Updated: January 20, 2021
Growing up, the only money lesson I really learned from my parents was that it’s important to ‘save money for the rainy days’.
While that is indeed an essential lesson, to me at that time, this simply meant that I shouldn’t spend all my allowances and make sure that I save some for my piggy bank.
Even the concept of ‘the rainy days’ wasn’t clear to me. Because whenever my piggy bank becomes full, my parents would spend the money on a toy for me.
“This is your reward for saving your money,” they’d say; this confused me because I thought the money was for the ‘rainy days’ and not a toy.
Regardless, I’m still thankful that they taught me the importance of saving money. After all, it is a foundational habit for building wealth.
Fast forward today, many of my friends are now raising children of their own. And it happens quite often that they’d ask me about personal finance, particularly on how they can raise money-smart kids.
Here’s a quick list of the tips I’ve given.
10 Ways to Teach Pre-Teen Kids About Money
1. Talk about money in front of them.
Money is often a taboo topic in front of kids, but it shouldn’t be. Feel free to talk about finances with your spouse even when they’re around. They may not understand what you’re talking about, but they’ll develop an impression that money is a serious matter.
2. Explain the relationship between work and money.
I used to believe that work is just something that adults do. And if my parents need money, they just have to go to the bank or find an ATM. So, when my mom says that they don’t have money or we can’t afford something, it only meant to me that they don’t have time yet to go to the bank.
I didn’t connect work and money and I didn’t learn about the concept of a salary until a grade-school classmate explained it when he told me over recess that his father is leaving to work overseas so he can earn more money for their family.
3. Discuss needs vs wants.
Define the terms and explain why it’s important to know their differences. Then, use items in your home to test if they understood the concept; tell them to label each as either a need or a want.
Furthermore, encourage them to think about their life and ask what their needs and wants are as a child and/or as a student.
4. Give them opportunities to earn.
Your child’s allowance should just be enough to cover their necessary spending, such as food expenses at school. Then, tell them that if they want more money, then they can earn it by doing some extra work.
It’s important for your kids to learn how to help around the house. So, don’t give them financial rewards for doing their assigned household chores. Instead, offer them incentives for doing something that’s not part of their responsibilities.
For instance, I remember my father offering to pay me if I wash his car instead of letting him take it to the car wash. And I’d also earn extra money if I offered to fold the laundry and letting my mom take a nap instead.
5. Encourage them to track their expenses.
Ask your child to take note of their spending. It’s a simple exercise that will introduce them the concept of budgeting.
Avoid telling them off if they spent their allowance recklessly. Instead, ask them which are needs and which are wants, and guide them in understanding their spending mistake.
6. Avoid impulse purchases.
You’re at the grocery and they see something they want you to buy. If it’s a non-essential item (which often is), and even if you have the budget, just tell them to remind you to purchase it on your next visit. This helps them develop the mindset against impulse purchases.
But be prepared to get the item next time, if in case they do remember. On the other hand, if it’s something you can’t afford or don’t really want for them, then explain the reason why you’re not buying it, instead of giving them false hopes.
7. Motivate them to save for a goal.
Truth be told, I kept saving money as a kid because I knew I’d get a new toy when my piggy bank becomes full. The prospect of a reward or a concrete goal for the money is an effective motivation for your child to learn the habit of saving.
8. Give them their own bank account.
That money they saved in their piggy banks? Use it to open their own savings account. A lot of banks offer deposit products that are specially designed for kids. Plus, this is an opportunity to teach them the concept of interest income and how banks work.
9. Be a role model.
Show your child your savings account. Let them see you create the household budget. Share with them your financial goals and explain what you’re doing to achieve them. Be a good example to your child by being financially smart yourself.
10. Teach them the importance of giving.
Lastly, but certainly not the least, allow them to experience the joy of helping and making others happy. Ask them to buy a gift for someone they know or guide them in picking a cause or charity where they can donate some of their savings. Not only will they learn how to be generous, but it will also make them happier.
Now, it’s your turn. What can you add to the list? What other money lessons can you teach a child to make them financially smart and responsible? Share them in the comments section.