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Being a kid is tough.
No really, it is.
Think about it. Imagine if your boss told you to “quit it”, “don’t touch that”, “come here…now…I’m not going to tell you again”.
It’s enough to make even the most self-controlled child lose their marbles.
The life of a kid is chalk full of rules. Rules designed not to make their lives difficult, contrary to what they may believe. No, the reason parents put boundaries in place for their children is to protect them from doing things that could hurt them, make their lives miserable, or hold them back from reaching their full potential.
And just like rules for kids are necessary for life in general, they are CRITICAL when it comes to teaching our kids about money.
When parents don’t teach their kids foundational money rules, they hamstring them and make it far more difficult for them to find financial success. But when they do pass these rules on, they set their kids up to both CRUSH their money and their lives.
A Word Of Caution
When it comes to passing on money rules for kids, there can be a temptation to try to teach them everything under the sun all at once.
As a teacher, I know this approach doesn’t work. Just like you can’t drink very well from a fire hydrant, kids can feel overwhelmed when we try to teach them everything we’ve learned about money over a lifetime in a 30 minute sit-down lecture. It just doesn’t work.
Keep that in mind as we move through these 9 money rules for kids.
The knowledge in these rules is best passed down using everyday teachable moments where you not only teach your kids about money but about life.
1. In order to have money you need to work
This is one of the most critical money rules for kids to grasp. Early on kids need to make the connection between work and earning money. If they don’t, and they have too much freely handed to them without having to put their nose to the grindstone and sweat it out, entitlement can quickly creep in.
How to teach it? Set up a chore chart for your kids
The one we use (pictured below) is pretty simple. Every week we pay our daughter “commissions” based on the work she’s done.
No work, no pay. It’s pretty simple.
2. There is a difference between needs and wants
“Mom, I need a new pair of shoes for back to school!” “Dad, I need a new pair of jeans.” (says the child as they rifle through their drawer piled high with jeans. “Honey, I need a new putter. Mine is really old and all my friends have gotten new ones!”
“Dear, I need a pair of black leggings.” (“How is that possible?”, the husband thinks. “Our house is LITERALLY overrun by black Lululemons.”)
Really? These are all NEEDS??
Clearly, adults aren’t immune to mistaking wants for needs.
But if we want the next generation to be better, to be less consumer-oriented than ourselves, to have their spending under control and to avoid the debt this generation is drowning in, this is one of the most important money rules for kids to learn.
How to teach it? Watch your words
The words we use with our kids matter. They reveal what we believe is true. If we’re constantly saying we need this, or we need that, well it can begin to seem like we really DO need these things. And, it won’t be long until junior is using the same lingo.
So keep a tight rein on your tongue and be aware of when your kids say they NEED something but it’s really a WANT. And if either of you does misspeak, use it as a jumping-off point for a conversation about the difference between a need and a want.
3. Before you spend or save, you need to give
In our me-first culture where spending often happens mindlessly and saving is held up as one of the highest financial virtures, giving is often an afterthought. Read most personal finance blogs and they HEAVILY emphasize controlling spending and investing wisely, but you’d be hard-pressed to find much more than a few cursory posts on giving.
But giving is one of the most critical money rules for kids, and not just for altruistic reasons.
Studies have demonstrated that those who give or even just THINK about giving, experience better health and more happiness in their lives.
Not only that but giving generously allows people to break the constant financial anxiety that many experience.
How to teach it? The Give Jar
In our house, right after we pay out the weekly commissions to our daughter, she puts her money into three jars. Give, Save, and Spend, in that order.
We’re teaching her that before she saves or spends, the first thing she needs to do with her money is to give.
And when she finds a charity that she wants to donate to, we take the money in the jar and give it away. Just this last weekend there was a local student who was raising money for a children’s hospital in town at his lemonade stand. Gemma took the money from her give jar, mosied on over to the lemonade stand and got a cool drink and some cookies to support kids who are struggling with illness.
Making the connection between her giving her money and it being used to help someone is important for us. We want her to know that whether she gives her money or her time, she can have a real impact when generosity is an important part of her life.
4. After giving, saving comes next
Next to giving, saving is the most important thing kids need to do with their money.
Not only is saving a ton one of the keys to winning with money, as a kid, it has some MASSIVE benefits.
Sure, they could blow their money on candy, soda, and other little treats. Or…they could sock that money away and buy something truly KILLER that they’ve been eyeing for months or years.
How to teach it? Make the long-view come alive
Use this object lesson with your kids.
Go out and buy a smorgasbord of whatever little items your child is often spending their cash on. It could be candy, Pokemon cards, or Shopkins, whatever. Aim for about 10 bucks worth so you don’t break the bank. Make sure it includes your kid’s favs.
Wrap it up and make it look nice.
Then go online and find a picture of whatever item they’ve been dying to buy but haven’t had the money for. Maybe it’s a bike, a new video game system or a toy they’ve been mentioning. Print it off, drop it in a box and wrap it up too.
