By Dr. Jim Dahle, WCI Founder

Many of us became financially literate in our 20s, 30s, or even later. The combination of financial literacy and financial discipline is so rare that having both is like having a superpower in our society. We often wonder what our lives would have been like if we could have learned these principles even earlier. We also love our kids and want to help them to be more successful than we were and to ease their burdens somewhat without removing their struggle. Given our success, we also know that our kids are likely to inherit a substantial amount of wealth, and we want them to be prepared to use it wisely.

The persistence of generational wealth is depressingly low. Studies suggest that 70% of wealth is gone by the end of the second generation, and 90% of it is gone by the end of the third. Part of this is simply dilutional. If people in the later generations are not also wealth creators like the first generation (and let's be honest, most people are not), the money simply isn't growing fast enough to make up for the dilutional factor.

For example, if every generation has four kids, that wealth is being divided by four every 20-30 years. That means the wealth needs to double every decade for the next generation to be just as well off as this generation. That requires the wealth to be invested wisely AND for not it to be spent (or at least for only a small percentage of it to be spent each year, and that just doesn't happen with most people).

“Hey kid, here's $10 million. But don't spend more than $200,000-$300,000 a year so that your kids can be as rich as you.” Just doesn't happen much. If they're not adding to the pile, it's not going to keep up.

In addition, barring particularly good estate planning, the federal government lops off 40% of everything over the estate tax exemption amount every generation. A few state governments have their own estate and inheritance taxes. Here in America, we are actively trying to minimize generational wealth. When you combine the facts that most people aren't wealth creators, that most people are spending more than making their kids rich, and that large estates are subject to massive transfer taxes, those persistence statistics shouldn't be a surprise. You have to wonder if you should even bother trying to create generational wealth at all.

But even if generational wealth isn't your goal, I'm sure you still want to teach your kids to be smart with the money they make themselves and for any that you give them. Hopefully, this post will give you a few actionable tips to help with that.

 

General Concepts for Teaching Kids About Money

First, step back and look at your own history with money and how you view it. Consider the money experiences from your upbringing, your culture, your political leanings, and your religion and how they affect your attitudes about money and how you now manage it. Consider how those experiences are different for your children. Remember that parenting is both an art and a science and that every one of your kids is different and their instruction (both “lectures” and “labs”) will need to be individualized.

Normalize money talk in your house. This should not be a taboo subject. It should be discussed both casually and formally/systematically. Don't avoid it, but don't obsess about it either. You're looking to instill healthy attitudes about it. While you want your kids to avoid growing up with entitlement, you also want to avoid them acquiring a scarcity mentality. Money is a tool, a resource, a currency. It's not dramatically different from time, food, energy, and other resources in your life.

More information here:

How I Teach My Kids About Money

How to Teach Gratitude to Your Kids

 

When Can You Talk to Your Kids About Money?

There are plenty of opportunities to talk about money that occur naturally and that are more formalized. You can do it while driving in the car or going for a walk. You can do it around dinner at the kitchen table. You can have special discussions during family planning meetings each Sunday. You can have individualized sessions while doing “parental interviews.” You can take advantage of opportunities to teach when your child asks you for money, stuff, or experiences. You can talk at the store when buying things or when shopping online. As appropriate, you can invite a child to participate in some or all of your money discussions with your spouse. Ninety percent of the time you spend with your children will occur before age 18. That includes what you teach them about money. Don't miss out on them.

More information here:

When to Give Inheritance Money to Your Kid?

How to Open a Roth IRA for Your Kids (and Should You)?

 

Teaching Kids About Money Age-by-Age

 

Financial Literacy for Children (Ages 3-9)

You can begin surprisingly early with teaching about money. These lessons and activities can be used with children.

 

Financial Lessons and Concepts

  1. Money comes from work: It doesn't grow on trees. If you want more money, go to work. Tell them they can be paid to do some extra chores or run a lemonade stand.
  2. Life costs money: Mom and Dad go to work so you can eat, have clothes, live in a house, and do fun things.
  3. Delayed gratification: If you wait to buy something, you'll realize a lot of the time that you really didn't want it in the first place, and if you still do, you'll appreciate it more. You can have less money now or more money later.
  4. Multiple money activities: When you earn or receive some money, you should spend some, save some, and give some.

