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How to teach kids about money


MrB
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I have a 6, 3 and 2 year old and I've started to take an interest in how to teach them about money and investing.

 

Two questions,

1. Any suggestions for good resources on the topic, and

2. what ideas and suggestions can you share that worked with your kids?

 

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I remember when I was about 8th years old. We went camping and there were some arcades there, so as any young kid did I asked for some money from my parents. My dad gave me two bucks and 30 minutes later the whole amount was gone, so I went back for more money. Then my dad offered the following deal:

 

He would give me 2$ right away and, if the next day I could show him I still had at least 1$ then he would give me another dollar to play with. If I could not show him I still had a dollar then he would not give me money anymore for the rest of the vacations.

 

I believe it had a powerfull effect on me as to teach me not to spend all my money at one time and also shown me the power of compounding.

 

BeerBaron

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I have a son and a daughter who are 11 and 10 years old.  What my wife and I did with our kids when they were younger (starting about age 4 and 5) and continue to do today is whenever the kids earn or are given money they break it up into 3 containers. My son and daughter each have their own 3 containers and they are:

 

1) SAVE:  60% goes into the “save cup”.

2) SPEND:  The spend cup is money they can use whenever and however they wish. 30% goes into the spend cup.

3) SHARE:  10% goes into the share cup and once per year the kids get to decide how to donate this money.  The last two years it’s gone to feed children in Haiti.

 

I have UTMA investment accounts in each of their names and every time one of them has a hundred or two in their save cup I put the money into their brokerage account and let them “help me” decided what to invest it in.

 

This has worked out really well.  They get to learn the 3 basic things you can do with money (Save it, spend it, donate it) and have had a hand in making the decisions about how those things are done with their own money.  They have learned how easy it is to spend the money in their spend cups versus how hard it is to earn it.  As well as seeing the save money grow to become a significant amount.  They frequently decide to take from their spend cups and add more to their save cups and sometimes even their share cups. They also put a lot of thought into how to use their share cup money.

 

As far as where the money comes from in addition to birthday money that they get from relatives, they are expected to work for an allowance around the house and add more jobs if they want more.  These are things like helping clean (including bathrooms), taking out trash, stacking firewood, yard work, cleaning cars, etc…

 

Hope this helps.

 

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I can relate how I learned to be good with money at a young age:

 

My parents only gave me money for working (mostly chores, but some outside work as well).  If I did my chores, I got paid 8 dollars a week.  However, half of my money was to be put to college, so I got 4 dollars a week.  At the time, I was into computers and wanted to upgrade my RAM (later other things), and the cost was around 180 dollars for 4MB--you tech nerds now have a rough indication of my age.  Anyway, I saved 4 dollars a week to 180 dollars several times until I got a real job.  This pretty much made me good with money for the rest of my life.

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I don't really know how I learned about money. It was kinda natural. From what my mom said, when I was 2 or so, I would always have to have a dollar in my pocket...not sure why. Also, I used to carry an ice cream bucket around when I was a youngster and used it to collect money. It's all kinda weird. haha  :o

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Not that I have kids, but, it isn't like I wasn't a kid all that long ago... So, here is some of the stuff that worked with me.

 

Like others on here, I also got a chore based allowance, where I got paid for the amount of work I did; if I didn't feel like taking out the trash, that was fine, I lost however much money I was to be paid for that chore... I even remember recycling aluminum cans as a kid so that I could get more money; I probably would have gotten a job on my own accord if it weren't for those pesky child labor laws ;).

 

At some point (maybe middle school), my parents opened up a checking account for me, and said "we will give you x amount to put in the account every 2 weeks. This money is for you to buy clothes with. You can buy whatever you want. But whatever you do, don't come to us to ask for more money if you have too good of taste in clothing..."

 

That did a lot for me, as I quickly figured out that buying things on sale was a good thing to do. Coupons were good things to use. I certainly cared a lot more about what I got at that point, whereas, when they were buying everything for me without me knowing what they were spending things didn't work out as well... The great thing, is that from where I was being more efficient in my clothing purchasing, it saved them money, I ended up with stuff I actually liked, and any fights over typical teen/parent clothing issues were completely avoided.