Then tell them you’ve got something you want to give them. They’ll be stunned when you bring in the wrapped gifts and be chomping at the bit to tear into the presents.
Explain that there are two gifts and they get to choose which one they want to keep.
If they’re like your average kid, they’ll be pumped by the candy and Pokemon cards. But they’ll be absolutely JACKED UP about the bike and definitely choose to keep it!
Explain that they can either use their money to buy a year’s supply of candy and not get the bike, or they can choose to skip the smaller treats and keep the bike. And add that if they choose to save for the bike, you’ll add a certain amount of money to their savings each month so they’ll reach their goal even faster. (By doing this you can open up the door for a conversation about investing and the power of interest).
Then let them pick.
If they choose wisely, reinforce their decision with the “interest” payments and encouragement.
If they don’t, let them fully experience the disappointment of falling prey to immediate gratification. Make sure the $10 a month goes towards buying the smaller treat.
Don’t rescue them by giving them a lump sum of cash towards the bike they wished they had chosen. Rather, let it be a jumping-off point for a great conversation about how this money rule for kids can reap lasting benefits
5. We spend last (Spend less than you make)
This one is pretty simple. After you’ve given and saved, whatever’s leftover is free to spend. If there’s lots of money leftover to do and buy everything they want, awesome! Feel free to encourage your kid to spend on whatever appropriate item they choose.
More likely though, there won’t be enough to meet every want they have.
In this case, there are two options: work to earn more cash, or adjust their spending to waste less so they can buy more of what they truly want.
How to teach it? The family that budgets together, spend less than they make together
The next time you sit down to do the family budget, involve your kids and make it a family affair. Place the family’s favorite pie or dessert in the middle of the table. Tell your kids that the pie is all the money the family makes each month.
First cut out a section for taxes, around a quarter or so depending on where you live and how much you make.
Next, remove slices for giving (around 10%) and saving (aim for 15%).
Explain that the money remaining has to cover all of the families NEEDS first. Cut out slices for food, water, electricity, etc. Unless you’ve got a kid who’s a budding economist, no one is going to call you on the correct size of these slices so don’t stress about it.
Explain to your kids that the small piece remaining is for all the family’s WANTS.
The power of this object lesson is in the fact that kids can see in a concrete way why spending needs to come last. If you spent first, you wouldn’t have money for taxes (hello jail), giving (stingy people are miserable) or their needs (how about living in a cardboard box for Christmas instead of that new Xbox?).
They can see how the sliver of pie remaining won’t allow them to have all of their wants.
This leads beautifully into a conversation about choices, and how as a family you prioritize each members’ wants.
And, as they grow in their handling of money, they’ll have to do the same.
6. Money doesn’t grow on trees, but you can always get more (abundance vs. poverty mindset)
Yes, money doesn’t grow on trees. It’s a finite resource. But that doesn’t mean you can’t get more of it.
Let me explain.
When it comes to money, there are two mindsets: one of scarcity and one of abundance.
The scarcity mindset says that there’s only so much to go around, or that others have an unfair advantage to get more than you’ll ever hope to. It looks at money as being finite. Which it is.
But an abundance mindset says that you can always get more.
Money will eventually run out if it’s not replenished. If I don’t go to work, my bank account will eventually hit zero. It’s a cold hard truth that kids need to grasp.
But if it does hit zero, or if my funds are running so low that I’m unable to meet my needs or indulge in some of my wants, there are things I can do to change this.
I have two options: I can spend less on other things to free up some extra cash, or…I can work to make more money!
With an abundance mindset, there are always options when it comes to finding money to do the things you want. People with a scarcity mindset, on the other hand, feel like there’s not only never enough, there’s no way to get more.
How to teach it? Watch your words
All kids naturally start life with a scarcity mindset. It’s innate.
Whether they lose their mind when they don’t get food the moment they’re hungry or they cry like it’s the end of the world when asked to share a toy, kids live in a Walking Dead world, where hoarding and stockpiling are the favored survival methods (and the sleep-deprived parents are the zombies).
But they don’t have to stay stuck in a scarcity mindset. And you can help.
Language matters around your kids.
As parents, we’ve all been in situations where our child was upset about losing something or it running out. Maybe it’s the Cheerios running low or not having enough time left in the day to do a planned fun activity.
Whatever the case, you can encourage an abundance mentality by reminding them that there is more than enough for everyone and saying things like, “There’s always more where that came from,” or “There’s always tomorrow to do that fun activity!”
When faced with these challenges, choose to focus more on what’s RIGHT with the situation, rather than what’s wrong. Say something like, “Well, we don’t have any more Cheerios, but we do have the stuff for waffles!”
That’s not to say you stick your head in the ground like an ostrich and ignore the difficulties, but you’ll be much more successful in facing the challenge head-on if you’ve taken time to acknowledge that not everything is negative about the situation.
