Creating Opportunities to Work with Money

Our core beliefs and value systems about money often get established well before we are making any money decisions of our own. We’re essentially watching and learning more than we let on.

But the secondary or intermediate tier of beliefs about money, the ones directly above those core beliefs, are created by having a chance to experience money. To earn it, save it, spend it, and have general decision-making power over it. And it’s in these experiences where a lot of our daily money behaviors and habits will start to get established.

But in a society that doesn’t create a lot of natural ways for kids to have their own experiences with money, it’s very important that you spend some time creating and supporting these types of opportunities and thinking through the underlying messaging of what they are communicating.

There’s no right way to set up a system to teach kids about money, because the way you set up these experiences depends a lot on what you want your kids to learn. It should also lean into their natural interests and curiosities. So, we will cover a lot of ideas and examples here, not all of which will necessarily be right for every kid.

The point here is not that this is a comprehensive list of examples, it’s that every parent or caregiver focus on finding as many ways as possible to give their kids regular opportunities to experience each of these essential money activities in a way that is in alignment with the core money values you are hoping to teach them. These four primary money experiences are: Budgeting and Spending, Earning, Saving, and Borrowing.

Budgeting and Spending:

This is probably the first of the developmentally appropriate money experiences to introduce kids to, even before they really have the wherewithal to earn and manage their own money. The only thing that’s really a prerequisite to understand basic budgeting is basic number sense and a concept of more or less than a certain amount. And once kids can add up small amounts, you can add even more depth to these types of activities. So, kids of 4 or 5 years are often developmentally ready to understand basic budgeting around small items, and they usually also have wants that require money. These might just be snacks at the grocery store, or a new toy, or an item from the ice cream truck, but they are still good opportunities to help kids learn about how money works.

Before money comes into play, we can start with the idea of basic tradeoffs. Like letting kids know while we’re at the grocery store that we’re only buying one afterschool snack for the week and allowing them to choose between the two things that they might want for after school snacks this week. Then later, it’s easy transition into: We have this many dollars to spend on after school snacks for the week, so you can pick a combination of items within that budget. Since you’ve already created a sense of choice-making between items, even before kids understand how much money is involved, adding this “budget” to buy from can feel actually feel freeing and exciting because you’ve added choice and flexibility to their decision.

In general – regardless of what values you are trying to teach your kids about money, when it comes to buying things for your kids vs. giving them a budget of funds to make spending decisions for themselves, as early as possible and whenever possible, give them a budget and let them make their own spending decisions about things that they care about.

The caveat here is that many kids don’t develop a sense of time-delayed consequences until they are in first or second grade. So, when presenting tradeoff decisions, start with tradeoffs that are immediate, rather than time separated. Then gradually, as kids start to become developmentally ready for time-delayed tradeoffs, start to introduce spending tradeoffs that are first separated by short amounts of time (like an hour or two) and work up to longer periods of time. Child-development is not a perfect science, and different kids hit these markers at different times, so pay attention to your individual kids’ abilities to understand the idea of delayed vs. immediate consequences as a guide for when to introduce spending tradeoffs that may not all happen in the same moment or setting.

This idea of a budget for a specific choice is different than a generalized allowance for chores, which is a concept we’ll discuss in the earnings section. This is more about all the times that parents buy things for kids, where the decision-making about those dollars and how they are spent could actually be shifted to the kid in a way that starts to build a sense of spending within a fixed dollar amount.

As a financial advisor, I can tell you that the single skill that most adults who struggle with money lack is the ability make tradeoff decisions about spending based on a fixed amount that’s available to them. And many struggle with this because they simply never had an opportunity to practice it when they were young. They never realize that what they buy is dependent on the amount of money available to them and therefore tend to overspend what they have because they simply lack the structural sense of: Here’s what I have, that dictates what I can afford to purchase.