 

Looking back on it, my family would have been a real case study for labor economics, despite my parents both being teachers and probably not thinking too much about the economics of the whole situation...

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Great feedback thanks.

Stahleyp; it's official you are weird! ;) Makes me think of this habit my oldest daughter "picked up" on. I will be standing somewhere and she will run up to me shouting. Daddy look what I found! It will be a coin she picked up from the sidewalk/floor somewhere.

 

Anyway, good comments everyone thank you. Rkbang; the buckets is a good idea. I've been doing spending and saving, but did not break charity out into a separate bucket. I like it. 

 

Some more ideas on teaching them about compounding and delayed gratification anyone?

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Some more ideas on teaching them about compounding and delayed gratification anyone?

 

Your going to have to force it down their throat and not give in. I remember I wanted a toy really bad when I was a kid. My parents were not adamant in buying it. So I gave up and didn't want it anymore. When I was older (12 years old) I bought a skateboard with my own money but I didn't use it much. I regretted purchasing it and I learned a good lesson in the value of money. I wish I could've saved it and compounded it.

 

Pretty much regret is the best way to teach it especially with their own money.

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When our nephews turned 16 we gave each of them a 20K cheque to do something ‘big’ with. The only conditions were (1) They could use the money for whatever they wanted, but the funds had to be deposited in their granny’s account for safekeeping, with interest covering the banking costs, & (2) We all had to agree the spend was ‘big’ enough; if it wasn’t - the first $2 of cost came from the nephew, the next $1 from mom & dad, & the last $1 from the fund. 

 

The amounts were deliberately large, designed to confuse, accelerate their maturity & stretch their horizons.  One nephew chose travel, & eventually travelled from London to Cape Town for 6 months on the back of a truck. The other chose cars, went to racing school, & finished up with truck driving school. The two of them now drive truck on the arctic ice roads as a winter job - just for fun.  Both of them are under 21.

 

They are their own men, & there are swarms of girls around these two. Compared to their peers they are light years ahead.

 

Money is the servant, not the master, & it exists to be spent.

 

SD

 

 

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SD, I like that one. It's a keeper.

 

What about compounding though? I was trying to think about some kind of visual game or tool that can compress the time component and show the exponential tail end growth. Have not been able to come up with anything good though.

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SD, I like that one. It's a keeper.

 

What about compounding though? I was trying to think about some kind of visual game or tool that can compress the time component and show the exponential tail end growth. Have not been able to come up with anything good though.

 

I think my grandad gave me a book to read about compounding--I don't remember the title, but it was written a bit like a parable and had the main character always save 10% and invest the saved amount.  However, I'm not sure how effective that was, because a) it led me to believe I'd be ok saving 10% and b) I still didn't really catch on to how powerful compounding is. 

 

It wasn't until later that I switched on to saving >50% and even later until I realized I could do better than brute force saving because of compounding (although ignoring compounding made me save even more).

 

Are they old enough to understand the rule of 70?  That pretty much sealed the deal for me.

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How about playing Monopoly?

 

My kids would play for hours with me, even as young as 5 or 6 years old-there is a lot of learning from simple counting to addition, subtraction, mortgaging...counsequences of decisions (they soon learn to allocate their capital as soon as possible i.e buy everything). Now that they are teenagers of course they would rather do other things (without their Dad).

 

I think they learn from seeing what their parents do- what their values are etc.

 

I think be careful putting too much emphasis on getting paid for chores- I think it is important that they realize that sometimes (or a lot of times) you have to do something without getting directly paid because you re part of the family + everyone has to chip in + help out.

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I think be careful putting too much emphasis on getting paid for chores- I think it is important that they realize that sometimes (or a lot of times) you have to do something without getting directly paid because you re part of the family + everyone has to chip in + help out.

