One of the things that keeps me up at night is that the American school system does not teach kids the most basic, life-survival skill – money management. Until recently, only 17 states required high school students to take a class in personal finance. I was surprised to discover it was that many! However, I’m excited to share that there is a strong movement to require schools to teach personal finance. Until then, the onus is upon us parents to teach our kids the vital skill of fiscal responsibility.
When to start
Research has shown that children as young as 3 years old can grasp financial concepts like saving and spending. I’m fortunate to have two young boys – a 4 year old and an 10 month old. I’ve been eagerly anticipating the day I can start teaching them the core concepts of money. Coincidentally, with my oldest son Maddux, I inadvertently began teaching him about money around the age of 2.
Toy Cash Register
Toy cash registers are very popular with kids. My oldest son has played with several different ones and enjoys them all. He currently has a grocery store set that came with a little basket with fake food items along with the cash register and play money (coins, paper, and a debit/credit card). While it might seem like innocent fun, pretending to go to the grocery story is teaching young Maddux the core concepts of exchanging currency for a product. We’ve been explaining to him how much things cost, how to read price labels to identify which items cost more/less, and how to count money. Seeing my son play with fake money sparked my idea to start playing with real money.
Learning to identify U.S. currency
Since we never have any cash lying around the house, I decided to go to the bank and withdraw one bill and coin of each denomination. In case you’re wondering, the amount totaled $188.41 with individual bills of $100, $50, $20, $10, $5, $2, $1, along with coins of a quarter (25¢), dime (10¢), nickel (5¢), and penny (1¢). With cash in hand, I sat Maddux down at the table and started explaining the different bills to him and how, even though they all looked similar, they each had a different value. I then pointed out where the numbers were and had him correctly identify them. By the way, this also helps teach kids their numbers by using single, double, triple digits bills as examples. After my son caught on to where the numbers were located on the bill, next it was time to learn about values. I proceeded to lay two different bills down ($10 vs. $20) and asked him which one was more. We did that exercise with all the bills and repeated the process with the coins. It turned out to be a great lesson and Maddux was engaged most of the time.
Kid’s books
I’ve been pleasantly surprised to discover a wealth of educational children’s books. We have found several great money books in the kid’s section of our local library as well. Consumer advocate Clark Howard has a book titled Clark Smart Parents, Clark Smart Kids: Teaching Kids of Every Age the Value of Money that I plan on buying. Also, Dave Ramsey has some outstanding resources for kids as part of his Financial Peace Junior Kit.
One book that I’ve been very impressed with is Rock, Brock, and the Savings Shock by Sheila Bair. I’m even more excited that Maddux likes reading it all the time. The story is about two twin brothers named Rock and Brock. One brother is a saver and one is not. Their grandfather presents them a saving plan to teach them the concepts of delayed gratification and compound interest. For completing their chores, each boy receives $1 a week from their grandpa. For each subsequent week in which the boys save their money their grandpa will double it – $1 to $2, $2 to $4, $4 to $8, etc. Brock saves his money and watches it grow each week while Rock succumbs to a consumerism mindset and blows his cash on meaningless items like candy and toys. As time passes, Rock observes how Brock handles his money and starts changing his spending habits. Both boys grow up to become millionaires as a result of investing at an early age and capitalizing on the power of compounding interest.
Three Jars
At age 4 we presented Maddux with the three-jar system (Give-Save-Spend) to teach him the core basics of money allocation. To our surprise he was excited about the opportunity and has taken ownership of the concept. Now that he’s accumulated some money in his jars, going to the store is a whole new ballgame. For example, the other day he wanted to buy a Kinder Egg. We told him if he wanted a Kinder Egg he would have to give us $2 out of his spend jar. The look on his face was priceless as he went into deep thought during the remainder of our time at the store trying to decide if he really wanted to make that purchase. It’s always easier to spend someone else’s money but when the money is coming out of your pocket then it’s time to decide if you truly need it. Ultimately Maddux decided to buy the egg and willingly took $2 out of his Spend jar and handed it over to me. It was exciting to see him carefully decide for several minutes whether he wanted to buy the egg or not. Additionally, it’s even more important for him to learn that daddy isn’t a human ATM machine!
Reward System
After having some behavioral challenges with Maddux, we decided to implement a reward system. These are popular with parents who set up an incentive program (also known as sticker charts, award programs, etc.) to help correct poor habits and misbehavior. You can download various templates online. These charts are customizable and can also be used to track weekly chores and other accomplishments. We used it as a tracker to help Maddux remember to do important tasks like brush his teeth, get dressed for school, wash with soap, and first-time listening, etc. At the end of each week, if he completes every item, he receives a prize worth no more than $10. However, we have now modified the reward program to give him the choice of picking a prize or taking $6 in cash to distribute into his three jars. If he chooses the cash we give it to him in all one-dollar bills to allow him to split up the money among the three jars as he sees fit – although he’s required to put at least $1 in the Saving and Giving jar.
Final Thoughts
I’m excited to teach my boys financial responsibility in hopes of empowering them to better grasp the concepts of money at an earlier age then I did. It’s been encouraging to see young Maddux show interest in learning his bills and coins and it will be fun to continue the training. I plan on documenting this process over the years through blogs on this site and videos on my YouTube channel. Stay tuned!
For more on my financial journey and thoughts from other unique individuals, check out my book Margin Matters: How to Live on a Simple Budget & Crush Debt Forever.