Want your kids to succeed in life? Start showing them how.
When it comes to smart money habits, daily life is full of teachable moments. When a child observes his or her parents doing things like building and sticking to a budget, taking care of household and yard chores, saving up for big purchases and shopping around for the best deals, that child learns how life works.
Read more: A step-by-step guide to building savings
Specifically: Kids will learn that life isn’t going to hand them anything, whereas a kid who can’t do the simplest things for himself is a kid who’s being set up for failure.
Just as you teach your kids to tie their shoes and say “please” and “thank you,” you should teach them practical skills – things that will help them get ahead financially.
Best of all: The only thing these gifts cost you is time. If you want your children to be capable citizens, as well as financially secure adults, here are some of the things they should know before they leave the nest.
7 ways to teach your kids to be financially savvy
1. Simple cooking (because takeout can torpedo a budget)
You could also teach complicated cooking, if you like. Just make sure that Junior or Sister doesn’t think that food always comes from somewhere else.
According to the United States Department of Agriculture, we spend just over half of our food dollars on meals prepared outside the home. Imagine the opportunity cost of those bucks, especially for young adults with student loans and starter salaries.
Again, this doesn’t have to be haute cuisine. It could even be a mix of from-scratch cooking and “speed scratch” meals – for example, pairing a Costco chicken with frozen corn and some baked potatoes from the slow cooker.
As long as your kid can grill a burger, flip an omelet or boil up some pasta, he won’t have to spend half his hard-earned food dollars on someone else’s cooking.
Read more: 15 ways to save on groceries
2. Basic cleaning tactics (because hiring a housekeeper gets expensive)
Paying someone to clean your place costs anywhere from $25 to $45 per hour, according to Angie’s List. For super-busy people (hello, working parents!) this might be worth factoring into the household budget.
Generally speaking, though, a single young adult’s dollars have other work to do: student loans, emergency fund and retirement savings. Cleaning really isn’t that hard and all kids should be given age-appropriate chores. Think of it as basic training for adulthood.
Here’s an easy way to do things: the 20-minute rule. Assign every member of the household a specific chore to be accomplished or area to be tidied. Set a timer for 20 minutes. Dive in and clean like mad. When the timer goes off, you’ll be amazed how much better the place looks – and having a clean, pleasant place to live does make a difference.
A useful corollary is the two-minute rule: If something takes less than two minutes, do it right away. For example, wipe the toothpaste smear out of the sink as soon as it happens, or put the cereal bowl in the dishwasher rather than the sink.
By the time your kid moves out – and preferably years before that – he or she should know how (and when) to vacuum, dust, mop, clean a bathroom and generally keep things tidy. He should also know all about…
3. Laundry (because going to work in dirty clothes just won’t do)
During my first year of college I found a dorm-mate sobbing in the laundry room. She was actually weeping out loud because she didn’t know how to run a load of wash. What did all those dials mean? Hot or cold water? Should she be using bleach?
I have no idea how she left the nest without learning how to launder her own clothes. Specifically, I wonder what her parents thought would happen: that she’d magically learn how, or that the college had a concierge to take care of their daughter’s jeans and shirts?
Don’t let your kid become one of those people who pays other people to wash, dry and fold their clothing and linens. Seriously: Why spend $2 per shirt vs. $2 per entire load in the basement laundry room? (Hint: Throw shirts, slacks, dresses and skirts in the dryer for a couple of minutes and the wrinkles will generally disappear.)
Here are a few resources that can help:
- Best water temperature for washing clothes
- Best laundry detergent for your money
- Simple cheap way to get brighter and cleaner laundry
4. Getting a job (because it teaches more than just punching a clock)
Whether or not to tie allowances to chores is a huge discussion in parenting communities. But even kids who do get allowances will eventually want extra money.
That’s when your son or daughter can become an independent contractor, bidding on chores like cleaning the fridge or sweeping out the garage. It’s a great way to teach the connection between work and money.
(And if your kid complains that the work is hard, dirty or boring? Here’s what my dad says: “That’s why they call it ‘work.’ If it were fun, they’d call it ‘fun’.”)
Before your kids are old enough to get “real” jobs they can hire themselves out: babysitting, raking leaves, shoveling snow, walking dogs, selling lemonade and the like. Encourage entrepreneurship and teach them to value their skills effectively; for example, your son shouldn’t shovel a walkway and front steps plus a huge patch of sidewalk for just $5. Don’t let them do unsafe things, either, such as walking a dog that’s too strong to control.
In my state kids can get working papers at age 14, which means a lot of very young-looking grocery baggers and burger sellers. Such jobs provide a lot more than salaries: Kids learn how to handle pressure with equanimity (because even rude customers are always right), and how to manage their time to balance work with school and family obligations.
