Teach your Kids about Money: How Kids Can Work, Earn, Give, Save, and Spend
June 23, 2021
By Matt Miner, MBA, CFP®
Don’t Throw Balls in the House!!
Several years ago my boys were throwing a baseball back and forth in their room – something they knew they are not allowed to do. The baseball went through a glazed single pane window. Oops. The ball thrower approached me with his tale.
“What do you think about this new hole in your window?” I asked.
“I guess we’ll have to fix it,” the kid said. “How much do you think it will cost?”
“I don’t know,” I said. “We’ll learn.”
The cost was ninety dollars for the repair – not bad since it required a glass guy and a service call, but a painful fraction of the offender’s net worth at the time. I presented him with the invoice. He groaned. “Dad, I will have to earn and save SO MUCH MONEY to pay for all the things I break! This is horrible!” Reflecting on my driving history at age sixteen, and the running tab with my own father as I repaid body shop repair expenses for his beleaguered F-150, I agreed.
“Yes son,” I said, “if you continue to disobey and break things, you will need a lot of money, both now and later. On the other hand, are there ways you could save money in this expense category?”
“I could obey you and mom and stop breaking things,” he replied.
“Great,” I said. “Let’s do that.”
Simple, but not easy.
Paying for things they break – being responsible – is one of the reasons we’ve pushed the learning about money thing hard with our kids. Our strong hope is that by experiencing the pain of small expenses now, these kids’ll avoid the really big pain later. Our experiments in kid financial responsibility are ongoing. Check back with me in ten years. We should have results by then. In the meanwhile, at the very least, I don’t have to absorb the full cost of all the stuff my kids break!
We all Want the Best for our Kids - That’s Why We’re Their Parents
Parents and prospective parents want the best for their kids. There is so much to teach them, and teaching your kids is one of the most rewarding parts of parenting. You start at the level of philosophy and assumptions: Our philosophy is, we are raising productive, competent adults. Our presupposition is our children must grow into productive, responsible adults. It is our job to teach them how.
It’s great to start when they’re as young as possible, and if we could go back, we’d have pushed them further in their first half-decade of existence. But it’s like anything: you start where you are, and go from there. If you want to eat a picnic in the shade, the best time to plant the tree was thirty years ago, but the second best time is today. If you want to raise productive, responsible adults, the best time to start them working is as soon as they understand language, but the next best time is right now.
The Kids and Money Framework: Work, Earn, Give, Save, and Spend
The first thing you’re kids have to understand about money, is it comes from work. Gifts can’t be counted on. Gambling is a disaster for participants. Theft is not OK. Work is the only reliable, wise, ethical source of money. Work can be for you, the parents, for clients, or for an employer, but your child has to make the connection: Work is the ticket to money.
Here’s a fact: At the beginning, you’re better at everything than your young child. And that’s as it should be. But this is not where you want things to remain! You want your child to approach your skill, equal your skill, and eventually surpass your own skill in some areas. This is the work of parenting.
Teaching kids anything is hard at first. It’s always easier to do it for them in the beginning – putting away toys, clearing their plate from the table, loading and unloading the dishwasher, pulling weeds in the yard, preparing meals, cleaning the house, washing the car, mowing the lawn.
But every time you, the parent, do something the kid could have done him or herself, you rob the child of learning and experience and you violate the fundamental tenet of successful time management which is to only work on the things that only you can do! Finally, doing something for the child is like signing up for another subscription service – it’s another commitment you’ve made. Your job as the parent is to look hard at the work that needs to be done, and in an age-appropriate, loving, and thoughtful way, get your children involved in contributing meaningfully to that work.
Once kids learn about work as concept, and that this is a good and expected part of life, and a way they can contribute to the family, at some point you’ll introduce money – the idea of earning for the work.
In our family there is a baseline set of chores that rotates among the children. These are unpaid. But then there are jobs that are above and beyond these chores, and these jobs are paid. Our kids are generally competent workers at this point and I am always looking for ways to pay them and free up my time. But when it starts, you’ll have to figure out pricing, teach them the work and the standards, check behind them, provide additional instruction if needed, and hold them accountable to deliver a good result, within the realm of their actual competency.
