Ask HN: How to teach young kids about money?
Basically how to instill in them a good money habits? What are bad habits related to money that they can pick up at early age? How to avoid them?
For me in the 90's it was Civilization. Money in this sort of management video game has a lot in common with managing real money. There are a lot of things you want that cost money, and you don't have enough money for everything, so you have to make tough decisions. Sometimes you should know that you'll need money in the future, so it makes sense to save. Money is really useful, so it's worth working pretty hard if you can make a lot of money. Sometimes you need to do some math to figure out if you have enough money to do something or not, and doing that math will help you make better decisions. Sometimes you can spend money in a risky way to try to make more money, and that might be a good strategy or not depending on the details, so you should dig into the details.
Someone can tell you in a class, "Don't blow your money on stupid stuff", but it doesn't really sink in the way it does when you rush-buy a temple because you're impatient, then you get invaded, and you are kicking yourself that you didn't save enough money to rush-buy some chariots for defense.
I suppose a better way to describe my experiences would be to say that Runescape fostered a scenario where I was able to learn and experiment how to handle money without many of the risks involved.
Many of the lessons I learned during my time playing the game include supply/demand economics, price vs. value, 'marketing' (the term coined for day-trading items in the game), bartering/haggling, patience, discipline with money, detecting/avoiding scams, etc..
I probably could have spent my time playing that game doing something more productive and beneficial, but at least I learned some important lessons along the way.
They also made a game out of calculating the tip together, so I saw exactly how much money it cost every time we ate out. To this day, I still eat out rarely and never order soft drinks at restaurants because it's such a clear waste of money. It may seem like a trivial amount of money, but I had plenty of peers in tech who paid $20+ a day to eat out every meal. It adds up quickly.
There are also some very practical lessons, like exactly how to write a check, enter an entry in a checkbook, or pay for gas at the gas station, which my parents made sure I saw them do and explained each step, as well as the standard cautionary tales about how credit/interest works and the importance of paying bills before they accrue interest.
Depending on your culture, it might be weird /unusual/inappropriate to talk about how much rent you pay, how high that restaurant bill was, what you pay for a new car etc.
But if the kids are supposed to learn the value of things and of money, don't dodge those questions.
Nah, pass.
Nobody is debating the "class strife", they're acknowledging an individual's security for having different amounts than others. I'm guessing that is one and the same to you?
I think it helps conceptualize some of the relative values of things and the spending/saving they can't physically see.
So step 1 is to figure out a way to get them earning their own money, either a job or some sort of allowance.
We started our kids with a job at age 12, we tried allowances before then but dropped it because it was tied to doing work around the house which we felt they should do anyway.
Thank you for mentioning this. It may be useful for other parents to know - research shows that rewards kill intrinsic motivation, replacing it with extrinsic motivation. When the reward stops, the rewarded behaviors stop, too.
If a child likes to draw, for example, rewarding them for drawing will damage their relationship with drawing.
The message of rewards is - the thing you’re doing is not worth it unless you get the reward.
Praise, conditional approval, attention, otherwise withheld access to activities, are all rewards.
Lastly, rewards are also punishments - because withholding a reward is punishment.
Punishments and rewards establish a transactional relationship and reduce intimacy, connection and trust. They are all a tool for control.
I recommend Alfie Kohn’s Punished by Rewards for a deep dive with a lot of citations showcasing some fascinating studies.
When they are old enough to understand, make sure to tell them about financial tools besides checking accounts. Explaining how they work, and what they should be used for could go a long way.
Glad you mentioned this one too because this is something I was thinking about too. We tried to strike a balance where the kids don't have a regular allowance for normal around the house chores, but pay them for "projects" that are sort of above and beyond the normal course of chores. This would be things like helping put in a new flower bed, or re-arranging the living room.
I also feel like the 'ol lemonade stand idea is a great lesson. of course it can be anything but something they can make and try and sell.
Inflation eats savings and debt is incredibly cheap at the moment. Being 'good' with money basically keeps you at the exact same socioeconomic level but risk-taking and entrepreneurship generally correlate with social mobility.