So, if you usually buy school supplies for your kids each year, instead try to figure out a rough estimate of what those supplies will cost, then give them a fixed dollar amount to spend. And bonus for them if their older cousins or siblings have old notebooks or binders or backpacks that they can use, or if the school library has calculators they can check out, and they decide they want to save some of their school supply money by using those old items. Or maybe they decide to buy a nicer backpack because they checked out a calculator from the library. But let them make those decisions (with some parameters in place, like – they must end up with all the supplies on the list and they can buy them or borrow them, but they can’t steal them.)

This activity is so translatable as kids get older – it may start with snacks at the grocery store, but it can move to school supplies, school clothes, or activity budgets for teenage kids who may have a lot of interests and things they want to do. The point is not that you should or should not help your kids pay for things, because parents all do that to a varying extent, and you will need to set your own parameters around what you provide vs. what you ask them to earn. The point is to look for opportunities where you can take the budgeting and decision-making out of your hands and put it into theirs.

You can help them by showing them their options for less expensive ways to do things along the way, but you still need to let them make their own decisions. If you have one kid who wants to spend all their school supply money (and add in a little of their own) just to have the nicest school supplies, and another who wants to reuse everything from last year so they can save their school supply money, that’s okay, as long as they’re both learning that they have a fixed amount to work with, and if they spend less than that, it’s theirs to keep, and if they want more than that, they need to go out and earn it. 

I’ve met so many adults who think budgeting is about the fanciest spreadsheets or the most elaborate plans. But the reality is, budgeting is a behavior, not an organizational system. It’s a habitual, unwavering approach to saying, “I have this much to allot to this thing, and I’m not going to spend more than that.” And the right time to teach that behavior is in childhood.

Earning:

You can teach kids about budgeting and money-tradeoffs even before they have a reasonable way to start earning money. But earning becomes a natural next step once kids start to think about budgeting and spending, so as a parent, you should be ready for this. In fact, if you introduce budgeting and spending tradeoffs at a young age, you will generally not have to introduce the concept of earning to kids, they will start to ask about it.

Curiosity about earning naturally emerges from budgeting and spending when there’s not quite enough in a budget to meet the desired outcome, so it’s essential to create at least some sense of scarcity for kids to start to wonder how they can alleviate it. But it’s also critical to have a plan to take advantage of this curiosity and natural developmental tendency kids will have to ask, “if you want me to use my own money, how do I make it?” or “If that’s the budget you’re giving me, what can I do if I’d like to spend or save more?”

I think the problem many parents run into with earning is that they either never create that sense of scarcity in their kids (which makes kids kind of resentful of working for money, since they don’t really feel any need or want for it), or they miss the window of curiosity when it arises because they haven’t thought through the ways to create opportunities for their kids to earn (which is what makes budgets feel stressful and restrictive because there’s no way to increase them by earning more.)

It can feel hard for parents to find ways to help create authentic earning experiences for their young kids, which is why I think this deserves some forethought and preparation, so that when the desire to earn emerges in kids, you’ve planned for how to meet it.

Is allowance the best way for kids to earn?

I get this question a lot, and I am not necessarily for or against a weekly allowance, but you should ask yourself if a weekly allowance is in support of or in conflict with the money and life values you are hoping to instill in your kids. It can backfire by making kids feel like the only reason they contribute around the house is because they are given an allowance, which makes all household contributions transactional. It can also, if introduced before there is a want or desire to earn money, make kids feel resentful towards that work or contribution, because the “reward” of the allowance doesn’t mean anything if the interest in or need for earning hasn’t yet emerged. And finally, it can result in the work feeling very disconnected from the allowance itself, especially for kids who haven’t developed a sense of time-delayed consequences yet. What I’d generally encourage is, don’t let allowance be a default option for earning. Think through if it really accomplishes what you want in terms of helping your kids establish the core money values you want them to have, and if it doesn’t, think outside of that box.

Even if a weekly allowance isn’t the answer, at a young age, parents are often going to be the (or one of the) primary sources of an earned income for kids, so you’ll want to think of how else you might set that system up.