Kids and Money: Timeliness is Key to Making Connections
Kids can start thinking about money as soon as they can count. Currency, though vanishingly rare in 2021 is a useful tool. It is good to make payment tangible and immediate, especially when the kids are very young. We keep an envelope full of ones, fives, and tens handy to make appropriate payments on the spot.
When kids are first getting the concept of earning, saving, giving, and spending, it is helpful to make everything happen as quickly and connectedly as possible.
For example, imagine nine year old helped clean the house for two hours to get ready for a Christmas party and you paid $15 for the work. As soon as you agreed the work was done to spec, you could fork over two fives and five ones. You might deposit $5 into savings (more on kid banking another time) and go to Wal-Mart with the other ten. Your child might choose to give $1 to the Salvation Army bell-ringer, buy her brother a $4 Christmas gift and spend $5 on something she wanted.
Wow! Two hours of work. $5 dollars in savings, two small gifts made, and some special treat she’d had her eye on.
Payment for jobs should be age-and-context appropriate, and after kids have some competence as workers, pay should approximate the market-value of the work. For example: I pay $5 to mow the lawn and $9 if the job includes string trimming. It’s not a huge lawn, and this rate approaches $10 per hour which is pretty good for a 12 year old. For Josh, the Small Batch Homeschool Roaster, he prices coffee a bit below Starbucks but above Costco (one of his business mantras is: I’m not competing with Costco). The idea is to equal the premium offering – Starbucks - on quality and dominate slightly on price. My daughter charges a context-appropriate rate for her babysitting services.
As a note, when kids first start earning money, they aren’t very productive, so you may overpay a little at the beginning – and by that, I mean around ages four through six, when you’re really just trying to help them make this connection: I work to earn money. When I get some money, I get to give, save, and spend it, and I like all those things.
Kids and Banking
To address the issue of savings with your kids, you’ll need a plan for banking and investing. Maybe like me, you had a passbook savings account as a child. Depending on when that was, you may remember bank savings account interest rates of three to six percent per year. Wow! Corporate junk bonds don’t even pay that these days, let alone FDIC insured bank accounts. What to do?
Depending on your child’s age as you get started, I recommend a fourfold approach.
First, if your child is really too young to understand numbers on a screen and the concept of earning interest – here I’m thinking age seven or younger, three simple envelopes are adequate. Just write: Give, Save, Spend on the envelopes and work with your child to apportion these budgets appropriately.
Once your child gains some experience and sophistication with money – around age seven or eight – I recommend the Bank of Dad Account (or whatever you call it in your family). In this account I pay 10% interest until the child reaches $1000 on deposit there. Click here to get access to the Bank of Dad account and all my other subscriber resources, too.
From there, the child can open a student checking account with a local bank or credit union – make sure there are no fees! – and I recommend to my children they work to accumulate their second $1000 there. In our family, this step occurred around age eleven or twelve. This was when my children got debit cards.
Finally, once the student checking account achieves the goal balance, I’ve recommended my children open Roth IRAs and begin investing. Only one of my kids has hit this milestone so far.
Kids and Money: Part of YOUR Financial Plan
The topic of kids and money is a key part of your life plan, let alone your financial plan. I know y’all want to do right by your kids, and teaching them to work, earn, give, save, and spend will give them dignity, agency, and important learning and experience. It will make them more helpful to you, and more interesting to other adults they meet – including prospective employers and clients!
You start with your beliefs about work and money: What are your presuppositions?
You need a philosophy for money. Feel free to adopt mine: Work, Earn, Give, Save, Spend.
You must teach your children that work is needed, and how to do it. You’ll incur a time-cost now, but the pot of gold is just over the horizon – and it’s really there. One day when you are doing something for your work or business, going on a run in the park, or taking your wife on a date while your child is mowing the lawn or vacuuming the living room, you’ll be so glad you made the investment of time up front.
