Advice On How To Raise Financially Savvy Kids

CNN asks some money experts for tips on how to teach kids about personal finance. Laura Levine, the executive director of Jump$tart Coalition for Personal Financial Literacy, says she uses a special piggy bank for her 3-year-old son—it has four chambers, “one for saving, one for spending, one for donating and one for investing,” and helps teach him that money is not just for “one thing.”

Other tips are a little more traditional, like have your kid write down everything he spends money on, or save his allowance for a special purchase, or—and this is probably the biggest stumbling block—lead by example:

Parents can help with the basics, but a lot of them also lack financial education, Levine said. She added that where parents can be very helpful is in giving their kids their first lesson about money.
 
There are concerns that parents aren’t setting a good example for kids. The national savings rate has declined since 2001.
 
“Today’s kids, just like their parents, are coming up in a spending culture,” Levine said.
 
The most important thing for a parent is to make sure that their child’s first savings experience is a successful one, she said. Too many people try to get their kids to save for things that are too far into the future or too big. For a young child, saving for next year is an eternity, she said. If the goal is intangible, the money will seem lost to the child.

 
“How to raise financially savvy kids” [CNN]
(Photo: Getty)

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  1. Copper says:

    Too many people try to get their kids to save for things that are too far into the future or too big.

    That is the best advice, IMO. My mom used to make me work all summer to save up for my car insurance. It’s good to make kids pay for things, but when I worked and didn’t actually get to see ANY of my money, it made me kind of sad. I also didn’t feel like working.

  2. mgy says:

    I would really hate to save up for my entire life only to keel over in some supermarket aisle before I could spend it.

  3. Xkeeper says:

    @Copper: Yes, it’s an excellent point.

    All of my money wasted away in a bank account for years because I couldn’t touch a dime of it.

    Now that I’ve moved out and got a job (after that money was spent moving a thousand miles away), I just save some every month with small goals in mind that, once I reach that point, decide to move on to the next “big thing”; i.e., I could buy a new desktop PC for $499… or I could save some more and buy a cheap car, or a little more and perhaps a better car and a new computer.

    A decent way to show this to kids is with arcade prize tickets. You can either use the 10 you just got on some candy, or save them over a week or several and get some (similarly cheap but ultimately more impressive) mini-radio or alarm clock or something.

  4. ChuckECheese says:

    Dreadful–giving a 3-year old a four-chambered bank. The kid probably can’t even count to four, let alone manage four accounts. Does Ms Levine dun her son for binkys and pull-up pants too?

    Just as an aside, I’m kinda surprised somebody named Laura Levine is using a piggy bank, you know what I mean? Really–who’re ya gonna get to shecht that bank when it’s time to cash in?

    /Reformed

  5. bjarmson says:

    Idiocy. 3 year olds don’t need to learn how to invest. They need to learn how to become tolerant and socialized, not economic theory.

  6. TheSpatulaOfLove says:

    The four-chamber piggy bank is a bit much for a 3 year old to conceptualize, IMHO.

    My 3 year old understands that I have to pay for things with money, and the money I give to him goes into his bank. I try to keep him involved in transactions that directly relate to him, such as buying clothes, food, treats, etc. When his piggy bank fills up, he’s taken to the bank to deposit it and we make a big deal about how much he’s saved.

    I also show him that doing work yields him money. I put a few bucks into his Lightning McQueen wallet when he’s done his chores around the house, and explain to him that is his paycheck. Since I telecommute for my job, he sometimes struggles to understand that during the day I cannot play and need to work to earn the money. Giving him a paycheck like this has helped keep my sanity when I have to shoo him away during conference calls and puts it into perspective for him.

    Recently, I introduced the concept of spending ‘his own money’ with trips to the ice cream shop. Mostly, we make him put his money in his piggy bank, but I think he was failing to realize that daddy and mommy always have money for treats. I’m trying to curb that attitude by making him pay, so out comes the McQueen wallet and we count out the asked amount. We’re making progress, but he tends to be overly generous with his money and never seems to want the change back. ;)

    Right now, teaching money isn’t a difficult task, but I’m very interested in teaching him how to be money smart and maintaining that throughout his childhood. Unfortunately, I had to learn these lessons the hard way, as my parents mostly live paycheck to paycheck which is how I spent my early to mid 20s living. If anything, the one thing outside of being a good person that I want to teach my kids, is to be slick with money. The article has some good advice, and some far-reaching, but I’d love to hear from Consumerist readerst their tips on how to raise financially savvy kids.

  7. ChuckECheese says:

    @mgy: And what would be even worse is if your penurious life expired in that aisle before you made it to 8 years old.

  8. sam1am says:

    Here’s a fine tip: don’t buy your kids every thing they want, and make them work for at least some of the stuff you do get them.

    That, in my opinion, is the best way to teach them to spend wisely and appreciate their property.

    Spoiled kids lead to wasteful spenders.

  9. mac-phisto says:

    i think the most important thing (in regards to financial matters) is instilling value. it’s not enough to teach kids how to save & how to spend less than they earn – you have to teach them to make rational choices.

    & imho, the best way to teach this is with a hobby. whether it’s models, art, music, fishing, reading – kids learn the value of taking care of things they care about.

    once a “value” has been established, money can be integrated into the equation to show comparative value.

    money is a very complex concept – even for adults. i think it’s important not to force the idea on a child too early, or it may result in unintended consequences.

