Teaching Money Values

We impart our values to our kids through our words and our actions. Mostly our actions. Take a moment to reflect on the things you value. Integrity, compassion, honesty, persistence, courage, patience… Now think about an action that can be associated with each one. For example, returning the unpaid can of tuna you discovered in the shopping cart ~ honesty. Or volunteering to speak at the board meeting even though the thought of speaking in front of people makes you mildly ill ~ courage. 🙂

Now think about the kind of values you want your kids to live by when they grow up. Since kids do most of their learning through observation (they’re quite good at it!), it’s important to think about the messages your behavior is sending. Are you living the values that you want to help define your kids as adults?

The Money Connection: Our values are also imparted to our kids through the way we handle our money. We teach generosity when we share with those less fortunate than us. We teach responsibility and delayed gratification when we put a little of our money aside for the future. And when we splurge on a fancy dinner out we teach that it’s good to enjoy, as well.

Conversely, shopping impulsively teaches kids that the value of a dollar is not important. Not to mention the messages sent about lack of self-discipline. And holding too tightly onto money teaches kids that experiencing life is not important.

So take time every now and then to reflect on the choices you make on a daily basis. Because how you live life is how you live your values.

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Getting Kids EXCITED About Saving Money

When Ryan was seven years old, John and I discovered he had a spending problem. As serious as a seven year old can have. It was all about Pokemon cards. Each week he would drain his money on the cute cards in hopes of striking it rich with a rare Charzard.

But not wanting that spending problem to grow into a bad spending habit, we decided to introduce Ryan to compound interest. We wanted to see if the idea of money growing on itself (because he saved it), would have an impact on him. We also wanted to have the idea of saving his money come directly from him.

So we sat him down at the computer, along with his brother Nathan who was a terrific saver already, and plugged 10% monthly interest (parents can do that!) into a spreadsheet. The graph that was generated on the initial $100 we set up, shocked him. Then on came the lightbulb when he realized that saving his money would mean he would end up with even more money. He was a believer. It was this moment that began our work on KidsSave.

Compound interest. Einstein, a very smart dude, called it the eighth wonder of the world. He also called it the greatest force in the universe. And if anyone should know about the universe and force, it’d be Einstein.

And it was compound interest, interest that grows on itself, that made Ryan the saver he is today.

So I’ve put together two videos to illustrate the power of compounding so that you can show your kids this “magic” and get them just as excited as Ryan got. Of course, you could also use our kids’ savings and money management software, KidsSave, as it was the very first thing we designed for the program.

Here’s my most recent video. It’s on the Rule of 72. Don’t know the beauty of the Rule of 72? Then take a peek. It’s pretty amazing. And if it gets your kids excited about saving, let me know!

And after you watch the video, ask your kids what would happen if they invested $2000 instead of $1000…

Watch this VERY COOL video.

Personal Finance for Kids?

So it happened again to me today, and it’s happened enough that I decided to write about it…and solicit your help.

I was chatting with a woman I just met about this, that, and the other, when, inevitably, the question so what do you do? comes up. She’s a stay-at-home mom, nice, and I told her I was a kids’ personal finance educator.

“You can teach personal finance to kids?” she, and just about everyone else, asks.

Now don’t get me wrong. Until my youngest, Ryan, began to exhibit extreme carefree spending tendencies, the idea had never really occurred to me, either. At least, not beyond giving him an allowance. But if you think about it, setting up an allowance system is most definitely a form of personal finance.

At least it should be.

It’s not enough that kids get money. It’s important that we teach them what to do with that money. Things that we do with our own adult personal finances: save, spend, share, invest, borrow, budget. We need to do it in a way that gives kids real, hands-on experiences with their money so that they’ll get the practice they need before we send them out into the world.

And the good news is, it’s not that hard to do. Even if you don’t feel “qualified”. And while we’re doing it, we need make ‘personal finance for kids’ a recognized phrase.

So I’d love to have your help. It would be great if you could help spread the word about the importance of teaching kids money while they are still young.

In addition, I want to be a resource for parents. My Raised for Richness Facebook page is filled with all kinds of tips and research studies. It’s a great place for parents to start.

I am also working hard to make our website a resource, as well. We’ve included a bunch of free stuff recently.

And then there are the Beyond-the-Piggy-Bank Challenges filled with the specific steps needed to begin teaching personal finance. I do these periodically and if you email me, I’ll get another one scheduled soon.

So let’s start a movement! Let’s get the word out make ‘kids and personal finance’ just a regular part of our everyday language. Together we can make a difference.

