Children and Money

5 Important Money Lessons for Kids (and Adults)

5 Important Money Lessons for Kids and Adults

I remember the first time I held both Lauren and Taylor in my arms. It’s an overwhelming moment, and you are so full of love. And in the next breath, panic sets in. You are responsible for this precious life. It is up to you to raise your kids right, so when they go off into this great, big world, they are prepared to succeed. So you teach them good manners, right from wrong, feed and clothe them, give them a good education and plenty of love and support. Whew. You did everything right. Or did you?

There are countless lessons and pearls of wisdom we try to impart on our kids before they leave the nest, but too often we overlook teaching them how to handle money and make smart decisions with it. They learn by trial and error as young adults and by the time they realize their mistakes, they may have to spend years undoing them. It is always harder to change habits and beliefs when they are ingrained in us, which is why I encourage you to make money a key component in raising your kids right. Don’t wait until they head off to college. Start talking now!

5 Money Lessons To Help Your Kids become Financially Confident

It doesn’t matter how successful your child is in their profession or career, if they lack money smarts, they may still struggle financially. Financial literacy is never done, but these five lessons will help put your kids on the path to long-term financial well-being.

You Are Not Deprived

While there are unfortunately children who do lack proper food and shelter, most kids do not, yet they feel deprived when they are told “no”. It’s human nature to dislike being told we can’t do something or have something. While I am in no way suggesting you give your kids everything they want (that just creates a new set of problems), you do want to make sure kids understand the “why” behind the “no”. We cannot always get what we want at this very moment and kids need to understand that is a normal reality. They are not being punished or deprived. And it also doesn’t mean we can’t EVER have it, but we may need to save for it first.

Money Needs a Purpose

The best way to avoid lingering feelings of deprivation is to give family money and their money purpose. Too often when I meet with people they are so focused on wealth accumulation and haven’t thought about what they actually want to do with their money. They have it backwards. You need to think about what you want to do first, then you know how much money you need. It always easier to save money when you know what you are saving for.

Once your kids understand that you can’t buy them a new toy because the family is saving money to go a vacation, it feels different. It wasn’t arbitrary or because you lack money. And if you can reinvigorate their excitement for the family vacation, they won’t feel deprived but excited to go on vacation. It is often memories of feeling deprived (even though in most situations they weren’t) that leads adults to spend, spend, spend.

Credit Cards Are Not Free Money

It wasn’t that long ago, when credit cards weren’t common. We paid by cash or check for everything. If we didn’t have the money, we simply did without. These days, we slide plastic cards for almost everything. We overhear kids tell their parents to just get more money from that machine when they tell their kids they have no money. We chuckle at their innocence. Fast forward 10 years, we stop laughing when they call us crying because they have maxed out their credit cards.

Credit cards are not bad, but they are a tool that is frequently abused, starting in college for most people. The age of your child will determine how detailed you are in your explanation but make absolutely sure they understand when you slide that card, you are paying for those purchases; they are not free! As they grow older, you can explain interest to them. You don’t want to make them fear credit cards, but instead have a healthy amount of respect for them and a thorough understanding of how they work by the time they get one of their own.

Your Two Favorite New Words Are: Budget and Save

You say the words “budget” and “save” to most adults and they grimace and groan. They are not beloved words in an instant gratification world. Somewhere we taught they were “bad” or “hard” so we avoid them as much possible. Let’s prevent that mindset from even developing.

I believe budgets represent freedom. I know exactly where my money goes, and I am firmly in control of how I spend it. This is how I taught my girls to view budgets and they know from firsthand experience that following a budget doesn’t prohibit them from living a good life. It actually helps make life even better because they prioritize the things they truly want. They know to save for the things that make their hearts happy. Nothing makes this Mom happier when she watches her daughters discuss a new toy they found and decide that they “like” it but don’t “love” it, so they are going to save their hard-earned money for something they love instead.

Define What True Wealth Means to You

Everyone’s definition is probably a bit different and that’s okay. But if you ask most kids about wealth, they start throwing out numbers. I remember talking to a group of kids and one girl was adamant she needed 1 million dollars. When I asked what she wanted to do with her money, she answered, “look at it”.

Sure, she is a child now but that mindset won’t change unless someone helps her look at money or wealth a bit differently. We might all love to have a vault of money that we can swim laps through, a la Scrooge McDuck style, but true wealth is more than just having lots and lots of money. In fact, you don’t even need lots and lots of money to be wealthy. The trick is to figure out what makes your heart happy, not what will impress others, and that’s what you work towards. To make sure you’re using your money in alignment with your values and goals. True wealth isn’t so much the amount of money in your bank account but how you use it.

