Three Ways to Raise Money-Smart Kids
By Radha Rai

Kids always surprise you with how much they learn from observation.

What they learn, they may immediately forget, hence “repetition” is another tool to retain the information they receive. Kids learn about money in a similar fashion.  What they don’t learn from you, they will learn from observing others. However, the adults in a kid’s life do not always make the best role models in financial behavior. So, it is important to talk to kids about money and do it frequently. If you are uncomfortable doing that, well we are here to help.

The first step is to think about what everyday topics and activities can be opportunities about money lessons. But when should I start teaching kids about money? Kids as young as 3-years old are smart enough to understand basic concepts such as “needs vs wants” and that coins have different shapes.

Here are some links with ideas on activities:

If your kids are young or older, then there are many more opportunities to guide them about finance.

1)Saving Money Conversations

We are not discussing piggy banks here because everyone knows about piggy banks and how they help kids understand the concept of savings. Here are some other ideas:

Electricity: When kids leave the TV or lights or AC on unnecessarily, explain them how it makes the family electricity bill more expensive. This will also give you an opportunity to talk about the “invisible” costs of running a home (the transactions that they do not see/observe such as electricity and water bills). The intention is not to make them feel guilty but to make them understand that their choices can have an impact on family’s finance.

Water: Same thing as above. Children may leave the water running or forget about closing the tap. You can use this opportunity to talk about not only your water bill and how it impacts your family’s monthly bills, but also educate them about the importance of conserving water.

Shopping and coupons: Who doesn’t love & use coupons? What is the word associated most with a coupon – that’s right – “Savings”! Discuss how it’s fun to find deals and coupons and how it saves the family money. Play a simple game. Give them a $10 bill and take them to a store which offers coupons. Show them how they can extend what they can buy with a $10 bill by effectively using the coupons.

Bank: We realize it’s boring to talk about the bank. But it’s important for kids to understand the difference between a piggy bank and a bank. Bank for example is more secure and offers interest!

2)Earning Money Conversations

It is important for kids to learn that the money is not always present. It comes as a result of effort. Here are some ways to teach them about earning money:

Discuss salary, jobs and profession: Concept of salary and wages is extremely new to the kids. Explain to them what it means to earn a salary and that different professions earn different amount of money. You may also discuss how experience and expertise help improve the salary in real life. Discuss your own profession and explain what you do for a living. The next step is to give them chances to earn money.

Give Allowance: A monthly weekly allowance that they have full control over will give them an idea about how their spending choices impact their wealth.

Pay for “Special” Chores: Chores are integral part of growing up. While we do not recommend giving kids money in exchange for “routine” tasks such as doing the dishes & cleaning their room, you can reward them for “additional” chores that are not part of their routine.

Reward good behavior and habits: Every parent wants their kids to do great at school. However, studies have shown that inculcating good behavior and habits is more important than rewarding for good grades. So reward them for good habits such as reading books, completing homework and completing homework on time.

Part-time jobs: In summer it could mean cutting grass or in winter it could mean shoveling snow!

3)Charitable discussions

Children need to understand that sometimes it feels good to give for good causes. Help them understand why is it important to give. One way to start could be to have them pick a cause/charity that they care about – for example pets. Then help them store (in a piggy bank) a fraction of their earnings for this charity. When it is time to give, let them donate directly to the charity if possible. This will help them feel good about helping those in need.

Radha Rai is first and foremost a brand new mom!  She is also a financial professional, community volunteer, author and entrepreneur, having earned her MBA from The University of Chicago, Booth School of Business. She was born in Bihar, India where the illiteracy rate is very high amongst girls. She had to go against the societal grain to get herself and her younger siblings educated. Radha continues to be very passionate about promoting other women and girls. In fact, she recently combined her two passions, finance and literacy, to publish a new book, Liktoon’s Boat, with help from her husband, Abhijit. Liktoon’s Boat is an endearing and educational book to help promote financial literacy among children.
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