 

Money Management Activities

  1. Lemonade stand: It's a classic, an oldie but goodie. Teaches sales, marketing, profit and loss, work, and making change.
  2. Buy this, not that: This can be done at the store as you comparison shop. How many potatoes or bananas can you buy for the price of a bag of candy and a soda?
  3. Allowances: Can be connected or disconnected from chores. Let them learn to fail financially with small amounts of money. Let them feel the pain of not being able to buy something because they already spent their money on something else.
  4. Piggy bank: Better yet, a bank with multiple slots for saving, spending, and giving.
  5. Money grab: Fill a bowl with quarters, dimes, and nickels. Maybe include a few dollar coins. They get to keep what they can grab (must keep palm down!)
  6. What do you own?: If your kid has a 529, UTMA, or Roth IRA invested in a US stock index fund, have fun pointing out all of the publicly traded businesses they own. McDonald's, Lowe's, Home Depot, Chevron, Exxon, Walmart, Costco, Kroger . . . the list is almost endless. “Every time Costco makes money, you make money.”

 

Financial Literacy for Pre-Teens (Ages 10-12)

Many of the same concepts can be used again with pre-teens. The activities can have added complexity as well. Repetition and reinforcement are good things. These memories will be sitting in the back of their mind, and they will come back when they are needed as adults.

 

Financial Lessons and Concepts

  1. Needs vs. wants: Do you need that $100 pair of jeans, or do you want it? It's OK to have wants, but you do need to distinguish them from needs. It's amazing how many adults have never learned this lesson.
  2. Money can make money: The miracle of compound interest. Capitalism.
  3. Better to earn interest than pay it: What is debt? What is interest? Why can debt be a problem?
  4. Investing vs. gambling: How is owning Walmart stock different from playing the lottery?
  5. Finding value: How to comparison shop? What factors matter?

 

Money Management Activities

  1. Physical money vs. digital: The idea here is that kids should learn physical money before digital money. But you also need to connect the idea that numbers on a computer screen or bank statement represent real, physical money.
  2. Open a bank account: Have them go with you to sit with the bank manager. Have them receive the emailed statements or open the paper ones. Point out how little interest they're earning. Let them make deposits and withdrawals. The bank or credit union might even pay for good grades.
  3. Calculate compound interest: You can do a few steps by hand and then show them the magic of a financial calculator or spreadsheet.
  4. “Keep the change”: This is for when spending is under budget. You can have these $100 shoes, or you can buy those $50 shoes and keep the $50 for whatever you want. Your choice.
  5. Calculate the tip for a dinner out: Talk about what tips are for and what a bad tip, a typical tip, and a great tip look like. Talk about how servers and others working for tips make their income.
  6. Give a “bonus” for extra results and effort: Emphasize doing their job right the first time. Pay differently for chores based on the quality of the work done. “That was an $8 snow shoveling job; if you would have done the steps completely, I would have paid $10.” Then, next time when they do the steps, pay them $10.
  7. Set a saving or giving goal: Celebrate when they achieve it.
  8. Order and pay for food: Talk to adults. Calculate change.
  9. Save up for and make a larger purchase: You can possibly use “matching” dollars. Use physical money even though it will take more work for you.

 

Financial Literacy for Teens (Ages 13-17)

You can teach a lot to a teenager, but they'll learn just as much from your example.

 

Financial Lessons and Concepts

  1. Financial myths: Are rich people bad? Is being rich good? Does having money make you better than someone else? Why are people who look rich often not rich and vice versa? What does stealth wealth mean and look like?
  2. Investing basics: How do retirement accounts work? What is a stock? What is a bond? What is an investment property? What is a speculative investment? Why is buying and holding so powerful? Why is it so hard to time the market?
  3. Insurance basics: Health, auto, life, disability, liability, deductibles, co-pays, co-insurance. Talk about when you've used your insurance. Don't let this be a foreign language for them.
  4. Matching funds: Why is not getting the match from your employer like leaving part of your salary on the table?
  5. Adult behavior: Why can't you spend all of your money on fun stuff? Why is budget night as important as date night? Why do families pool income and expenses? Share recurring and annual expenses. What does their current lifestyle really cost?
  6. Financial mistakes and dealing with them: Share the ones you've made as well as ones that people commonly make.
  7. Income and how far it goes: What is a low income? What is a middle-class income? What is a good income, and what do people do to get that? Why is it hard to live on $20,000 a year ($53 a day) even though that's a lot of money? What does life cost?
  8. Moving on: What will happen when they turn 18? How long will you help with the cell phone bill, health insurance, car insurance, and more? The dangers of Economic Outpatient Care.
  9. The value of work: Don't let their first job be a resident physician at age 28.
  10. The value of education: What are the ways that education pays off? Is it possible to spend too much on education? How to choose a college and a career.

