest in the power of compound interest

Once you have covered the basics of cash flow (income and expense), it’s great to show your kids the power of their choices. In addition to spending or saving their money, help them to explore a third choice… investing.

One of the best ways to help your child to learn about investing is to share the idea of compound interest. Compound interest is when you earn interest upon itself over time and create a snowball effect. Who wouldn’t want to make money without working? Well, if we teach our kids this concept early, the additional time they have to invest can place them at a significant advantage later on in life.

Imagine what would happen if they invested $10,000 at a 9% annual return and never touch it for 30 years? It would be worth for than $130,000. But what if they had an additional 20 years to allow it grow? That same amount would be worth more than $740,000!!

The more time you can invest consistently, the better.

And, if they earn any money at some point as children, consider that they may be eligible to invest money into a Roth IRA. This tax-advantaged account allows their investment capital to grow tax-free!

You’d be surprised what kids can pick up if you simply allow them to be a part of the conversation.

5. Money is a tool and doesn’t define a person

Teaching kids to use money as a tool early on in life will be an incredible advantage. They will have a headstart when it comes time to enter the workforce as young adults and avoid common pitfalls like financing doodads they can’t afford.

It’s equally as important to teach them that money doesn’t define them or others. In fact, money is very subjective in some ways because it’s all relative to your own point of view and who is within proximity to you.

It will always be more important to define ourselves through our values and actions, not how much money we have. Gratitude is the ultimate measure of wealth.

With that said, being able to use money skillfully is a gift that not everyone has. Teach your kids how to share these ideas with their friends and also become an example giving.

The secret to living is giving.” – Tony Robbins

Final Thoughts

Kids learn about money from a very young age. They see it being spent, earned, and ideally saved or invested.

But it’s up to us. Parents should make the most of this opportunity to teach them about financial responsibility and give them a head start on saving for retirement.

The earlier kids are taught how to handle money responsibly, the more likely it is that they will do so as adults.

Readers, what are some additional ways we can teach kids the value of money?

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4 Comments on “How to teach your kids the value of money”

  1. I would have LOVED for my parents to set up an allowance model based on performance. I would have been more than glad to clean up around the house for like $5 but alas, my parents never put up such a thing so all of that was done for me, haha.

    Have to get kids to learn the value of money sooner rather than later!

    1. Yeah, I didn’t have that structure growing up either. We were expected to do chores, and got a small allowance regardless. We’ll see how things go with this next generation. I’ve got high hopes!

  2. This is the best article that I’ve seen on this topic. I love the idea of having the kids contribute to paying the bills. We don’t do that, but I think I’ll add it to our system!

    I also give our kids cash, but then saved it for them in the bank which consists of a notepad with a running tally…but I don’t think that’s the most effective way for them to learn, so this definitely makes me consider switching to an all cash system.

    Anyways, thanks for the in-depth article. This is some thing I want to make sure I do right by my kids with!

    1. AR, thanks for the feedback. I spent a little more time on this one because it’s pretty relevant in our household at the moment. I’m sure your kids will grow up very financially literate thanks to you.

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