  10. FreeMarketGravy says:

    @mac-phisto: I agree. This article, while well intentioned, is putting the buggy before the horse. Wait until a kid fully understands that money can be exchanged for goods and services before you try teaching them to exchange it responsibly.

  11. Angryrider says:

    Give them a small allowance, only enough to buy a piece of candy. If there’s anything he wants, he’ll have to save up.
    Actually, now that I think about it, tough love is all you need.

  12. Womblebug says:

    I think the single most important thing you can do is set a good example. If you go out and spend money you don’t have, buy impulse items, use shopping as therapy, etc., it doesn’t matter how many chambers the kid’s piggy bank has. Sure, as the kid gets older, you explain things, and encourage (enforce) good habits, but it starts with the parents and what they do.

  13. pmathews says:

    The best way to teach a child is to reinforce everything you say with a good backhand…what!? Why’s everybody gawking?!? No? Well…whatever.

  14. chrisjames says:

    I don’t think she’s trying to teach the 3 year old the finer points of handling money. I think she’s trying to set a precedent in her son so that he’ll pick it up faster later on, maybe in his teens. Kids don’t latch on to the intricacies, but they’ll recognize the abstract, and if that’s reinforced long enough it turns into almost a way of life for them when their older, if not just a habitual practice.

    Levine’s approach and the other advice seem to miss a critical point, which is that money has to come from somewhere. It’s not just about how you spend it, but about how you make it. What is a savings account to a kid but delayed spending? My children will be learning, if I can manage it, that the value of a dollar comes from earning it, not receiving it nor how it’s spent. Like my 5th grade Spanish teacher told his class, “As soon as my daughter has the strength for it, she’ll be out mowing my lawn.”

  15. rioja951 - Why, oh why must I be assigned to the vehicle maintenance when my specialty is demolitions? says:

    Tough love indeed, thats how I learned to handle money…

    Well that and my limited paycheck in my first job, THAT was a mayor course in inexpensive life and showed me about the wonders of public transportation.

  16. Small problem: about 1% of Americans are qualified to make their own financial decisions, to say nothing of their children.

    Personal finance needs to be taught in schools. Music is great, art is wonderful, and I’m a huge fan of history but how is the immediate, far-reaching impact of finance not a priority in the public school system? One would think that kids would be interested and society would be served by making finance classes compulsory.

    Of course, we’re funding the school system with crushing debt, so it’s not like the government is qualified to teach this stuff either.

  17. BigElectricCat says:

    @ADismalScience:

    DINGDINGDINGDINGDINGDING!!!

    We have a winner!

  18. descend says:

    And then there are people like this:
    [bitchphd.blogspot.com]

  19. EWGF says:

    @descend:

    “We are legion”?

    This is a joke right?

  20. savvy9999 says:

    first start is to have a savvy username on Gawker.

    Then your kids will be automatically savvy too. In everything.

  21. anatak says:

    I’ve never liked that ‘4-chaimber piggy bank’. Investing is a bit tough for a kid using a piggy bank to grasp. What is really important is teaching your kids values. Where money comes from (work). The importance of giving. Why we save money.

  22. @ADismalScience: Illinois is a mandatory consumer ed state. It was excruciatingly dull and we don’t have markedly better educated consumers than states without consumer ed.

    @TheSpatulaOfLove: My parents were generally good financial educators, but I wish they had discussed the FAMILY budget with me as well. I was raised that adults worry about the family money, and while there is a real security to that, when I went out on my own I had a lot of money skills, but not the ones relating to household management, and it was confusing and scary for me to figure it out.

  23. mac-phisto says:

    @ADismalScience:

    Of course, we’re funding the school system with crushing debt, so it’s not like the government is qualified to teach this stuff either.

    how so? my town’s public school is financed thru local & state budgets (& we’re currently running balanced or surplus budgets in connecticut).

    i assume you’re speaking of federal education dollars, which quite frankly make up <10% of school budgets. federal dollars typically only pay for special programs (like title i) & some schools are rejecting federal money altogether b/c the cost of compliance is often much higher than what the feds pony up.

  24. mac-phisto says:

    @Eyebrows McGee: good points. my sister is teaching science in north carolina, where there is an emphasis on (what i’ll call b/c i don’t know the actual term) “team teaching”. basically, all the teachers of a specific class work to tie their curriculum together so that it becomes more meaningful. “consumer education” would fall into the category of a secondary skillset that is taught thru meshing the curriculum of the main subjects.

    recently, her class with this site —> [www.donorschoose.org] to generate donations for classroom materials for her class & others around the country.

    & opening up finances in the home is very important. money is often more difficult for parents to communicate about with their kids than sex.

  25. @mac-phisto:

    Virtually every state of the union is only solvent due to significant federal grants of a general nature. California is one of the worst offenders. Look up “Federal Operating Grants” to get the grim picture.

  26. @mac-phisto: I donated harmonicas to a school in South Carolina via donorschoose.org in honor of my husband’s 30th birthday. (His late grandfather taught him to play harmonica when he was tiny.) It was one of his favorite presents ever and he has the goofy thank-you notes from the kids pinned up where he can see them at wrok.

  27. aggie_brad says:

    I would say a Finance course in college is key. Also, make them start saving when they get their first job.

  28. G_L says:

    I LOL’ed at the picture. :)

  29. MARTHA__JONES says:

    I know how NOT to educate your kids about finances…

    yesterday I spoke to a woman who was angry with my company because we allowed her 18 yr old offspring apply for a credit card since he doesn’t have a job.

    That’s my company’s fault, right?