Look for Teachable Moments

This is just a sampling of some of the important money lessons kids need to learn. For more detailed lessons, please take a look at my Money Club Workbooks. Money is a frequent topic in our home but I try to keep the casuals light so they don’t come across as lectures. I don’t think anything makes a child go hard-of-hearing faster than a lecture. Look for teachable moments throughout the day where you can talk money and engage in actual conversation.

What was the biggest money lesson from your childhood?

Shannon

Image courtesy of www.freedigitalphotos.net.

The Heavy Purse Store is now open! My new downloadable Money Club Workbooks are now on sale. Each workbook provides five targeted lessons to help you raise Financially Confident Kids. Please check them out in The Heavy Purse Store.

February 3, 2014  •  57 Comments  •  Children and Money

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  1. Monday, February 3rd, 2014
    "Money needs a purpose..." This was the big lesson I had to teach myself when I quit spending so much and we started budgeting. I tell my personal finance class it's "telling your money what to go do with itself." If we don't designate where every dollar goes, then our money will have control of us. The next thing you know it's slipping through your fingers and you have no idea why you don't have any.
    • Shannon
      Monday, February 3rd, 2014
      Giving money purpose is so important. It is that barometer we need to compare those potential impulse buys against. And I wholeheartedly agree that if we don't give our money purpose, then our money control us, rather than us controlling how we use it. People sometimes grumble about setting goals, but it's the best way to ensure you're spending your money on what truly matters to you.
  2. Monday, February 3rd, 2014
    I think the biggest money lesson actually came from some of the finance/business books I decided to randomly read. Granted I was in middle school or early high school, but reading about small business and how you can create income streams that help you create MORE income streams really encouraged me to pursue a career in finance and really ignited my entrepreneurial itch.
    • Shannon
      Monday, February 3rd, 2014
      It's really impressive that you were wanting to be build your entrepreneurial skills when you were so young, DC. Those multiple income streams are huge, which too many people overlook and don't consider what else they can do to earn more money. There is unlimited potential, if you are willing to be creative and work hard.
  3. Monday, February 3rd, 2014
    "You Are Not Deprived"

    This is one thing I REALLY want to teach my kids. They are too young to understand how much of the world lives. I want them to understand how lucky we are and how grateful we should be.
    • Shannon
      Monday, February 3rd, 2014
      Me too, Holly. Most kids feel a certain amount of deprivation, even though again in most cases they are far from it. We are so lucky and sharing has really helped the girls see how fortunate they are.
  4. Monday, February 3rd, 2014
    I really like the idea of making sure money always has a purpose. A happy life is the real end goal and money is just tool that can help you get there. Helping our kids understand that link (and helping ourselves understand it too!) is a huge part of how we want to raise them.
    • Shannon
      Monday, February 3rd, 2014
      You got it, Matt! Money is just a tool to get you to the life that makes you happy. And if order to have that happy life, you have to know what you want and give your money purpose. Otherwise it's too easy to spend mindlessly and wind up far from the life you want. I have no doubt that you'll be raising your kids to money smart and showing them how to create the life they want for themselves.
  5. Monday, February 3rd, 2014
    I love the Not Deprived line, it is so true.
    • Shannon
      Monday, February 3rd, 2014
      Thanks, Anna!
  6. Monday, February 3rd, 2014
    Giving a specific purpose to the money I set aside helps me remember my priorities and focus on the bigger picture rather than be tempted by the spending opportunities in the here and now.
    • Shannon
      Monday, February 3rd, 2014
      Absolutely, Stefanie. It does for me too. Otherwise it can be easy to forget what really matters when something catches your eye or you've had rough day. Knowing what I want has helped me prioritize and stay focused AND not feel deprived or grumble under my breath when I put something back. I do it willingly.
  7. Monday, February 3rd, 2014
    I definitely wish that my parents spent more time talking to me about money when I was younger, but I realize now, that they did not have good habits, so instead their choices became a cautionary tale to me as an adult. We have been talking to my son about money since he was 5 and now that he is almost 8, I feel as though it is really sinking in. And it is totally important for parents to teach these lessons to their children, because they really will not get them anywhere else. I have 25 year old clients that are clueless to their finances and I always say it's not their fault, it's their parent's fault for not teaching them.
    • Shannon
      Monday, February 3rd, 2014
      Parents are definitely teaching their kids about money, whether they realize it or not. Sometimes it that cautionary tale of what not to do. :) Yes, I started with my girls when they were toddlers too and it's made a HUGE difference in how they approach money and how they spend it. It breaks my heart knowing how many things parents do to try to give their kids the best life possible but don't teach them about money. And then they head off to college and learn by trial and error. And let's not kid ourselves, it's mostly error!
  8. Monday, February 3rd, 2014
    Beautiful post..

