Children and Money

Essential Money Skills Every Child Needs to Learn Before Leaving Home – Part 1

Essential Money Lessons Every Child Must Learn Before Leaving Home | www.TheHeavyPurse.comOne of my greatest a-ha’s as a financial advisor has been recognizing how early our money habits form. We often think they are developed as teens at the earliest, but more often than not, we learn them in early childhood from observing our parents. Add in the fact that money is frequently a taboo topic in our homes, you now have a recipe for debt and poor money habits and beliefs.

Too often, I see young people leave home ill-prepared to make good decisions with their money, leading to serious financial problems. This may have been avoided — if we took the time to teach our kids essential money skills. We, as parents, do so much to give our kids a good life and to help them succeed when they leave home. But if they lack financial confidence, we make it hard for them to truly create the life they want for themselves. The good news is there is an easy fix to this problem: we have to stop just giving to our kids, but also teaching them essential skills too.

Money Lessons Every Parents Needs to Teach Their Children

If your children can master these lessons before they leave home, they will have a healthy relationship with money and the tools they need to make smart money decisions ongoing.

1. Give Their Money Purpose through Goals

Goal-setting or giving your money purpose is one of the first lessons I taught my daughters, and it’s one every parent needs to teach their children. Why? Because they form our financial foundation and guide our money decisions.

Determine What Truly Matters to You

We all want to live a good life, but most people don’t take the time to define what their good life looks like. Very few people in this world can say “yes” to everything they want, which is why we need to know what we truly want, so we spend our money on the things that actually make us happy.

Avoid Mindless Spending

Goals are the best defense against mindless spending, which is a major culprit behind consumer debt. We spend mindlessly because we don’t have anything more important to save our money for. Our goals arm us with a reason to say “no” when we find something we want, but don’t need, because we’re working towards something far more important than a temporary want.

Survival Skill Tip: Teach your kids to ask themselves, “Does this bring me closer or further away from my goals?”

2. Make Value-Based Decisions

My father taught me to make value-based decisions based upon my goals and beliefs. And I have taught my girls to do the same. Goals definitely act as a guiding light but so do your beliefs. Sometimes people will question those beliefs because they have a different set of values, which in turn may make you doubt your own. Values are going to differ from person-to-person. Respect the difference but know and be confident in your values.

3. Recognize Their Money Emotions

Money is emotional. Our fears, frustrations, anger and even joy can all cause us to spend money whether we can afford to or not. We tell ourselves “we deserve it” to justify our spending and get in the habit of comforting ourselves or celebrating with often random purchases. There is no shame in feeling what we feel, but we must also stop silencing those emotions through spending. To instead have the skills and ability to deal with our emotions without the aid of a credit card. We want to be in control of our money decisions, not our emotions.

Survival Skill Tip: Teach your kids to ask themselves, “Am I feeding an emotion or do I truly want this?” If they are not feeding an emotion to then ask themselves, “Is this worth delaying goal achievement?” If not, then they are able to walk away without feeling deprived, which is one of those pesky emotions that get many people in trouble.

4. Live Within their Means

Once upon a time, it was actually much harder to live beyond your means, but thanks to credit cards, these days it’s very easy to buy whatever you desire. There is also a dangerous acceptance that credit card debt is normal and okay. It may be all too common but that doesn’t mean it’s safe or something we should accept. Instead you need to demonstrate to your children how to live a good life within your means.

It begins by having goals and knowing what matters most. Too often we spend money on things that ultimately mean little to us and end up being a waste of our resources. We need to be laser-focused on the things that will create our best life and save for those things. Because how you use your money matters far more than how much money you have. Make sure your kids understand and embrace that philosophy.

Survival Skill Tip: Kids are always observing us and we need to be positive financial role models. Don’t complain about others having more or what you lack. Express gratitude for things you do have and excitement for the things you’re working towards.

5. Differentiate Between Want and Need

This is a lesson that can be difficult to master because it is very easy to make every want seem like a need, especially when our money emotions are in control. Then to further complicate matters, there are things we need, such as food, but the kind of food we eat and buy is heavily influenced by our wants. We may need groceries, but want potato chips, soda, candy bars and ice cream. We need to help our children find a way to smartly balance their wants and needs.