 

This is a very good point--at the time, I did feel like I shouldn't do other helpful things around the house for that reason.

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SD, I like that one. It's a keeper.

 

What about compounding though? I was trying to think about some kind of visual game or tool that can compress the time component and show the exponential tail end growth. Have not been able to come up with anything good though.

 

I think my grandad gave me a book to read about compounding--I don't remember the title, but it was written a bit like a parable and had the main character always save 10% and invest the saved amount.  However, I'm not sure how effective that was, because a) it led me to believe I'd be ok saving 10% and b) I still didn't really catch on to how powerful compounding is. 

 

 

Sounds like The Richest Man in Babylon.

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Regarding scarcity, I think the example you set as parents is important. We have everything we need in our house; however we are never 'early adopters' when it comes to the next must have gadget. We buy one nice thing for the house each year (this year it was a big screen TV).

 

We will go to a few garage sales during the summer. Each kid gets a set amount to spend ($2.00 when they were really young). If they spend it at the first stop they are done for the reat of the day regardless of what they find later in the day. This has been a great learning vehicle for the kids.

 

My kids play hockey/ringette and they still get used skates every year from the local used skate shop or Craigs list (mind you, I know skates; we find $300 Graf's for less than $100). Their equipment bags need to be replaced. My oldest daughter recently got a great desk from Craig's list (she knew it was used). We can afford to buy them the best brand new but do as we do not want them to develop an 'instant gratification' mind set. This also teaches them how to be smart with how they spend their money.

 

We talk about money and 'business' stuff but in a way that is relevant to them to start to get them familiar with concepts. I used to work for Kraft Foods and Saputo; their products are all over the house and make for some fun conversations (and lots of interesting questions). When they are older I want to have them start to invest a small chunk of money in companies they are interested in.

 

Learning math is also very important in our house (along with reading & writing). My wife spends extra time with our two daughters to ensure they are learning all basic concepts (as many girls at a very young age decide math is not cool and fall behind). My wife also plays lots of games with the kids... this may be one of the best ways to help teach them math stuff.

 

Bottom line... be a good role model, make it relevaqnt to them, work your ass off to help them... and then hope that Buffett is wrong when he says (about value investing anyways) that you are likely born with it (or not). 

 

I have now been managing our family investments full time now for about 5 1/2 years. By far the best outcome has been the quality time both my wife and I have been able to spend with our three kids (starting when they were young). We have been able to raise them how we want. We just finished parent/teacher meetings and all three are excelling in school; they are also great athletes. Most importantly, they are good people. The quality of our family life is very good; and my wife and I both recognize that we are living the dream.

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We have chickens, they lay about 8 eggs a day.  My 3 yr old collects the eggs and takes them into preschool to sell to the teacher & assistants.  He saves it in a tin can and buys toys with the money, personally handing the money over the counter.  Today he's getting a "gun that shoots missiles" (it's one of those little Nerf guns).

 

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You might want to have a plan for the unexpected ... as a certain party used to be a very successfull bootlegger as a kid - pulling in a lot of cash every week when a $ was actually worth something. The parents had a heart attack when they found out!

 

The solution was to allow the business to continue, with a CA grandparent as banker, & 35% revenue confiscation as taxation - with the money going to a local charity every quarter. Lot of bitching at the time, & no amount of fudging the numbers worked, but the lessons learnt were priceless. Apparently, the party referred to was a very slow learner!

 

Beware of what you wish for.

 

SD 

 

 

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In 1984 I was 11 years old and we were taking a family vacation to Europe.

 

I believe it was on a ferry from England to Sweden that my parents thought they'd teach me a lesson about games of chance.  Being in international waters, gambling was legal without age limit.  So they agreed to let me play the slot machines while they were still finishing their lunch in the dining room.

 

About 5 minutes later I came back with my t-shirt bulging with coins.  I had hit a 100:1 payout.  A star is born.

 

Fast forward 22 years and I'm explaining to them the payout on the successful FFH call options trade.

 

So much for teaching me a lesson.

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