7. It pays to wait when buying something (and you pay when you don’t)
Impulse buys are the devil. Plain and simple.
Sure, we’ve all had times when we’ve bought something on a whim and it turned out to be a great purchase. But we easily forget about ALL the times when we’ve foolishly parted with our money for an impulse buy, only to regret it soon after.
When we buy something without contemplating whether we actually want or need it, we’re giving in to our natural impulsivity and selfishness, those innate characteristics that parents work hard to root out in their children. It’s the desire that causes kids to lose their minds when they don’t get the treat from the ice cream truck as it passes by their house. The one that makes teenagers slam their bedroom door when a parent refuses to cave into letting them buy that piece of must-have clothing. The characteristic that led me to buy a cruise from a telemarketer (ya, I’m still working on rooting these traits out in myself).
Developing self-control and the ability to delay gratification are two key money rules for kids to master. And not only are they helpful for avoiding financial calamity, they’re characteristics that transfer over into other areas of life like relationships, health, and career.
Teaching your child to grow their self-control is critical for your kids to win not just with money, but in life.
How to teach it? Don’t rush
With younger kids, teaching self-control and delayed gratification can be as simple as giving them opportunities to wait.
Try this. When they ask you for something or demand your attention, intentionally don’t give it right away. Make them wait a little before you meet their need or focus on them.
Now this can be tough for parents, especially in this age of hyper-helicopter parenting where parents feel pressure to meet their child’s needs immediately.
But don’t worry. Your kids will be fine. And no, they won’t need therapy because you made them wait a minute before you got them another cup of apple juice.
They’ll actually be more self-controlled and better able to delay gratification than many of their peers. And that characteristic will set them on a course to rock with their money.
8. Mistakes are ok - it’s how we learn
Allow your kids to make mistakes with money. They want to blow their money on some ridiculous impulse purchase you know they’ll regret? Let them.
Do they have grand plans to run a car wash in the chilly January air? Stand back and watch the car wreck ensue.
Don’t be the helicopter parent who swoops in to save the day.
In order to learn, your kid needs to experience disappointment and pain. It’s called non-catastrophic painful failure.
The pain of regret isn’t necessarily a bad thing. In fact, making mistakes can actually be a powerful motivating force behind growth and a critical money rule for kids to learn.
How to teach it? Praise the process, not the product
Let’s say your child wants to start a business selling lemonade in January.
Support them as they go through the planning phases of getting it off the ground. Be there as they plan how much product they should buy, where they should set up shop, and how much they’ll sell it for.
Be there freezing your butt off as the cars roll by with only a polite wave and nobody stops for a cold drink in the…bitter cold.
Then, after you’ve counted up your profit (zilch) be there to debrief with your kid about how things went. Where was the weak link in the chain that caused them to come up empty-handed?
Was it the product? The location? The time of year?
Praise them for the process, the wonderful elements of their planning and vision. Let them know how proud you are of all their hard work.
And then take the time to discuss what they could do differently next time to learn and improve on the process.
As you do, the results will naturally follow.
9. Money isn’t everything
Money is important. No doubt about it. It impacts us every single day from our romantic relationships and families to our career and retirement. It’s important to lay out the foundational money rules for kids because without them, they will struggle in each of these areas.
But money isn’t the be all, end all.
It’s not the MOST important thing in life. Not even close. And it definitely shouldn’t be the sun around which your world revolves.
In order to truly win with money, you have to put it in its proper place in the pecking order of life.
That means it’s after your faith, your family, and your physical and mental health.
As soon as it creeps into those upper echelons of priority, you’re going to have big problems. You’ll find yourself making decisions based on what’s best for you financially rather than taking into account the health of your spirit, relationships, or health.
How to teach it? Act like you want your kids to
The best way to teach this money rule for kids is to live it out every day. Your kids need to see you model your priorities on a daily basis.
When you’re forced to make a difficult decision, like whether to be paid under the table in cash for a side job or to claim the income on your taxes, what do you do?
If the cashier at the grocery store accidentally misses an item and you get it for free, do you act honestly to go back and square up your account?
When you ding another car in the parking lot, do you leave a note with your contact info, or do you quickly speed away in the hopes you’ll get away with your “tiny” infraction?
Kids are watching. They’re not dumb. They see how we act and what we value. They can do the math.
Be sure to act in a way that shows them what is truly valuable, things like honesty, integrity, and hard work.
As all parents know, more is caught than taught.
Money Rules for Kids - Bringing It All Together
Kids have never needed positive role models more than they do right now. In this debt-ridden, self-indulgent, spend now face the consequences tomorrow, world, kids need people willing to teach them the ropes when it comes to money.
It’s on us, the parents, teachers, mentors and role models who kids look up to, to make sure that they understand the money game, know the rules, and understand how to win.
By passing on these money rules to our kids, we’ll set the next generation up for excellence, and leave a legacy of both financial and life success.
What money rules do you think kids need to master? Add to the conversation in the comments below!!