For example, you could expect that kids do certain household tasks without any sort of financial compensation – often these are items related to keeping the day-to-day household functioning and they change as kids get older and are able to do more. Once these are complete, though, you might offer additional chores or work that can be done for direct compensation at a per chore or per hour rate. These are not required by anyone, but they are open to everyone with an interest in earning (and especially for younger kids, consider making the payment for these immediate, rather than once per week).

If you don’t have the means to pay your kids directly (and even if you do, it’s a good idea to start transitioning out of that role as soon as you can), supporting them and scaffolding work outside of the house and the family is important. I really think that by 7 or 8, kids can be looking for small, outside of the house ways to earn some money, but there’s no doubt that they’ll need to be supported as they first venture into this. Even if a kid is not ready to feed the neighbor’s cat, water their plants, or pick up their mail without your supervision, you can help start kids down this path of looking for ways to earn at a young age by allowing them to take on an outside job for pay, and going with them while they do it.

I’ve also heard parents say they don’t want their kids to have to work when they should just be able to enjoy being kids. But work is a natural and developmentally appropriate part of the growing up process, even at a young age. It not only provides a sense of purpose and contribution, but when tied to earning, it helps feel kids empowered about money, which is an invaluable mindset to take into adulthood.

What about incentivizing good grades or high performance with a financial reward?

This is another question I get a lot, and although there are some people with strong opinions about this, like an allowance, I’m not entirely for or against this. But I do think it’s worth considering how these incentives foster the overall mindsets you want kids to develop as they are growing up.

The reason I’m not against it is that it mimics normal adult money-structures. Not uncommonly, when we perform well at work, we are rewarded with bonuses, promotions, or raises. But like allowances, I think this is an easy one to get lazy about or just follow the herd on, without really thinking through whether it supports the core-values you hope to instill, and if not, whether it could be modified so that it works better.

For example, I’ve seen parents take the approach of: B’s and C’s are expected grades, A’s are worth a reward. But this can get tricky with multiple kids in a family because if you have one kid who easily picks up straight A’s, while another struggles to get C’s, this type of system may end up feeling very unfair, or may end up leaving the C student feeling pretty helpless to take much agency in their situation, while the A student barely puts any effort into earning the reward.

An alternative might be to incentivize improvement or a focus on what is difficult for each of your kids to achieve. For example, at the beginning of each year, it might be worth sitting down with each of your kids, figuring out what their biggest challenge is that they are facing, and setting a goal and some meaningful daily habits they can add to improve their performance. You can decide whether it’s the allegiance to the action steps or the attainment of the goal that matters to earn the incentive (or perhaps, a bit of each). In this way every kid is set up to be rewarded for improving in an area they are previously struggling in, so that each kid must work hard at something to receive the reward.

Saving:

How to save and the expectation of saving some of what is earned, is important to introduce as soon as money starts coming in. Ideally, when they’re kids, most money should be earned to fuel whatever gets them interested in earning money. Asking a 5-year-old to save for college when their sense of next week is not real concrete can end up really driving down their enthusiasm about earning and saving.

So, when we’re showing kids how to save, it typically works better just to think of it as an expected behavior, rather than “for a specific reason.” If saving 20% of one’s earnings is just taught as “what people do before they decide how much they have left to spend,” then it eventually becomes as habitual as brushing one’s teeth or picking up one’s toys. Savings can start with a piggy bank or a savings jar, which is very concrete, and then move to a custodial high yield savings account where kids can earn a little interest on their savings once they have developed a better sense of abstraction.

Some basic parameters around spending their savings are helpful for kids to learn the types of savings behaviors that will help them as adults, like building and keeping a baseline savings amount in their account that they shouldn’t drop below.

It’s good for kids to get used to the idea that the money in their savings account that is available to spend is only the amount above that baseline, even if that baseline is low. It’s not really about the amount, it’s about building the sense that just because I have $_____ in savings, doesn’t mean I should spend it all.

