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Teaching Kids About Money: How to Prepare Them for Adulthood

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teaching kids about money

When you stop and think about it, a parent’s primary responsibility is to prepare his or her child for adulthood. As parents, we’re always teaching our kids to be independent and productive members of society – or at least we should be. That includes teaching kids about money. On Tuesday, Cat tackled the question of how much financial support adult children should receive from their parents. I’m going to follow it up today by going back a little earlier in the parenting process to consider how parents can prepare their kids for financial independence.

Teaching kids about money involves many different aspects, but I think it’s safe to say that for most parents, the end goal is that your children leave the nest with a thorough understanding of how to earn, save and manage money.  Many parents help their children out financially in their kids’ first years of living on their own, and that’s okay in my opinion.

However, the long-term goal in teaching kids about money should be that they no longer need their parents’ financial help.  Here are some thoughts about what kinds of things to incorporate into your personal finance teachings for your children.

Independence is the Goal

When teaching your children about money, it’s crucial that they understand that the whole point of the financial education you give them is that one day they are able to support themselves financially.   I see LOTS of adult children who are supported, at least in part, by their parents.  And while this isn’t necessarily a “bad” thing, I think it’s important that children are taught that eventually they will have to be responsible for their own financial well-being.  This can be done gradually at home by implementing a few simple exercises.

First, pick a subject from the arena of adult financial management to let your child test the waters with.  Our 14-year-old will soon be given a monthly clothing allowance.  We will give her a certain amount of cash each month for clothes, but then we will no longer be responsible for buying her any clothing at all.  The goal is to teach her to set aside an amount of money each month for every financial need and want in her life.

In the case of her clothing allowance, it’s her responsibility to learn that she shouldn’t blow her clothing allowance each month on the latest and greatest new shirt, lest she need socks and underwear, or a winter coat, in a few months,  and find herself without the funds to purchase those items.  This could end up being a tough learning lesson for her if she manages her clothing allowance incorrectly, but we’d rather have her learn those tough lessons under our roof, with the end goal being that she leaves home smart enough and responsible enough to manage her money in a way that will provide for all of her needs, both current and future.

Learning exercises such as this will help your child to understand that money is a finite resource and that it should be managed wisely and prudently.

Keep the Big Picture in Mind When Teaching Kids About Money

Another great exercise to implement when teaching kids about money is more of a “big picture” exercise.  On our oldest daughter’s high school transcript for her sophmore year (we home school) is a class that will give her a first-hand account of how to manage money on a big-picture scale.  For an entire 12-month period, she will manage (with our supervision, of course) all of our family finances.

Each month, we’ll be giving Maddie a list of the bills that need to be paid, and we’ll hand her the checkbook and the password to the online checking account.  Maddie will be responsible for recording my husband’s automatic paycheck amounts, and paying the bills accordingly, deciding who gets paid and when they get paid, how much we can spend on groceries, entertainment, and the like.

Managing  household finances and paying an expansive set of bills requires training and certainly falls under the category of teaching kids about money.  By having Maddie manage our household finances for a year, we can help to prepare her for the day when she has her own household finances to run.  Right now, our kids are required, for any income they get, to put 10% into a giving account, 10% into a savings account, and to manage the other 80% how they please.  By allowing Maddie to run our finances for a year, we’ll be able to teach her how to manage money on a bigger scale with bills to pay and food to buy.  Then, when she decides to fly the coop and live on her own, there won’t be any surprises when the electric bill arrives for the first time and she’s spent all of her money on take-out pizza. 🙂

Teaching kids about money so that they are prepared to support themselves and manage their own money wisely can seem like a daunting goal.  With a bit of forethought and creativity, however, you can make sure your child knows most all of what they need to know.

 

How much did you know about managing money when you first moved out on your own?  What do you think is important and necessary to teach kids about money before they leave home?

 

Photo courtesy of: MIKI Yoshihito

 

 

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Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.

36 Comments

  • Kay says:

    Great advice Laurie. Independence is so important, so we can raise financially responsible individuals. We are planning on starting our son with a small allowance soon (he’s 4). I think that helps teach about saving and budgeting.