If you’re ready to take the next step with your financial plan, click here to schedule time with me.
Money Guide Quick Tip
Your kids need money. I don’t mean for the basics like food, shelter, and clothing. WPF listeners aren’t struggling at that level. And I don’t mean the money they ask you for to buy a freezer pop at the pool. I mean their own money that they earn from working hard and working smart so they learn to give, save, and spend wisely, on a small scale, while they’re in your home.
My eldest likes people and experiences. She likes to deploy her money to partner with us on self-directed travel and things like art retreats and summer camps…maybe she just wants to get away from us; she is almost 16! My second buys science supplies to mimic experiments he sees on YouTube, though mostly he just saves his money. My youngest buys things in support of his interests: Archery supplies, rip-sticks and most recently, a unicycle.
They all give and save at varying but appropriate rates.
There’s an old saying that if you want to know what a person really values, look at their calendar and their checkbook. It is a joy, as a parent, to see the kids express their personalities and values by directing their cashflow and to see them mature in their handling of money as they grow up in every area of their lives.
Additional Resources
Do your kids need to file taxes? The IRS has a handy tool, and here’s an article explaining what’s going on there.
Do your kids need to file taxes to contribute to a Roth IRA? Not necessarily. It’s only if they need to file taxes at all (see above).
TRANSCRIPT
[music]
[00:00:01] Matt: Hey and welcome to the Work Pants Finance podcast where my guests and I serve up hard-won wisdom about work, life, and money. We teach you how to be a debt-free millionaire in your 30s, 40s, or 50s and build a life where money works for you, not the other way around.
Several years ago, my boys were throwing a baseball back and forth in their room, something they knew they are not allowed to do. The baseball went through a glazed single-pane window, oops. The ball thrower approached me with his tail.
“What do you think we'll have to do about this new hole in the window?” I asked.
“I guess we'll have to fix it,” the kid said. “How much do you think it will cost?”
“I don't know.” I said.
The cost was $90 for the repair. Not bad, since it required a glass guy and a service call, but a painful fraction of the offender's net worth at the time. I presented him with the invoice.
He groaned, “Dad, I will have to earn and save so much money to pay for all the things I break. This is horrible.”
Reflecting on my driving history at age 16, and the running tab with my own father, as I repaid body shop repair expenses for his beleaguered F150, I agreed.
“Yes, son.” I said, “If you continue to disobey and break things, you will need a lot of money, both now and later. On the other hand, are there ways you could save money in this expense category?”
"I could obey you and mom and stop breaking things," he replied, simple, but not easy.
"Great." I said, "let's do that."
Paying for things they break. Being responsible is one of the reasons we've pushed the learning about this money thing hard with our kids. Our strong hope is that by experiencing the pain of small expenses now, these kids will avoid the really big pain later. Our experiments in kid financial responsibility are ongoing. Check back with me in 10 years, we should have the results by then. In the meanwhile, at the very least, I don't have to absorb the full expenses of all the stuff they break today.
I'm Matt Miner, your money guide and for the last decade, my family and I killed debt, built wealth, and helped other people do the same thing. In 2018, I stepped away from corporate work to serve clients full-time as a fee-only fiduciary financial advisor. If you're an MBA, entrepreneur, or high-income professional, and you want to get organized about money, learn what you don't know and make a financial plan that works as hard as you do. This is the show for you. There's lots more at workpantsfinance.com. While you're there, please sign up for subscriber-only content special invitations that workpantsfinance.com/resources.
On today's show, we're going to talk about kids and money.
With kids and money in mind, here's your money guide quick tip. Your kids need money. I don't mean for the basics like food, shelter, and clothing. WPF listeners aren't struggling at that level and I don't mean the money they asked for to buy a freezer pop at the pool. I mean their own money that they earn from working hard and working smart so they learn to give, save and spend wisely on a small scale while they're in your home.