Teaching Kids to be Wise Consumers

Teaching kids to be wise consumers requires that we have them reflect on their purchases…before they spend the money. And an easy way to do this is to teach them the Three Money Questions:

Do I need it?
Can I afford it?
Does it add value to my life?

Do I need it? This gives kids practice in thinking about the difference between needs and wants. If the item is clearly not a need, and for kids this is the majority of their spending, then at least they have acknowledged that they are pursuing and willing to plunk money down for a want. Which leads us to…

Can I afford it? This one is simple – if you don’t have the money, you can’t afford it. This is a good opportunity to help your child create a goal and work towards it.

Does it add value to my life? This takes time to learn. Most kids will insist that they can’t live without the particular item/experience and will move forward with their purchase. Revisit their decision after several days or weeks by having them reflect on whether or not their choice truly enhanced their life.

The key to the Three Money Questions is to model them with your kids. When considering a purchase, talk through the questions out loud so that your kids can “see” how decision-making happens. It may seem silly at first, but if we want our kids to learn how to problem-solve through a potential purchase, they’re going to need to hear how that happens.

If your child is considering an expensive purchase, a good strategy is to have her create a pros and cons list. This helps to clarify her thinking in a very visual way. And it’s an unbelievably wonderful tool that she’ll be able to carry with her beyond simple money purchases. Should I marry this guy or not? Let me make a pros/cons list. Okay, I’m kidding, but you get the idea. 🙂

The Power of Relevance in Teaching Kids Money

Relevance is an unbelievable teaching tool. That’s because it’s much easier to learn something when it’s relevant to our lives. And, often, it’s more fun.

Consider a child studying a unit on growing plants in her third grade class. When the teacher starts talking about how healthy plants grow, her little ears perk up. This year, her dad put her in charge of he family vegetable garden, so learning about soil, watering, and weed control was meaningful to her; it had become relevant to her life.

The power with relevance is that it establishes a purpose for the learning. And when things have purpose, the learning becomes more powerful. So if we can connect the learning that kids are doing to their every day lives, in other words, if we make it relevant, then deeper learning and understanding will take place.

The Money Connection: If we want our kids to learn about and understand money – how to save it, share it, spend it, and invest it wisely – then we need to find a way to make it relevant to their everyday lives. And the best way to make it relevant? Give them the responsibility of managing their own money.

When they’re in charge, all of a sudden, learning how to effectively manage that money becomes meaningful and, by default, relevant. If they want to buy that really cool cell phone, then learning how to create a personal financial goal becomes relevant. If they want to invest in their favorite clothing company, then researching the company has now become relevant. And if they expect to save enough money to bring with them on vacation, then learning how to make good spending choices has become relevant.

When it comes to teaching kids about money, there’s no better lesson than to use the power of relevance. When it’s your money, it’s not that important. When it’s theirs, it’s a whole new story. And this story has a happy ending.

Yippee! I’ve Got Money! A Letter to Teens

I was asked to contribute an article to a book being published on kids and financial literacy (will share more on that later). Apart from being thrilled to have been asked, I happen to love writing, so I jumped at the chance. My given topic was ‘kids and budgeting’ and is a little longer than I usually post. But I think you’ll find it easy to read. Here we go:

~

Nice. You’ve got money. And if you’re like most teens, the first thing that comes to mind is to take that money and spend it. That’s reasonable. After all, you worked hard to get it. You did work hard to get it, didn’t you? But before you call all your friends and set up a date with the mall, ask yourself one question. Do I want to think like a millionaire or do I want to think like someone who lives with mom and dad when they’re 30?

You’re pretty savvy, so my guess is that you chose to think like a millionaire. Good. Because you’re going to learn some important stuff that will allow you to build wealth so that you can have and do the things you want. But always keep one thing in mind. Being rich in money is nice, but it’s also important to be rich in friends, compassion, knowledge, generosity… Then, being rich in money is so much more meaningful, for you and others.

Okay, we’ve got priorities straightened out. Now let’s get to the thinking-like-a-millionaire part. Most millionaires become millionaires because they are savvy in the art of managing their money. And the first thing millionaires do when they manage their money is to pay themselves first. It seems like a silly thing to do since the money is already theirs, but paying themselves, or in this case, yourself, first simply means that you are going to take some of your money and sock it away into savings. Then leave it there. No touchy the money. You’ll see why this is important in a minute. So decide, right now, how much of your money you will put into savings each month. A lot of millionaires started by putting aside 10% of their income. But you decide what works for you right now. You can always add more later.