    The first point on your list especially resonates with me, and the discussions that I am always having with my own kids. Whenever they start complaining that they are deprived, I try to explain to them that even the Kings didn't have hot water 100 years ago. They literally have the easiest lives in the history of the world :) All they have to do is appreciate it and enjoy it..
    • Shannon
      Monday, February 3rd, 2014
      Thanks, Jefferson! Yes, I'm always talking to the girls about how fortunate we are and the importance of gratitude. I don't want them to fall into the deprivation mindset. I've seen how damaging that can be. So many kids hear "no" so often without the "why" so when they are on their own - they buy everything they see. They really do have it easy! :)
  9. Monday, February 3rd, 2014
    Looking back I can see that my parents were great at following a budget, saving before spending, investing, and never using credit. But how and why they handled things the way they did was never discussed, not even for a moment. Maybe they didn't want to, or maybe us kids never asked them. What I didn't understand back then either, but I do now, is that it was not easy for them at all, yet they managed to save a ton of money so that they could pay cash for brand new cars, special events, and their retirement. It is kind of a shame that they didn't share what they knew about managing their finances.
    • Shannon
      Monday, February 3rd, 2014
      It sounds like your parents were brilliant with how they used their money and it's shame they weren't open with you so you could learn from them. I definitely want to make sure that I'm sharing with the girls why we make the decisions we do, so hopefully they take those lessons to heart and follow them when they are on their own. Sometimes I wonder how much they are paying attention and then they surprise me at the store by how they think through their decisions.
  10. Monday, February 3rd, 2014
    I think more people need to realize that credit cards are not free money. So many people think this, and this leads to a ton of credit card debt. Credit cards should not be used to buy random things - you should only buy what you can afford!
    • Shannon
      Monday, February 3rd, 2014
      Yes, it's a shame how we've come to view credit cards as lifestyle extenders. Once you lived off what you earned but now people have easy access to thousands and thousands of dollars to spend on whatever they want. They don't see the debt that they are creating now and the danger it poses.
  11. Monday, February 3rd, 2014
    All very important lessons, for both kids and their parents! Thanks for the reminder.
    • Shannon
      Monday, February 3rd, 2014
      You're welcome!
  12. Monday, February 3rd, 2014
    I loved your first sentence - I can only imagine the overwhelming feelings you must have felt, but I hope to experience that one day! I agree about credit cards not being free money - I think there might be some regulations now where credit card companies can no longer solicit on campus property, though I'm sure they find ways to advertise on the web or something! I agree, too, about budgeting and saving. Growing up, we knew that money was tight so if we wanted something we had to get a job. While we did, we spent as soon as we received the check, which was a horrible mismanagement! So I plan to teach my kids the value of working for it, as well as budgeting/saving once they earn their money!
    • Shannon
      Monday, February 3rd, 2014
      Thanks, Anna! It is overwhelming and a moment that I will never forget. And I hope very much that you get to experience all that wonder and amazement someday soon. :) It's very common for people to get in the habit of spending everything they receive as soon as they get it. I'm always reminding the girls they should keep some money in their Spend Jar so they have money available for those unexpected opportunities. Over time, they have learned that Mom might be on to something. :) I have no doubt that you'll be an amazing Mom, Anna, and be a great role model for them.
  13. Monday, February 3rd, 2014
    I think giving children the opportunity to handle money is really important. My hubby won't mind me mentioning this I'm sure but as a child, he used to think that his mum didn't really pay for the grocery shopping because she always paid by cheque - not real money! He didn't want for anything growing up but has spent the last 14 years in debt because of mistakes that he made when he 'flew the nest'. Educating children about money as early as possible is definitely the way to go!
    • Shannon
      Monday, February 3rd, 2014
      Yes, it's important to let kids handle money and make some mistakes while the consequences are generally minor. So many kids today don't understand how parents pay for things. They really do believe it's free. :) We all handle money so we definitely need to teach our kids about money so they don't fear it and feel confident in their money decisions.
  14. Monday, February 3rd, 2014
    These are all great tips Shannon!