 

Money Management Activities

age appropriate money conversations with kids

  1. Digital money: Debit cards, credit cards, Venmo, Paypal. Connect the spending to the statements and numbers on the screen.
  2. Read and discuss a financial book for pay: Richest Man in Babylon. If You Can. Money for Teens. There are dozens of books appropriate for this age. Covering five before they leave home would provide a great foundation.
  3. Make or change reservations: You can do this for a hotel or a tour.
  4. Cancel or negotiate services: Netflix? Disney+? Hulu? SiriusXM? Verizon?
  5. Contact customer service: Make sure to follow up until there's a resolution.
  6. Buy a car: Even better if it is an $800 beater with a stick shift. Research, purchase, maintenance, repairs, registration, and insurance.
  7. Calculate driving vs. flying: Do this for a family trip.
  8. Research a big-ticket purchase: Either for the family (or the kid) online.
  9. Build an emergency fund: What's an emergency and what isn't?
  10. Purchase and follow investments: Consider an UTMA account. Learn the lack of value in market forecasts.
  11. Larger allowance to teach budgeting: Give them a much larger allowance, but require them to pay for their own fun, clothing, and gasoline out of that allowance. Teaches budgeting, needs vs. wants, and more.
  12. GravyStack app: Allowance and budget training gamified and on steroids.
  13. Get a job: Preferably a mindless one with a nasty boss. Mowing lawns. Shoveling driveways. Fast food. Retail. Movie theater. Skating rink. Learn about timecards and child labor laws and withholdings. Let them apply for and interview for jobs and change jobs.
  14. Prepare tax forms: Yes, they'll need help. But they're pretty darn easy when you have a very uncomplicated life.
  15. Participate in your monthly budget meeting: Decide what you're comfortable sharing and invite the child to attend part or all of the meeting.
  16. Applying to college: Most teenagers will need significant parental input in choosing a college wisely.
  17. Match savings: Either for college or retirement.
  18. Have an annual giving meeting: Have the teenager argue for, select, and actually transfer money to his or her chosen charities, via a Donor Advised Fund or by writing a check.

 

Financial Literacy for Young Adults (Ages 18-25)

Just because you are no longer legally responsible for them doesn't mean you can't teach them anything.

 

Financial Lessons and Concepts

  1. Buying assets and liabilities: Why you don't “invest” in clothes, cars, and similar depreciating items. How a house can be a liability and an asset.
  2. Debt: Leverage or an easy way to ruin your future? Understanding the dangers of overspending and how it handicaps your future.
  3. Credit scores: Where they come from. How to check them. Why they affect your life (employment, insurance, credit) and why it isn't the most important number in your financial life.
  4. Financial risk tolerance: What it feels like to lose money that you used to have. How to reduce volatility and risk of loss through asset allocation.
  5. Risks of lending money to family, friends, and acquaintances: How it feels to not be paid back. The risks of co-signing.
  6. How to never have a car loan: Moving up in cars from beater to brand new over the years using saved money.

 

Money Management Activities

  1. Paying for college: What will their 529 cover? What will you cover? What will they cover? What will happen with unused 529 money? Why is it so important to avoid student loans?
  2. Plan and complete a trip: Solo. With friends. With parents.
  3. Transition away from parents' accounts: Phone. Car insurance. Streaming services. Health insurance.
  4. Go to the DMV: For a license or registration.
  5. Buy a place for them to live in at college: Make them manage the property and the tenants (roommates). Split the profits with them when it sells, or transition it to their first rental property.
  6. Compare insurance options.
  7. HR benefit elections.
  8. Compare loans and interest rates: Emphasize that the size of the loan (or avoiding it completely) matters more than the terms.
  9. Credit card evaluation and selection: How do credit card rewards work? Why do banks offer them?
  10. Sign up for a frequent flier program.
  11. Do their taxes: Without your assistance.
  12. Discuss estate planning: Yours and theirs.
  13. Teach about their inheritance: When, how, and how much.
  14. Spending now vs. later: Teach about the seasons of your life.
  15. Do something big and scary: Summer in Europe with a friend. Missionary work. Peace Corp. Study abroad. Medical mission. These often turn out to be real “coming of age” experiences that mark the transition to responsible adulthood.
  16. Pay for reading and discussing financial books: One good financial book read early may be worth millions to them eventually. Why not offer them a couple of hundred bucks to incentivize this boring activity?
  17. Match retirement savings in their Roth IRA: Train them to get their 401(k) match later.

 

As you can see, there are plenty of fun ways to teach money to your kids, whether they're 5 or 25 years old. If you don't teach them, who will? Schools won't do it. Banks have no incentive to do it. You don't want their friends or TikTok doing it. It's your job; don't let them down. You don't have to be perfect. You don't have to do everything on this long list. Anything you teach them is better than nothing, and it's OK if you feel like you're already behind. You can catch up quickly.

What do you think? How do you teach money to your kids? What other lessons, concepts, and activities would you add to each of these sections? Comment below!