Okay, pay myself first. Check.

Next, it’s always a good idea to share a little of what we have. Some like to give to their church, others like to donate to causes that are near and dear to their hearts. Whatever you choose, decide how much you want to give and how often you will be giving. It’s often easiest if you do it monthly, similar to how you put money into savings. And, hey, your parents may even be willing to match your donating dollars. They like it when they see you doing things to help others. So ask them.

But does that mean that you have to give money? No. Giving of your time and energy is just as valuable. At some point, though, maybe when you’re earning just a little bit more, you’ll want to re-visit this and make a commitment. Either way, you’ll discover a very important thing. Sharing makes people happy. And being happy is contagious. So share. It’ll make the world a better place.

Share time or money. Check.

Now, since you are a millionaire-in-the-making, you need to figure out where your money is coming from and where it is going. In other words, you’re going to track your income (money in) and expenses (money out). It’s going to take one month to gather enough information to be able to see patterns in your habits, so grab a notebook, use KidsSave or print out a recording sheet by visiting here and start recording. Every single penny you spend or bring in gets recorded. Yes, I know, it’s a hassle. But it needs to be done. Think: millionaire.

Then, when you have one month’s worth of data, look for patterns in your spending habits. If you like, you can create categories using colored pencils. (If you used KidsSave, print out your registry.) Items like soda, chips, and gum would go in a ‘snack’ category and can all be colored, say, yellow. Video games, itunes, and that new Wii controller you just bought would go in an ‘electronics’ category and colored…red. You get the idea. Expenses that are the same each month like your cell phone bill, remain in their own category. They are fixed expenses. And remember your charity and automatic savings? Consider those fixed expenses, as well.

Add up the totals for each of your expense categories. Then add up all the categories in expenses. That’s about how much you spend each month. Next, add up all the categories in income. That’s about how much you bring in each month. Subtract expenses from income. That’s how much money you have left over. No, duh. Want more money left over? Keep reading.

Keep track of my income and expenses. Check.

Okay, so you’re interested in ending up with more money. The good news is, it’s not that hard to do. And it can make a huge difference in whether or not you reach millionaire status and how quickly you get there. Here’s how.

Go grab that list of expenses you carefully recorded for one month; it’s time to take another look. This is where it can get interesting, so hang on. Choose one of the categories, like electronics, and look at the total amount you spent during that month. Now multiply that number by 12. That’s about how much you can expect to spend on electronics for the entire year. Do that with the other expense categories. Pretty eye-opening, huh? Time to reduce spending?

Start by taking a real close look at all the things you spent money on. Not happy about blowing a bunch of money on snacks at the mall? Great. Stop doing it. Wish you hadn’t bought those funky sunglasses that you never wear? Then think twice about putting out money for things you don’t really need. Not that you don’t get to have some fun with your money. Treating yourself is important. Just be aware of where your money is being spent. There’s a saying that goes “It’s better to tell your money where to go than to ask it where it’s gone.” So pay attention.

Alright, reduce spending. Check.

Okay, are you sitting down? Because this is the part where I bring up the ‘B’ word. Adults do not like this word. A lot of them even cringe when they hear it. But you’re not afraid. You’re a millionaire-in-the-making which puts you into the tough category.

Deep breath.

Budget.

Budget? Yup, budget…a plan for your money. It’s hard to become a millionaire without one so let’s just hit it straight on. Besides, when you see what’s really involved, you’re going to wonder why so many adults haven’t taken the plunge.

The first thing you need to do is track your income and expenses. Done. Then you need to create income and expense categories. Done. Next, you need to subtract your expenses from your income. Done. OMG! The budget’s done. No kidding. You just need to make sure that you’re meeting all your objectives of saving and spending carefully and that, then, pretty much sums up how to create a budget. Sheesh, what’s up with these adults?

Create budget. Check.

So, when you created your budget you discovered some extra money. Money that was left over after you subtracted your expenses from your income. Beautiful. Now we get to the fun part, the building-wealth-to-become-a-millionaire part. The part where you learn how to make money work FOR YOU, instead of you working for it.

Remember that pay-yourself-first money you’ve been saving? Here’s where it comes into play. You’re going to take that money along with the extra savings you just found in your budget and begin to invest it. But here’s the deal. The money you invest is money that you won’t be able to touch for awhile. I’m talking several years. In fact, the longer you can leave it alone, the better. Let me give you a quick example.