    Unfortunately I picked up bad spending habits from my parents and now my two favorite words are budget and save.

    More importantly I'm telling my kids the lessons I've learned and showing the how NOT to do what I did.

    Happy Monday Shannon! Hope all is well hon!
    • Shannon
      Monday, February 3rd, 2014
      Thanks, Corina! I'm glad your new favorite words are budget and save and even better, you're teaching your kids to love those words too. :) It's great you're being upfront with your kids about your past mistakes and helping them form better spending habits. Happy Monday to you too and have a great week!
    • Friday, February 7th, 2014
      It sure is hard and my son had a dose of reality today too. He suddenly got a flat and since the tires are old it's better he get's a new set.

      This will put him back $500. He says he won't have much after that and I simply remind him of the times I encouraged to save sooner rather than later.

      I really hopes he learned his lesson.

      It's been a crazy week but TGIF and the weekend is here! Have a great one Shannon and thanks for sharing!
    • Shannon
      Friday, February 7th, 2014
      A great lesson for him to help learn the value of saving and having that emergency fund. You just never know when something unexpected happens. You have a great weekend too, Corina!
  15. Monday, February 3rd, 2014
    Shannon, these are all so good. Helping kids learn to set goals for their money is so important. It becomes a tool to use instead of an emotionally charged topic. I love that this keeps kids from feeling deprived. Very few kids here are deprived. Getting kids involved in helping others is another way for them to look beyond their own wants.

    I agree 100% about having a rich life has little to do with the amount of money you have. It's building the kind of life that is in line with your values. Then you'll be happy!
    • Shannon
      Monday, February 3rd, 2014
      Goals really help make it so much easier to make sure you're using your money in the best manner possible. Most kid who feel deprived are not but those feelings are real and potentially dangerous when they maintain that mindset throughout their childhood. They promise themselves when they are on their own, they won't tell themselves "no". They don't see those "no's" are actually a "yes" to something more important. I agree helping others really helps them see how fortunate they truly are. Sharing has really opened the girls eyes. I always told them we were blessed and now they see that is very true.
  16. Monday, February 3rd, 2014
    Hi Shannon, I really liked the idea of giving the family money a purpose. I think it gives kids that really necessary either/or perspective that helps curb some of that "money is limitless" thing yo see sometimes. And like you say, it teaches them that the money is not the end result, merely just the means to the end. Very cool!
    • Shannon
      Monday, February 3rd, 2014
      Giving our family money purpose has been a real success for us. It unites as we work towards a goal and I find the girls become much more conscientious about what they asked us to buy for them once they realized how important our family goals were. And yes, money is not the end result but a tool to get you what you want. :)
  17. Tuesday, February 4th, 2014
    Just love number 1. This has been huge for our kids. Even in our super tight situation, we remind the kids how very blessed we are to have a nice, warm house, food to eat at all times (even if it's not always the food we want), family, friends, and that we now have the wisdom to understand how to properly manage our money. Focusing on all that we do have makes the kids a lot less worried about what we don't have.
    • Shannon
      Tuesday, February 4th, 2014
      When kids could understand they are not deprived and there are valid reasons why we can't have everything we want, it makes a tremendous difference in how they view money. A gratitude mindset definitely helps kids appreciate what they do have and realize they are far more fortunate than they realize. I'm glad you're helping your kids see how blessed they are.
  18. Tuesday, February 4th, 2014
    I think giving money a purpose is so important. It's easy to get lost in the numbers, but unless you set it aside for a specific purpose, it'll be spent before you know it. Speaking of credit cards, just the other day as I was sliding my debit card through at the grocery store and I noticed as I was bagging my groceries, everyone behind me was swiping their cards too. And it just got me thinking… most kids today don't even know what cash looks like. So they have really no concept that things cost money. That's why, as parents, it's more important than ever that we try to engage our kids in money conversations. Great post Shannon!
    • Shannon
      Tuesday, February 4th, 2014
      I know exactly what you mean! Everyone seems to use credit cards. If we don't explain to kids that we are paying for the things we buy, it's understandable why they think everything is free. And it may be cute when they are five but not so much when they are 25!
  19. Tuesday, February 4th, 2014
    This is so funny because we just had a talk about number #1. I think whiny periods must be like growing spurts because it seems we can't get through a meal or get dressed without complaining about something at the moment. I wasn't quite to the "there are children starving in Africa" point, but almost.
    • Shannon
      Tuesday, February 4th, 2014
      Kids do have those days when they want everything they see or complain about their friends having things they do have, etc. Those are the tough days to get them to see how lucky they are! It's definitely easy for kids to believe they are deprived, even when we are not. :) For us, sharing has really helped open the girls' eyes and see how blessed they truly are. They still have those moments but they are far less frequent.
  20. Tuesday, February 4th, 2014
    I think it's so, so hard for kids to realize that credit cards aren't free money...because they look the same as a debit card. If we don't ever have that discussion, I can see it getting ugly....
    • Shannon
      Tuesday, February 4th, 2014
      Yes, these days it's very easy to kids to get confused about how we pay for things. They rarely see us hand over cash for merchandise or pay bills. So it's understandable why they assume everything is free and we definitely need to clarify that misperception. Otherwise it will get ugly!
  21. Tuesday, February 4th, 2014
    "Credit cards are not money". So, so true! Where was this quote when I started college all those years ago, LOL :)
    • Shannon
      Tuesday, February 4th, 2014
      The good news is now you know and can tell your daughter before she heads of to college … years and years from now. :)
  22. Tuesday, February 4th, 2014
    Great points Shannon! The one about credit cards not being free money- that's a big one, even for adults. My oldest just made 6, so there are some money concepts she just doesn't understand yet, but I do want her to learn about saving and budgeting, as opposed to thinking things like "we can't afford it" or "we're too poor." The mindset makes a huge difference there.
    • Shannon
      Tuesday, February 4th, 2014
      Very true. Some adults don't quite understand how credit cards work, unfortunately. Yes, developing an abundance and gratitude mindset in kids (and adults) is important. Once they learn that budget and saving is fun and helps them get the things they truly want, they no longer fear or dislike to do them, which is even more important as they grow older.
  23. Wednesday, February 5th, 2014
    My parents taught me to pay myself first. They actually went as far as matching any contribution I made to my savings account dollar for dollar to encourage me to save more.

