6 Steps To Teaching Your Child Financial Literacy
Here’s some advice I give all parents: Never pay your kids an allowance.
If you pay your kids a set amount every week, you are grooming them to have a fixed-income mentality.
I don’t want you, or anyone in your family, living with a paycheck mentality. I want you all to see the unlimited possibilities of making money, and kids are amazing at it.
But before you get down to teaching your kids about money, you have to make sure that you understand the concept inside and out, and apply it to your lifestyle. Schedule a free, guided Gap Analysis with our experts so you get a better understanding of where you're coming from and how you can relate your money strategy to your children.
Here’s how to encourage entrepreneurial thinking and show your children how to really make money:
1. Come up with a list.
Brainstorm with your child a list of tasks they can complete for compensation. You can start this while your child is young. I started with mine when they were 2 or 3 years old - just small things like picking up their toys for a reward.
Once they’re 8 or 9 years old, you can start more of a dialogue. You’ll have your non-negotiable, maybe unpaid, “under my roof” tasks mixed with tasks they choose that are productive for them.
2. Put a price on each task.
After you have your list, take some time to determine how much each task will be paid and how - hourly or flat rate. Be creative with this! The important thing is that your child learns that some tasks are worth more than others.
For example, my 17-year-old son gets paid more to maintain our cars (oil changes, tire pressure, etc.) than he does to do the dishes.
Just as you would an employee, incentivize good behavior, like bonuses for unprompted actions. This makes the process more active and gives your children more accountability.
3. Put an agreement into place.
To make the arrangement a little more formal, write up an agreement for you and your child to sign. This will make it clear what the expectations are for both of you.
It also teaches them responsibility through their work, since it will be their duty to check in and record their tasks to ensure they get paid, just like any other employee.
4. Have regular “meetings.”
Once a week, sit down with your child to go over their completed tasks and determine how much have earned that week.
You also want to make sure that you are revisiting the task list every month or every quarter to keep your children engaged in the process.
5. Add insurance.
As they get older, you’ll want to start teaching your kids how to prepare for rainy day situations. Will they still get paid if they are sick or injured? What about if you’re on vacation?
Around 12 years old, start implementing “insurance.” Withhold 2-5 percent of their weekly earnings, invest it in a money market account, and let that money accumulate for them. Then, if your kid breaks their leg during soccer, they can still get paid with money that they actually earned.
This also incentivizes your child to have as many revenue sources as possible and adapt - even though they might not be able to do the dishes with a broken leg, they sure can fold the laundry.
6. Add leverage.
In your child’s mid to late teens, teach them to use their entrepreneurial skills to raise the stakes.
Maybe they start shoveling snow for revenue outside of the house. In a place like where we live - South Lake Tahoe, NV - this can quickly grow into a business where your child is actually outsourcing work.
Your child will learn how to value their time and labor, as well as that of others.
At the crux of all of this is the effort YOU put into this process, not only to teach it to your children, but also to live this life for yourself. Money habits are passed down, and the only way to really pass on wealth is to pass on a wealth mentality.
If you want to learn more about how to train your children to be financially literate, listen to my Real Money Talks podcast episode, "Why You Should Never Give Your Kids An Allowance." Be sure to subscribe, rate and review on your favorite podcast app!
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