One way I do this is by incorporating values. Being healthy is one of our core family values, and it’s something we regularly discuss with the girls. Because being healthy is something we value deeply, we will pay a premium on some items. And on other items we don’t. This can be mystifying to kids, so you need to take the time to explain how you determine what you buy, whether it’s a want or a need or a need/want. Grocery stores are a great place to demonstrate this and I encourage you to do this regularly with your kids.

Survival Skill Tip: Wanting is normal, so don’t make your kids feel bad for wanting things. We will always find things we desire. Instead help your kids determine what to do when they find something they want. How to prioritize it against other goals to see if it is something they even truly want.

6. Comprehensive Money Management Skills

One reason parents hesitate to talk to their kids about money is they believe it’s a grown-up concern and don’t want their kids to worry about money. I understand, but completely avoiding the topic of money isn’t the right answer either. A lack of money experience sets kids up to fail. Kids should have basic money management skills by the time they leave home:

Know How To Budget And Track Spending

Kid should be budget savvy by the time they leave home and not view them as being restrictive or a pain. When budgets are done right, they actually give you freedom. You know how much discretionary money you have, and can decide how to spend it manner that gives you the most joy. Tracking your spending gives you a clear picture on how you spend your money, which is really important if you find yourself struggling to live within your means.

Pay bills On Time

Kids don’t typically have much experience paying bills when they still live at home. Thus, we need to make sure they grasp the importance of paying bills on-time and the impact of not doing so. Sit down with them and go over the bills they will start paying on their own once they leave home. Find some system for them to track due dates, such as automatic bill pay, calendar reminders, etc.

Explain to them what happens when they pay their bills late from fees to lowering their credit score to higher interest rates to being turned down for loans. This may not initially mean much to them so ask them if they would like to rent an apartment, buy a home, buy a car … all things that could be denied due to a low credit score.

Balance their accounts

I remember being taught how to write a check and balance my checkbook. These days we write fewer checks but your children should still know how to write one and be able to balance their accounts. To understand what happens if they overdraw their checking account.

Wait … I’m Not Done Yet!

I know this may seem like a lot, but this is just the first half of the essential money lessons every child needs to learn. I’ll share the remaining list with you on Wednesday.

What essential money skill did your parents teach you? What do you wish they would have taught you?


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September 29, 2014  •  36 Comments  •  Children and Money