My eldest likes people and experiences. She likes to deploy her money to partner with us on self-directed travel things like art retreats and summer camps. Maybe she just wants to get away from us. She is almost 16. My second buys science supplies to mimic experiments he sees on YouTube, though mostly he just saves his money. My youngest buys things in support of his interests: archery supplies, rip sticks, and most recently, a unicycle. They all give and save at varying but appropriate rates. There's an old saying that if you want to know what a person really values, look at their calendar and look at their checkbook.
It is a joy as a parent to see the kids express their personalities and values by directing their cash flow and to see them mature in their handling of money as they grow up in every area of their lives. Find all the links and additional content at workpantsfinance.com/29.
[music]
[00:04:02] Matt: Parents and prospective parents want the best for their kids. There is so much to teach them and teaching your kids is one of the most rewarding parts of parenting. You start at the level of philosophy and assumptions. Our philosophy is we are raising productive, competent adults. Our presupposition is our children must grow into productive, responsible adults. Our job is to teach them how. It's great to start when they're as young as possible and if we could go back we'd have pushed them further in the first half-decade of their existence but it's like anything, you start where you are, and you go from there.
If you want to eat a picnic in the shade, the best time to plant the tree was 30 years ago. But the second-best time is today. If you want to raise productive, responsible adults, the best time to start them working is as soon as they can understand language. But the next best time is right now.
For kids and money, our framework is work to earn then give, save and spend. The first thing your kids have to understand about money is it comes from work. Gifts can't be counted upon. Gambling is a disaster. Theft is not okay. Work is the only reliable, wise, and ethical source of money. That work can be for you, their parents, for clients, or for an employer, but your child has to make the connection.
Work is the ticket to money. Here's a fact, at the beginning, you're better at everything than your young child and that is as it should be. But this is not where you want things to end up. You want your child to approach your skill level, then equal your skill, and in some areas surpass your own abilities. This is the work of parenting. Teaching kids anything is hard at first, it's always easier to do it for them in the beginning, putting away toys, clearing their plate from the table, loading and unloading the dishwasher, pulling weeds in the yard, preparing meals, cleaning the house, washing the car, or mowing the lawn.
Every time you, the parent, do something that kid could have done for himself or herself, you rob the child of learning and experience and you violate the fundamental tenet of successful time management, which is to only work on the things that only you can do. Finally, doing something for the child is like signing up for another subscription service. It's one more commitment you've made. Your job as the parent is to look hard at the work that needs to be done and in an age-appropriate, loving, and thoughtful way. Get your children involved in contributing meaningfully to that work.
[music]
[00:06:30] Matt: Today's show is brought to you by Bank of Dad. Go to workpantsfinance.com/resources and sign up to access the Bank of Dad spreadsheet tool and kid entrepreneurship video there. Once kids learn about work as a concept, and that this is a good and expected part of life in a way that they can contribute to the family. Then at some point, you'll introduce money, the idea of earning for the work. In our family, there's a baseline set of chores that rotates among the children. These chores are unpaid; but then there are jobs that are above and beyond these chores, and these jobs are paid.
Our kids are generally competent workers at this point, and I'm always looking for ways to pay them and free up my time so I can make podcasts for you. When this process starts, you'll have to figure out pricing, you'll have to teach them the work and the standards, you'll have to check behind them and provide additional instruction if needed, and then hold them accountable to deliver a good result within the realm of their actual competence. Kids can start thinking about money as soon as they can count. Currency, though vanishingly rare in 2021, is a useful tool. It is good to make payment tangible and immediate, especially when the kids are very young.
We keep an envelope full of ones, fives, and 10s handy to make appropriate payments on the spot. When kids are first getting the concept of earning, saving, giving, and spending it is helpful to make everything happen as quickly and connectedly as possible. For example, imagine a nine-year-old has helped clean the house for two hours to get ready for a Christmas party you're having and you paid $15 for the work. As soon as you agree that the work has been done to specifications, you could fork over two fives and five ones. You might deposit $5 into savings (more on kid banking later) and then go to Walmart with the other $10. Your child might choose to give $1 to the Salvation Army bell ringer, buy her brother a $4 Christmas gift and spend $5 on something she wanted. Wow, two hours of work $5 in savings, two small gifts made, and some special treat she'd had her eye on.