    Even at a young age, I knew that an instant, and risk free, doubling of my money was something I could not pass up.
    • Shannon
      Friday, February 7th, 2014
      A wonderful lesson to teach you at a young age! And obviously something that carried with you to adulthood. :) It's why it's so important to develop these habits and beliefs in children when they are young.
  24. Saturday, February 8th, 2014
    I also agree Shannon in order to save money we must first know our purpose of spending. This is what my parents told me when I was young and even now I still applied and it really works.
    • Shannon
      Sunday, February 9th, 2014
      It's great that your parents taught you to give money a purpose when you were young, Marissa. It really does make it so much easier to spend money wisely and make good decisions when you know what you want. I see a real difference in my girls too.
  25. Monday, February 10th, 2014
    Great tips! We began talking about money with our boys as soon as they starting asking for it. When they receive money for birthdays or odd jobs, we talk about saving it versus spending it, with the usual outcome of saving 25-50% of the money received. And if they want something that isn't a "need" (my definition of need, that is), we discuss what they can do to earn that item. They are turning into little savers. On a recent shopping trip to Kohls for school clothes, my oldest headed straight for the sale racks, to see if he could find something there first. So these tips certainly do work!
    • Shannon
      Monday, February 10th, 2014
      Love that you've been talking to your boys about money and that it's making a huge difference. It's never to early to learn the value of a good sale! It sometimes surprises me how much the girls pay attention and absorb. I love seeing them make smart decisions too and it makes me feel good about their ability to make smart choices as they grow older too.
  26. Wednesday, February 12th, 2014
    I honestly felt deprived because I wasn't getting what my friends had. I never was without though. But being told no that I couldn't get "those" sneakers. Looking back now I wish they would have told me no more often. I like the idea of sharing family goals and knowing that the money is going somewhere, which is more important to you and what will make you ultimately happy.
    • Shannon
      Thursday, February 13th, 2014
      Most kids do honestly feel deprived, even though they are not and that is what is so dangerous. They see friends have things they want but don't understand why Mom and Dad said "no". That's why I stress the importance of giving the "why" behind the "no". It doesn't always mean they will like the reasons why, but at least they know there is a valid reason. When you can tie it back to a family goal, it helps them be much more accepting. Most kids will forget about the toy if you can keep them focused on the family goal, so those feeling of deprivation never get formed.
Shannon Ryan SHANNON RYAN, CFP®
  • Meet Shannon

    "As a Certified Financial Planner, it is my passion to help individuals and families build a healthy relationship with money. I look forward to helping you raise financially confident kids.” - Shannon Ryan
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