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  1. Monday, September 29th, 2014
    This is great advice, for kids and for adults! I think too often, we assume we'll learn about our finances as adults when in reality, it's much wiser to solidify sound money habits when we're young. My parents taught me how to be frugal, a skill I use every day!
    • Shannon Ryan
      Tuesday, September 30th, 2014
      Thanks, Mrs Frugalwoods! It's important to help kids develop a smart money mindset as a child so that it becomes a regular and a core belief. This way when they get on their own and temptation strikes when you're not there to guide them, they will better prepared to make good decisions. It won't always happen, unfortunately, but their ability to recognize and recover will be much stronger too.
  2. Monday, September 29th, 2014
    This is a great list Shannon! I could not agree more that we often learn about money through observing parents at a younger age. So many either don't realize that or give thought to it that it bypasses opportunity to help developing many of these habits in children. I know in my situation my parents didn't do much of anything and saw how they spent needlessly and lived paycheck to paycheck - we're determined to go the other direction with our kiddos. :)
    • Shannon Ryan
      Tuesday, September 30th, 2014
      I agree, John. So few parents realize how much their kids observe them and what kind of money habits they form from those observations. When we do realize this, it gives us a huge opportunity to demonstrate and teach them good money habits and beliefs through teachable moments. The best part is they don't often realize they are being taught! I know you and Nicole are already instilling great money habits into your kids. :)
  3. Monday, September 29th, 2014
    I like learning money management skills the best here. I think if you trust your kids and teach / help them learn how to manage their money before they leave home, you won't get that phone call from college that they've run out of money. And the earlier you learn money management, the better.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      I agree, Natalie. The earlier kids learn good money management skills the better. Learning to pay bills on time is a big one and it's really important for parents to review with their kids what bills they will be responsible for when they head off to college. Kids may be used to paying for gas for their car, their dates and even their clothes, but they are not necessarily familiar with paying bills due on a specific date. And what happens if you don't. So being able to help them budget for those bills, so they don't spend on their money on other things, is key.
  4. Monday, September 29th, 2014
    I did not get any money tips before I went to college. In fact, I didn't even know how to write a check. Actually, though, the fact that I didn't know how to write a check really helped me. My job is high school paid me cash, so I always used to cash to pay for everything, and I think that was the best learning lesson. We have my son on the cash plan now and it is a great teacher for learning how to live within your means and keep a budget. I have created a speaking program targeted around seniors in high school and it's because I completely agree with you, our true money habits start to form while we are in college and creating good habits right from the start is critical.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      Being able to visibly see your cash disappear can definitely help reign in those urges to spend. What I think truly makes the greatest difference though is learning how to budget, just as you're teaching Will to do as well. Whether we pay by cash, check or debit, a budget is what keeps us on track. A cash diet can be incredibly effective to those who don't know "where" their money goes. It is often an eye-opening exercise.
  5. Monday, September 29th, 2014
    My mom did a good job of showing me our financial reality at an earlier age and I learned what bills were and how to sign a cheque etc... Unfortunately, it took me a long time as an adult to really comprehend the financial mechanics of living within my means and using money as a way to further myself in life and live according to my goals and values. Hopefully we will change the tide with our own children.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      Sometimes it takes a while for those lessons to take hold and we have to be on our own and make some mistakes before things really click. The most important thing is you did learn to live within your means and according to your values. By keeping money a family friendly topic and showing them the ropes, they will at least leave home with the needed tools to handle their money well, which is all we can do and something far too few parents do.
  6. Monday, September 29th, 2014
    I'm not a parent, but I was a child…lol! I think one of the best things parents can do is lead by example, and also try to leave hardcore emotion out of money, i.e.. I think it's OK to talk about the tough money situation you might be in with kids, but also say/show without worry how you are doing your best to fix things. I saw my parents put way too much emotion behind money, and I can still remember that to this day.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      LOL! You're so funny, Tonya! Yes, leading by example is huge. Kids will definitely notice when your words and actions don't align with one another. I agree - we need to be mindful of our money emotions and how they impact our kids. We often think we are being clever in hiding our emotions, but in all likelihood, we are not. Kids pick up on the littlest emotions and those emotions, fear, jealously, etc - form many of their money beliefs.
  7. Monday, September 29th, 2014
    I wish i knew this things before I left home. Unfortunately, my parents didn't know much about these either. Can't wait to read the second part.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      You are certainly not alone. Sadly, too many parents don't feel equipped to have these types of conversations.
  8. Monday, September 29th, 2014
    Now that I've learned a few of these things for myself, having been out of the house for a few years now, I try to help my brother with these things so he learns them before he gets himself in a slew of debt and a financial mess.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      That's great that you're trying to help your brother strengthen his money skills before he gets himself into financial trouble. You're a great big sister, Kayla!
  9. Monday, September 29th, 2014
    Really great list, and definitely something that I wish I knew way back in the day instead of learning it in adulthood. I sadly didn't even know how to balance a checkbook until college, and I hear some colleagues today who feel it should be learned at school. I definitely think money management skills start at home, and if there's also a class at school then that should be icing on the cake. By the way, there was an interesting post that my friend had on FB that I think might be through Common Core but not sure. It was entitled Financial Literacy and stated "Emily spent $55 from her savings on a new dress. Explain how to describe the change in Emily's savings balance in two different ways." Admittedly, I was a bit stumped, though other friends concluded that it 1) not only reduced her savings but 2) long term, she also lost accrued interest. Anyway, I thought that was interesting that it was added to the curriculum!
    • Shannon Ryan
      Tuesday, September 30th, 2014
      I'd love for money lessons to happen in both the home and school. School is an opportunity to catch those children who parents who are not talking to them about money and maybe cover more advanced topics, such as investing, where parents may feel they lack the knowledge to teach. But parents have to take a leading role because they are the people their kids observe day in and out and have the greatest influence on their kids. I love hearing that financial literacy is being added to curriculums. It's a great start!
  10. Monday, September 29th, 2014
    Great tips and advice but remember that as much as you can model things for your kids they still need to make mistakes (maybe small ones under your guidance) and when they're adults don't fret and worry too much if they go all stupid.

    Sometimes when we're young we think we know it all and forget all our parents taught us. At least that happened to me somewhat. But in the end the foundations of what my parents taught me (give, save, budget) won out and I was able to get back on track.