Anyhow, IMO, make them do chores for an 'allowance'. Teach them that work = making money. As they get older you should instil in them that making more money is far superior to all the saving in the world, especially at a young age. Education and risk-taking in your 20's is far superior to trying to save for retirement from 20 years old.
Education and risk-taking in your 20's is far superior
to trying to save for retirement from 20 years old.
I'm 38 and have been an entrepreneur several times (currently managing a small startup of 5 employees). I would have been at a much better situation financially if I decided at age 20 to optimize for getting hired at a FAANG-type company and going up the ranks while saving a good portion of my salary. And that would have had a small fraction of the risk of starting my own company.
So many people in tech have reached a level of TC where the things they can afford on a whim are things the average household would wring their hands over.
And that ends up applying to the kids' wants even if you're not trying to spoil them.
It's just reality that, while you might deny them big things, "small things" on these salaries are not small for most people.
Learning that sometimes you just can't afford something is an important lesson. That there's no shame in that, that there'll always be something else, etc.
That ends up implicitly discouraging the trap of building up debt when you're young to keep up a certain standard you're used to, which I think is a common problem when kids of high earners go out on their own.
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Also an important corollary to your point about work = money: making them understand your money is not their money. Sounds harsh, but even if they're going to inherit it, it's still money that you worked for. It's a dangerous mentality to start assuming your parents' successes are your own without having experienced what it took to achieve.
For example let them save for a box of LEGO they want to have. While saving they might see something else they would like. The choice about whether to continue saving or buy someting else is very helpful to think about money.
Or let them "invest" it, in return for a greater allowance in the future.
Make it clear to them that if they do certain specific chores, you'll pay them for it. Do not force them to do the chores, simply make getting paid for doing it an option.
Bring them in to the monthly discussion of the families finances
Basically you need to gamify personal finance.
Encouraging them to start a "business" can be good too. I used to make and sell bluebird houses a few times per year. It teaches a lot about sales, expenses, pricing, etc that chores don't.
"Bring them in to the monthly discussion of the families finances"
This might not be a good idea depending on the specifics of that conversation.
Also, this requires a partner who participates meaningfully in budget and finance topics.
As much as I'd like to impart "work for its on sake" as a concept, it's really really tough on the kiddos some of whose friends get a weekly allowance for just doing homework.
Additionally, not comparing oneself with others will avoid the "keeping up with the Joneses" mindset, and that is going to be a big help financially.
Even something as simple as 15 minutes once a month, where you go over the previous months income and expenses and see if there are any differences from the budget, and you make a new budget for the next month is more than enough.
It creates a space to ask questions, and keeps everyone up to date on where they stand, so you won't suddenly learn that your spouse has been maxing out their credit cards to buy FUNKO-POP! Figurines over the past 2 years.
Our house is set against gamifying chores, and finding ways to instill a sense of pride, appreciation, practicality, and maybe even art in cleaning affairs. Granted we only have a 3yo so time will tell if that’s even possible. I suspect that may be personality related.
I think just discussing money is one of the best helps. My family almost never discussed finances and money, and do no investing. I’m seeing the consequences of those decisions for them, and have taught myself about various things money to hopefully help prevent their kind of situation for us.
We often discuss prices when we buy anything for our kid, whether it’s a box of candy or some food they want or a toy. We do give a weekly allowance to our kid, and they still get a big kick out of it even at only 3.
You’ll probably have to offer a really high interest rate to make it effective for a kid that thinks of weekly time scales not years.
"Sally puts her money in a savings account that makes 10% interest. If the interest is compounded monthly how much money does she make in 10 years?"
Wow! That's amazing! I'm going to go put my money in a savings account. Wait my savings account is 0.1% interest...
The world is different enough to little kid brains, literally, that trying to instill the adult concept of money is like teaching a fish to ride a bicycle.
Now that they are older (late teens) I see now some opportunities that were not there before.