If you started saving $100 every month when you were 18 years old, and you invested it where it received 6% annual interest, by the time you turned 65 you would have $313,187. If you did the same thing but were receiving 10% annual interest, you would end up with $1,281,919. The secret is something called compound interest. Compound interest is money that grows on itself. Remember Einstein? Pretty smart, right? Well Einstein knew how special compound interest is. He called it the greatest force in the universe. Over time small amounts of money become large amounts of money. And if you keep making contributions while not touching any of it, yowza, it’ll take off like a bat out of H – E – double hockey sticks. Sick.

And what should you invest in? Lots of things. The key is to diversify. That’s when you divide your money into different investments. CDs and bonds are a good place to start. I also recommend mutual funds. When you’re ready you can begin investing in individual companies in the stock market. And maybe one day you’ll move on to real estate. But do your research first. Always do your research. http://Www.bankrate.com and http://www.fool.com are great places for that.

Begin my investing portfolio. Check.

Well there you have it. You’ve just set yourself up to become a millionaire. You are in control of your financial future. How cool is that? It’s very cool because that puts you into an elite group of people. A group of people with a millionaire mindset. You’re on your way to great things. Keep focused. Know your goals. Follow your dreams. Go get ‘em!

You Can’t Do That Yet

I was back in Michael’s picking up glitter stickers for a money activity I’m doing this weekend. As I was deciding between the funky flower stickers and something a little more “masculine”, a little boy, about the age of 4, appeared at the end of the aisle. He was looking at a wooden train that was packaged and hanging on display.

He stood in front of the train just staring at it. I love 4-year olds and how they “do” life. He was obviously taken by the train even if he couldn’t use words to explain it. Then he reached up to touch it.

“You have to paint that. You can’t do that yet,” came grandma. She said it so matter-of-factly that I was a little taken aback.

I felt a little for the boy who kept staring at the train. It looked like a cute little painting project that the kid would have fun doing that afternoon.

Grandma took his hand and walked down the aisle I was standing next to. I went back to contemplating stickers when the boy showed up again next to the train. I looked for grandma. She was still at the end of the aisle. When she discovered he was back with the train she said, “You have to paint that. You can’t do that yet.”

That’s when I surreptitiously grabbed a piece of paper from the bottom of my purse and wrote down her quote. She had said the exact same thing twice. And that’s when I started thinking about it.

The kid was four years old. Unless the grandma expected him to come out of the gate painting like Picasso, he was going to need practice. And the train project was perfect practice, one…because the boy really, really liked the train, and, two, because that train would be the cutest thing ever when he finished with it. It would make the perfect gift for…a grandma.

I was getting a little annoyed with grandma.

So the kid leaves again with grandma and…a few minutes later (I’m really glad I was having such difficulty deciding on the stickers), he comes back again. This was the third time this kid stood in front of that train. I was SO TEMPTED to buy it for him myself.

Then back tromps grandma ready to rain on his parade once more. Which is precisely what she did. Just like a broken record I heard the familiar refrain, “You can’t do that yet.”

It’s not my place to interfere with grandma’s “raising” of her grandchild. After all, she wasn’t being abusive in any way. Grandma loved him and simply didn’t think he was “ready” to paint a wooden train.

But as I was standing there, all my child development training came flooding in…as well as my natural instincts. How in the world is this kid ever going to learn how to paint if he’s not given the opportunity? But what really got me was the fact that this little boy wanted to paint the train. He was interested and motivated. That’s the PERFECT opportunity to teach someone a new skill. Unfortunately, it was a missed opportunity for this little guy.

And it got me thinking about expectations for our kids. If we don’t think our kids can do something, then chances are they won’t be able to do it.

I used to see this a lot when Nathan and Ryan were little and we were at a playground. It always surprised me how many parents would not let their kids climb on certain equipment because they didn’t think their kids were “ready”. With support and guidance and a hand to reach out if necessary, it’s really amazing at what our kids can really do.

So my thoughts then turned to kids and money management. If we don’t think our kids can learn about money when they are young, then the chances are they are going to grow up without the skills needed to effectively handle money. And just like learning to paint well, learning how to manage money takes practice. Lots and lots of practice.

Like the boy and his fascination with the train, kids are fascinated with money. Not in an obsessive way but in a curious kind of way. It’s the perfect opportunity to tap into that interest and teach them money.

I was a little sad as I left the store with my stickers; I chose the glittered flowers because they were a little bright spot in an otherwise rainy day.