    As I'm raising my boys now I'm working hard to instill good financial discipline as best as I can.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      Absolutely, Allen. I talk regularly here about the importance of allowing your children to make money mistakes, even though it often incredibly hard to do! We not only learn from our mistakes but also gain confidence in our ability to recover and thrive afterwards. Young adults do have a tendency to want to do things their ways, which is normal and understandable. However, when they have zero financial skills, they also have no idea that they are even making mistakes. Whereas when you have been taught, you will still make mistakes (because everyone makes money mistakes) but you will also likely have that little voice whispering in your ear, warning you. I know to this day that I can still hear my father's voice and it makes a difference.
  11. Monday, September 29th, 2014
    If you can teach your kids these skills before they leave home they are LEAGUES ahead of the average person. Great list, Shannon! Looking forward to part 2.
    • Shannon Ryan
      Tuesday, September 30th, 2014
      I agree, DC. They are at a definite advantage. We often think it's that college degree that puts our children ahead of their peers. It certainly plays a role, but how they actually use the money from their job their degree helps them obtain, is a great indicator of how financially successful they will be.
  12. Tuesday, September 30th, 2014
    I wish my parents taught me to live within my means. Before I had a fear of missing out on something if I didn't get what I wanted. More importantly, I had no clear understanding between wants and needs then. Thus, my spending habits was all over the place until I got myself into a serious debt problem. But now, I am happy to have experienced all those things because it taught me a great lesson in life that I can teach to my kids, Shannon.
    • Shannon Ryan
      Thursday, October 2nd, 2014
      That fear of missing out drives many people to live beyond their means. Debt is definitely not fun and something we necessarily want to experience, but it can also teach us priceless lesson too. I'm glad you're talking to kids about money so they will leave home with a solid understanding.
  13. Tuesday, September 30th, 2014
    These are great! My parents taught me all of these before I left home, but I didn't listen! Fortunately, I remembered those lessons once I grew up enough to see why it mattered.
    • Shannon Ryan
      Thursday, October 2nd, 2014
      That happens a lot, Holly! I'm glad you got to the point where those lesson started resonate and changed how you handled your money.
  14. Tuesday, September 30th, 2014
    Teaching about money is much better than leaving your kids a large inheritance. What are they going to do with all that money if you have never taught them how to handle money. This is a great list. You can start so early with children. We regularly talk about money with our five year-old. She always asks for a toy at the store and we tell her no, but let her buy one with her money, but then she has to realize the money is gone. Same with vacations. She doesn't understand everything, but why not talk about it early and often, then it isn't taboo. I want her to know everything that I wish I had known earlier in my life.
    • Shannon Ryan
      Thursday, October 2nd, 2014
      You're doing many of the same things we did with our girls. We always give them the option to use their money to buy things they want and it makes me very happy to see after some debate when they decide against it because they want to focus on their save, spend and share goals. Or they ask me for more ways to earn money! These talks with make a huge difference in her life, Lance.
  15. Tuesday, September 30th, 2014
    I wish my parents had involved us more. I think they did pretty well, but my Dad always said it was his job to worry about the finances. It's amazing how much kids pick up, even if you don't actively try to teach them. That's why it's so important for parents really walk the walk when it comes to money. It doesn't hold much value if you tell your kids one thing but do the opposite.
    • Shannon Ryan
      Thursday, October 2nd, 2014
      I agree, Kim. Our kids notice everything, including when our words and actions are out of alignment and will call us out.
  16. Wednesday, October 1st, 2014
    I didn't receive money management lessons as a kid, hence my first credit card at 18, and the debt mountain soon started after that. I believe money talks with the kiddos is vitally important and I hope that many parents read your blog for tips on how to do just that :)
    • Shannon Ryan
      Thursday, October 2nd, 2014
      For many, college is where many bad money habits form, especially if their parents didn't talk about money to them, which most don't. You don't have any baseline as to what you should and shouldn't do. And a credit card makes you feel grown-up and gives you the ability to say "yes". It's an incredible lure. It's my hope too that parents reading my blog take my message to heart and talk to their kids about money.
  17. Sunday, October 5th, 2014
    This is gold. All parents should read this. Our spending habits are formed in our younger years and we are influenced by our parents (whether they want to think so or not) in the way we handle money. One of the greatest gifts you can give your kids is a healthy respect for the value of money.
    • Shannon Ryan
      Sunday, October 5th, 2014
      Thanks, Myles! I appreciate your kind words. And yes, whether parents realize it or not, they heavily influence how view and handle money. I agree one of the best gifts we can give our children is the gift of financial literacy. It will make a huge difference in their lives.
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    "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