When they are little they need the emotional support and love to build the psychic infrastructure for safe, self-aware, healthy adulthood.
One can play games of course with monetary values but what is happening of importance in those games is the interaction itself, those emotional dynamics, not the material.
Money is a very, very refined sociological tool the purpose, context, utility, scarcity dynamics only make sense for a kid who can begin to participate in society. In most cases this doesn't start to be the case until mid or late teen years.
So my advice- for little kids, model love, openness, forgiveness, care, empathy, honesty, responsibility- all those underlying traits involved in being a good human. Much later, when the time is right, they can start to learn to apply those capabilities to the domains that involve money.
Best wishes.
They might not understand bills, credit cards, mortgages, and 401ks, but surely it's easy to teach them the concept of resource management?
One thing that I believe my kids has responded well to is the re-assurnace that when they have earned money it is theirs to do with as they wish. It won't be confiscated for punishment, and we don't force our children to make specific purchases. Further while both parents will often advise on purchases, we don't stand in the way of kids making bad decisions (quality, quantity, utility, etc).
This is also the most common leadership mistake I see. You have a talented leader who can't grow past a certain point because they can't let others make mistakes in order to grow and lead themselves.
As I say, I still squirm a little about this, because really they ought to do most of these chores without needing bribes, but you do what you must to survive.
0. Save first. Spend the rest.
1. No money / allowances for doing chores. Chores are part of your life in your household.
2. Maintain a piggy bank or a notebook to note down what you have received and put it in savings. This would be the start of your wealth. My parents didn't adjust this amount to account for inflation, but I plan to do this for my children. They also kept the money in their bank account, but I kept track of the money in my notebook.
3. Maintain a notebook showcasing income/expense wrt your piggy bank.
4. After a certain age, sit with your child and explain the monthly expenses and investments and why they constitute a % of the total income/expense. Additionally teach them about investments and insurance.
5. Explain why certain things are outside of your capability to buy stuff. This would enable them to understand that not everything is affordable.
When they were very little, I did the following:
1. Bought a cash register at Staples and we would have "store days" on the weekend where the kids would make stuff to sell to mom and dad. They had to learn how to use the real cash register to accomplish their sales. That cash register is one of the things that my kids remember so fondly they won't let me get rid of it.
2. Got each of them Greenlight cards almost as soon as they were available. They get real credit cards with their name on them. I have a parent wallet that I can then put money onto their credit cards either one time or assign an allowance or give money for chores, whatever. I can see everything they spend, I can stop them from spending money on certain categories and I can turn their cards on/off with the app. Works really great - link to sign up with a $30 bonus for both of us:
https://share.greenlight.com/582861?share_id=701600482970897...
Humans are very bad at predicting the future or looking ahead, so planning, having contingencies and being prepared to various degrees is the foundation for a lot of other things that make society/civilisation work.
As they get older I will definitely introduce other concepts like personal finance, checking accounts, credit and loans, investing, taxes, saving, and so on. Like any complex problem I don't think there is a simple solution, just lots of conversations over time.
The parent wasn't playing dice games with their kid, they were placing small wagers on the probabilities of things occurring. Building up a mental model for probabilties / risks seems valuable to me.
Part of it was her convenience, but it taught me about growing my money. As long as I had some cash available, there was a possibility that it would accumulate interest.
This is something I wish my parents had put more weight in me learning. They of course taught me the value of money and I had to pay for the things I wanted to get.
However, even though they gave me an allowance and extra money for each A+ I got in school, they never taught me about the value of saving money.
I always think back to when I started working in my 20s and wish I had saved religiously 10% to 20% of my income. Through all my life I have been able to do it, but just didn't see the benefit of saving that and investing it somewhere (even if just to get 6% interest).
My parents opened a building society (mutual ) account for me when I was in my early teens (this is in the UK)
Kids don’t have that much use for money, and some families can’t afford to hand over any cash to them. Screen time on the other hand can be unlimited, but it something you do want to limit, and can be a useful tool for teaching delayed gratification.