    • It really does, Kay. From about age 3, we’ve given our kids a weekly allowance (or what we call “work for pay”). They’re required to save 10%, put 10% in a giving account, and they’re left to manage the other 80% as they choose. For the first year or so, they’d all want to take that 80% and head right to the store. Now they’ve learned the value of saving that money for something important to them instead of blowing on the first $2 thing that they see. It really does work! 🙂

    • Derek @ MoneyAhoy says:

      Kay,

      I agree with you 100%. An allowance is a great way to get started with teaching kids independence and financial responsibility.

  • I was ok with savings but definitely wish I had specific goals that I was putting money away for. I love the feeling of putting money in a savings account but I never sat down to think about what I was saving for. A few years after college I was saving less and less and I think it was because mentally I didn’t view saving as important.

    • That’s an interesting point, Michael! Having your children make specific goals is a great idea. Our oldest recently saved up for a laptop, and it made it extra easy for her to save, as she knew what she was saving for.

  • This sounds like a great idea Laurie. I was fortunate. My parents both thought managing basic finances was very important, and like you they wanted mistakes learned while I was at home. By the time I was 16 I had a similar allowance to the one you described for your eldest daughter. I also had a low limit credit card to purchase clothes and necessities with. It all worked out very well. When I went off to college I was confident in the basics. I ended up teaching several of my dorm mates the basics……how to balance a check book……. pay bills…..wash laundry (but that’s another story).
    Good job Mom
    -Bryan

    • Wow, Bryan, that’s awesome!! You’re very fortunate that your parents knew enough to have you learn those things while you were at home, and we’re hoping to do the same. 🙂 Thanks for sharing your story – it gives me hope that we’re on the right track. 🙂

  • Wow, having your daughter handle your family’s finances for a year is a HUGE responsibility! Granted you’ll be there to guide and advise her, but that will give her invaluable experience for when she ventures out as an adult – way to go, Laurie!

  • Great point about independence. I think it’s easy to forget that independence is the ultimate goal of finances, and oftentimes the only lessons kids take away from their parents is that they need to get a job one day, but not WHY or HOW to manage their finances properly.

  • My mom used to have me go shopping with her and I had to help her plan meals and buy the food based on the budget she had. It taught me so much about the value of money. My mom, in everything she did taught me so much about being frugal. Hopefully I can live up with my daughter.

    • I think that’s a terrific idea, and we do it here too. When we shop I always ask the kids too to help me find the best price on items. They’re pros at spotting a deal, and I’m sure your daughter will be as well. Kudos to you for committing to teaching her wisely. 🙂

  • What a great idea to have your daughter manage the family finances for a year, Laurie! That’s the kind of educational experience she could never get in the traditional school environment, so I think that’s an awesome thing to do if you are homeschooling. I honestly think that’s a WAY more important thing to learn than all the history, geology, etc., that most of us were forced to sit through in school.

  • I am teaching my oldest child the basics with her piggy bank. She also gets small amounts of money for doing chores. I hope she learns the value of hard work this way =)

  • What a great “class” you are giving to Maddie! Every child should get a lesson like that as soon as possible because it is true, the ultimate goal is for them to live independently. I literally met with a new client yesterday, a beautiful young woman, whose main goal in life is to achieve financial independence from her parents. Because she did not get those lessons from home, at 27, it is something she still struggles with and creates great anxiety in her life. Just like it is a parents responsibility to teach good personal health, it is true about teaching good financial health.

  • That’s an excellent class you’ve added to your daughter’s curriculum. This should be offered in every high school. I didn’t know much about finances when I turned 18 but I knew I had to be responsible for my own bills. I learned the hard way by trial and error.

  • E.M. says:

    That is such a great idea to have Maddie manage everything for a year! That’s very valuable for her. I had my budget ready to go when my boyfriend and I were making plans to move in together. Both of us kept crunching numbers and I continue to track our spending. It’s so important to have realistic expectations when moving out and knowledge of what you can and can’t afford.

    • She’s a little nervous about it, E.M., but I think it’ll be a good way to teach her some valuable stuff. I think it’s awesome that you and your bf were both on the same page about finances from even before you moved in. That makes such a great difference, doesn’t it?