So maybe a 6 year old is asked to start with a baseline savings amount of $25, and gradually, this is worked up, by maybe $25 each year, so that if they started with a savings baseline of $25 at 6 years old, by 10 they’d consider $100 their baseline, and by 14 they wouldn’t want to draw their savings down below $200. There’s no right number here because a kid who has very little may need to start with a much lower baseline than one who has more. The point is not the amount so much as it learning the behavior of not spending accounts down to $0.

Beyond these two basic savings behaviors, parents may want to incentivize higher rates of savings, when financially feasible, either through matching, or parental buy-in to paying for goals. Because ideally, you want kids to feel a sense that savings is just a part of earning, AND also build a sense of opportunity and eagerness around building their savings—a way to work for and get to something they want.

Some parents do this by matching a certain additional percentage of what kids put into general savings, while others do it by establishing “buy-in” amounts that kids need to save to collectively make up what is needed to cover the cost of something they might want to do. For example, a kid who wants to attend a week long overnight summer camp or play on a high-cost sports team can be made aware of what that cost is and asked to earn and save for a certain percentage of that cost, with the parents being willing to pay for the rest, so long as the kids saves up for their part. The issue here is not whether the parents need the kid’s financial contribution, it’s the importance of establishing buy-in from the kid AND a strong sense of “I want to do this thing; therefore I need to think about and save up for it in advance,” and then getting the sense of reward from working to earn the experience or item they’ve been working towards.

In the previous post, I also mentioned that I think parents should model this behavior when saving up for family costs even before kids can save up for their own items and adventures. And I want to reiterate that here. If a kid sees their parents practicing this when they’re working to take a family trip to a baseball game or to Disneyland, it will be a much more natural behavior to introduce to kids when the time comes.

You may actually already have plenty of funds for those activities, but kids that grow up used to vacations and other extras, without ever witnessing and experiencing what it takes to save for those tend to be adults who don’t save well but still expect the extras, often leading to financially destructive behaviors like using credit card debt to pay for things like vacations. Show your kids that you are committed to savings as well. This isn’t just an expectation you have of them, it’s one you are also practicing yourself.

Borrowing:

This one may be a bit controversial in terms of its presence on the list of essentials, and I certainly think it belongs a bit later in the developmental timeline than budgeting, earning, and saving because kids have to understand time-delayed consequences to really understand and learn from borrowing experiences.  But borrowing, and how to do it responsibly, is an important money skill, and one that parents too often leave up to the very unforgiving outside world to teach their kids about.

Offers of debt are everywhere… from the minute kids turn 18 they can take out HUGE sums of money to go to the school they want, purchase a vehicle, and just buy things on a credit card. Your kids need opportunities to learn about debt and borrowing before these extremely high stakes situations create problems that can feel impossible to dig out of. They not only need experience borrowing, but also help deciphering what kind of debt might be worthwhile to take on, vs. what type of debt is to be avoided at all costs.

As parents I think it’s worth considering and discussing ahead of time what types of situations you might be interested in lending your kids money for. For example – it might make sense to lend them funds to purchase a mode of transportation or a piece of equipment that could allow them to work to earn the funds to payoff the debt (like a bike, a car, or a lawn mower). There are also times when it might make sense to lend them funds for things that are not an investment in their income (but in small amounts), so they can experience what it feels like to have to pay off something even after the enjoyment of the item or experience itself is long past. Sometimes, small lessons in buyer’s remorse, especially where debt is concerned, can have big impacts, as long as they are supplemented with conversations to help kids process their feelings, and make the connections you are wanting them to make.

The bottom line though is kids need experience with debt. Those who enter adulthood with no knowledge of both the good and bad ways to take debt on, enter adult life with a huge disadvantage. Debt is everywhere, and while you want to teach kids to be cautious and thoughtful about it, you also don’t want to teach them to be afraid of it, because certain things, like home-buying, in this day and age, nearly always require a person to borrow. So, the goal is to help your kids become experienced and educated borrowers, to help them do simple math to figure out what they can reasonably afford to pay back and on what timeline, before the stakes are so high that a wrong decision can take years off of their financial lives and progress.