Beth Kobliner, author of “Make Your Kid A Money Genius (Even If You’re Not),” doesn’t like the idea of teens working regular jobs during the school year. She cites a U.S. Bureau of Labor Statistics study that says kids spend almost an hour less on homework each day that they work.
Their real job, she says, should be getting the best possible grades in order to qualify for scholarship money. Taking babysitting or tutoring gigs here and there is fine, as long as they don’t affect the student’s grades.
And if it’s important to your teen (or to you) that he work during the school year? Limit it to 15 hours per week, Kobliner says.
For a truly Clark-smart experience, encourage your working child to open a Roth IRA. Offer to contribute as well, e.g., matching the young worker’s contributions. This teaches him not only to think ahead but also to develop a savings habit, i.e., paying himself first. And speaking of paying yourself first, your kid should learn about…
5. Investing (because the future is closer than you think)
Personal finance expert Jean Chatzky wrote a book just for kids: “Not Your Parents’ Money Book: Making, Saving and Spending Your Own Money.” In it, she focuses on three “crucial life financial skills”: How to earn enough, how to spend less than you earn and how to invest for the future.
Your kid will likely have to fund some or all of his own retirement. Investing is the way to do that. Failing to teach a child about growing money is denying that child a chance at lifelong financial success.
“Don’t panic if you don’t understand the market at all yourself,” Kobliner says. After all, you didn’t know how to drive a car, fix a meal or raise a child until you made it your business to learn.
Here are some great resources that can help:
- Clark’s Investment Guide cuts through the chatter, providing information for three levels of experience.
- The Clark Smart Kids page offers resources like Young Americans Bank and Better Investing.
- Investopedia.com has a primer called “Investing 101” – the basics for beginners.
- The U.S. Securities and Exchange Commission’s “Introduction to Investing” page has lots of information for adults.
6. Money management (because it’s not about minimum payments)
What you want your kids to understand is that money is a tool, not a toy. It’s used to get things we want and things we need, but it’s also something we use to meet longer-term financial goals.
The “three jars” method, which teaches kids how to save, spend and give to charity, is a good way to instill the idea of money as something to be managed vs. spent immediately. All money – allowance and birthday and holiday cash – should be apportioned this way.
Some personal finance experts suggest having your teen open a checking account for hands-on experience in money management. These accounts let them deposit paychecks and learn to track their funds.
Chatzky suggests increasing allowances as children age – and decreasing the number of things the family budget will cover. The allowance is no longer mostly fun money: It has to cover things like clothing, school lunches, birthday-party gifts, entertainment and maybe even transportation.
Kids will be “forced into the position of having to choose among things,” Chatzky says – just as they’ll have to do when they’re adults.
Require your kid to save for college or trade school, even if you can afford to pay full freight. When my daughter was young I told her that once she started babysitting she’d half to save half her earnings and when she got a “real” job she’d have to save 75 percent of her salary. Saving became a natural outcome of earning, and she wound up with no student loan debt.
7. Delaying gratification (because the instant kind can ruin you)
We live in a consumerist society, and kids are constantly reminded of what they “need” via marketing, social media and peer pressure. Probably the greatest financial tactic you can teach is not just the difference between wants and needs, but also the ability to say “not yet.”
The “saving” jar helps younger kids understand that it will take six weeks’ worth of allowances to fund that Lego set. Encourage the delayed-gratification mindset by having the child draw his goal on a whiteboard and subtract each week’s saving contribution, which makes the goal seem more attainable. (You can also suggest he take on an extra chore if he wants to buy that playset sooner.)
Be sure to mention that this is how the family budget works, too. For example, you might explain that both parents set aside money each month to keep holiday spending on a cash-only basis. Emphasize that the debt-free lifestyle is much more pleasant than worrying about how you’ll pay your bills.
Walk your talk in other ways, too. Discuss the wants-vs.-needs mentality in small ways and large. At the supermarket you might say, “Treats are ‘wants,’ and we can buy one per shopping trip,” and then let the child decide whether that means pretzels or ice cream.
Or give a teenager the money you’ve allotted for school clothes, with the understanding that there will be no bailouts. If he spends all the cash then it’s up to him to make up the difference – or to do without. This means that he’ll have to think long and hard about whether those $100 sneakers are really worth it.
It also means you have to stick to your guns on the no-bailout rule. Kids who know that they can get their needs met through begging, crying or (empty) promises to do better won’t learn much. Or, rather, they’ll learn the wrong lesson: That the Bank of Mom and Dad will always be open.