  • What a cool idea! I’m sure your daughter will walk away with more than just an awesome knowledge of how to manage a household but also an appreciation for everything you guys do for her as parents!

  • Man, that is super rad, Laurie! I’m sure she will come out of it with a better understanding of how money functions and how family’s deal with money on a daily basis. My only exposure to financial management at her age was through our high school management class!
    I wasn’t the most financially responsible when I first moved out of the house. I spent a great deal of money shopping – that ‘s for sure. But the good thing about making your mistakes while you’re young is that the consequences aren’t quite as serious. I’m just glad I was able to come out of it without any credit card debt! I had to good sense to at least pay for everything in case (or debit) but of course, my savings were non-existent 🙁

    • That’s our hope! Yes, you are lucky that you came out of your financial irresponsibility relatively unscathed, and that it ended young too – whew! You guys are on the right track now, that’s for sure. 🙂

  • That’s quite the project for your 12-year-old! She’s very lucky to be given this kind of training. My parents gave me a clothing allowance, but the problem was I always ran out of money before the month was up. I would whine and complain until they gave me an advance on the next month’s allowance. And guess what? I’d run out of money early for that month too. It set me up to be debt-ridden, and I don’t make the same mistake with our children. My youngest has a clothing allowance now, and when she runs out of money, she knows she has to wait for the next month to begin.

    • I think that’s awesome that you are setting those strict boundaries with your daughter – our plan is to do the same thing. I’ll surely be updating on how this turns out. :-). Thanks for sharing your thoughts, Prudence – have a great day!

  • Kim says:

    Those are wonderful ideas that I might borrow down the road. i would give anything if my parents had done that with me. They were good with finances but always told us it wasn’t our place to worry. I guess we were just supposed to magically know how to be responsible when we turned 18. I don’t blame them at all for my financial mistakes, but if i can save my daughter from being clueless, that’s a huge life skill for her and better than anything I could buy for her.

    • It sounds like your parents definitely had their hearts in the right place, that’s for sure, but I know what you’re saying. A good financial education is certainly one of the better things we can give our kids.

  • Daisy says:

    When I first moved out on my own, I didn’t know much about money, but to my mom’s credit she did try a bit. Before I moved out, we had dinner and made a budget; she told me realistically how much money I’d need to make to pay my tuition, living costs and all of my expenses and showed me the numbers to prove it. I didn’t listen and moved out shortly thereafter anyway.

    I think giving your daughter a clothing allowance will be effective. It’s a good way to teach kids how to handle money and clothing is a necessity.

    • That’s really great that your mom sat down and wrote out a budget with you. I think I’ll use that idea for my kids. It’ll be interesting to see how our financial experiments with our oldest turn out. She’s nervous about running the family budget in a couple of years, but I think she’ll do just fine. 🙂 Thanks for weighing in, Daisy! Happy Friday to you.

  • Love this, Laurie! What a great experience for Maddie! The girls haven’t managed a full year’s clothing allowance but they managed their back-to-school shopping budgets. It was a great learning experience for Mom and the girls. Honestly, I like it when they make mistakes now because it really does help them understand why they need to prioritize and look a the big picture. Things I want them to learn now. Lauren used part of her back to school budget last year on a pair of shoes all of her friends had but she only wore them a couple times because she never really liked them. And guess what – her friends still liked her. So it was a great lesson for her to see that true friends still like you and that she could have used the money on things that she actually did want.

    The most important lessons in my mind are setting goals and knowing how to use those goals to help you make good financial decisions, to budget (and see it as freedom, rather than restriction) to understand money is emotional and to know what causes you to spend mindlessly and to understand debt. I don’t want my girls to fear it but I want them to know when to leverage it and when to avoid it. Oh, and how to use credit cards responsibly.

    • Great points, Shannon, and I think it’s awesome that your girls were allowed to manage their back-to-school budgets this year. What a great “dip” into bigger money management. I see great things in store for our kids, Shannon. They’ll definitely have the tools to be great money managers – yay! 🙂

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