Tying It back to Core Value Systems and Kid’s Personalities:

No financial education program is complete without experiential learning opportunities that teach spending and budgeting, earning, saving, and borrowing. These actions are too fundamental to our economy for anyone to avoid them, and the more opportunities you create for your kids to practice these, the more comfortable and fluent they will be with them as adults.

The hope is that the above examples give you some ideas for starting points, but I would return to what I said my previous post: all parents have different core values that they want kids to learn about money, and each time you work to design and implement experiences for your kids about money, you should be circling back to those:

  • How does this help our kid learn _____________________?
  • What are the strengths and pitfalls of this experience when it comes to those core values?
  • Is there any learning here that might directly contradict some of those values we are trying to teach?
  • If so, how could we structure this opportunity differently, so it helps bring home those key ideas and core values?

And remember that kids are different. You might have one kid that is eager to save and watch funds accumulate and takes to it so naturally that there isn’t really much incentivizing that needs to be done – you just help them set up the savings account and watch them go, while another might be a hard worker and a great earner and also a big spender, and a third may have a big appetite towards enterprise and investment but may also take poorly thought out risks.

It’s important to not consider one of these better than the other. The first kid might need more support and experience spending and taking some risk with investments to position money to grow. The second kid might need a bit more of a push from you around savings, and a bit more focus on the potential pitfalls of credit card debt. And the third kid might need a bit more work on how to correctly evaluate, plan, and buffer for risk. But they’re all bringing strengths to the table, and it’s your job to help them hone those strengths into a strong, grounded money identity by giving them as many opportunities as you can to practice with it.

Let them Fail:

The ENTIRE point of experiential learning is for kids to start building on the core money values you’re modeling for them with experiences of their own, as early as possible. And, while the goal is to help them build a sense of empowerment around money and navigating it as they grow up, you also need to let them make their own decisions (within the reasonable parameters you set) and let them fail.

A kid who consistently overspends needs to experience going without due to the spending choices that they made. If you bail them out or just stop letting them make decisions about money because you think they aren’t good at it, it may alleviate a short-term pain point, but it will absolutely create a longer-term problem. Letting kids make and feel the pain of their financial mistakes when the stakes are low (and helping them understand the connection between their predicament and their choices) is the only way for them to learn to make better choices.

So, as you help build and look for opportunities to give your kids access to money and the decisions that come with it, don’t be afraid to let them blow their spending money on something frivolous or take a job that pays them a less than it might be worth. There are valuable lessons to be learned there. Support them through navigating their challenging feelings about their choices (avoid taking an “I told you so” approach and focus more on what they could do differently next time), but don’t just give them more money or buy the thing for them or let them back out of a job they’ve committed to. The goal of experiential learning is to let your kids have the full range of experiences related to money, so they learn how to navigate them and eventually become strong, independent decision makers, and that full range includes failure and disappointment.

Beyond the Big 4:

It’s my opinion that you can’t teach money without the basic 4 topics covered above. But that’s a foundational list – a starting point. As kids become more proficient with their money, and have more experiences with it, you want to consider what additional money-behaviors will continue to support the growth of a strong, value-centered, money identity.

These will depend on the values you are hoping to instill in kids about money. But once your kids are starting to develop a baseline proficiency in budgeting and spending, earning, saving, and borrowing, consider what other types of experiences and opportunities you might want to cultivate for them to make their core money values and identity even more robust going into adulthood. Things like intentional giving, investing, lending, and negotiating are all potential topics to take on around money.

And while you may want to lean into what you think is important, also consider what might motivate your individual kids and let their interests guide them. After all, building strong resilient financial adults is, in part about building adults who “lean-in” where money is concerned, and leaning in is easier when you are interested.