Payment for jobs should be age and context-appropriate. After your kids have some competencies workers, pay should approximate the market value of the work. For example, I pay $5 to mow the lawn and $9 if the job includes string trimming. It's not a huge lawn, and this rate approaches $10 per hour, which is pretty good for a 12-year-old.
For Josh, the Small-Batch Homeschool Roaster, he prices coffee a bit below Starbucks but above Costco. One of his business mantras is I'm not competing with Costco. His idea is to equal the premium offering Starbucks on quality and dominate slightly on price. My daughter charges a context-appropriate rate for her babysitting services. As a note, when the kids first start earning money, they aren't very productive so you may have to overpay a little at the beginning. By that, I mean around ages four to six when you're really just trying to help them make the connection: I work to earn money; when I get some money, I get to give, save, and spend it and I enjoy all of those things.
To address the issue of savings with your kids. You'll need a plan for banking and investing. Maybe like me, you had passbook savings account as a child. Depending on when that was, you might remember bank savings account interest rates of 3% to 6% per year. Wow. Corporate junk bonds don't even pay those rates these days, let alone FDIC-insured bank accounts. What to do. Depending on your child's age, as you get started, I recommend a four-fold approach to banking.
First, if your child is really too young to understand numbers on the screen and the concept of earning interest, and here I'm really thinking of age seven or younger, three simple envelopes are adequate. Just write Give, Save and Spend on the envelopes and work with your child to apportion these budgets appropriately. Once your child gains some experience and sophistication with money, maybe around age seven or eight, I recommend the daddy's bank account or whatever you want to call it in your family.
In this account, in our family, I pay 10% interest until the child reaches $1,000 on deposit at Bank of dad. From there, our children open a student checking account with a local bank or credit union. As you do this, make sure that there are no surprise account fees. Then I recommend to my children that they work to accumulate their second $1,000 there. In our family, this step occurred around age 11 or 12 and this was when my children got debit cards.
Finally, once the student checking account achieves the goal balance, I recommended that my children open Roth IRAs and begin their investing journey there.
[music].
The topic of kids and money is a key part of your life plan, let alone your financial plan. I know y'all want to do right by your kids and teaching them to earn, give, save and spend will give them dignity, agency, and important learning and experience. It will make them more helpful to you and more interesting to other adults they meet including prospective employers and clients.
You start with your beliefs about working money. What are your presuppositions? You'll then need the philosophy for money. Feel free to adopt mind, work, earn, give, save and spend. You'll need to teach your children that work is necessary and how to do it. You'll incur a time cost now, but the pot of gold is just over the horizon and it's really there. One day when you are doing something for your work or business that only you can do or going on a run in the park or taking your wife on a date while your child is mowing the lawn or vacuuming the living room, you will be so glad you made this investment of time upfront.
That's it for today's show on kids and money. Thank you so much for sticking with me until the end. Please rate and review the show wherever you listen to podcasts. This is a real help for me as I create for you. The homeschool budgeting episode returns later this week for Flashback Friday. Until then, this is Matt Miner, encouraging you to make a financial plan that works as hard as you do.
[00:12:25] Speaker 2: Matt Miner is a fee-only fiduciary financial advisor and founder and CEO of Miner Wealth Management, a North Carolina registered investment advisor where Matt provides personalized unconflicted advice to clients for a fee. He's also my dad so please be nice when you talk to him. Matt is a certified financial planner professional and holds a Series 65 securities license. He earned his bachelor's degree in finance from Arizona State University and his MBA from Duke University's Fuqua School of Business.
Work Pants finances is Matt's financial media business where he talks about work, entrepreneurship, kids and money, taxes, investing, and other personal finance topics. Workpantsfinance.com exists to share wisdom and provide general financial information. It is not financial tax or legal advice. You are an individual and probably need personal advice for your specific situation. You should consider building relationships with helpful, caring, and competent professionals who understand your unique context and can provide advice that is tailored to your needs.
[00:13:21] [END OF AUDIO]