How Do Kids Learn About Money?

How Do Kids Learn About Money?

I have been thinking a lot, as of late, about kids and money. I believe I learned many important financial lessons growing up in our household, but the teaching was never explicit. There was always an undercurrent of knowledge and learning, but we never talked about it. There were no evening episodes at the dinner table with spreadsheets. No perusing the paper for latest stock quotes. Yet, somewhere, somehow, my parents stealthily taught me how to maneuver the world in a financially responsible way.

How did they do it? And how should we do it with our own children? How do kids learn about money?

Didactic Teaching

There are three ways young people learn about money. The first is the most straightforward, and probably the least effective. It’s kind of counter intuitive. How do you get children to learn about money?

You teach them. You are the instructor. They are the students. You might pull out workbooks, calculators, and paper and pencil. While this feels natural, I believe it is mostly misguided.

Lessons that are taught by didactic methods rarely stick. Especially in young people. Especially when more practical and less theoretical. The info just never takes hold. You can teach a child the mathematics that explain the stock market or rental real estate, but they are much more likely to retain the information if they see it in action.

Which of course brings me to the second method.

Modeling

You ever hear the saying do as I say and not as I do? Children do the opposite. They do what you do.

Kids are watching our every move very carefully. They are studying and calculating. They are noticing every time we head to the bank, work on our side hustle, or take an unexpected trip to the rental property to fix a leaking faucet.

These experiences stick with them. You can tell a child to save money and not spend extravagantly. Or you can practice these habits and not say a word. My bet is that doing the latter will have more of an effect on long term behavior.

My parents may not have been much for didactic teaching, but they were constantly modeling good behavior. They were saving, investing, hustling and creating.

What is the number one reason my wife and I own rental real estate as adults?

The fact that both our parents did.

Experiential Learning

And finally, kids learn about money by trial and error. If we as parents provide a safe environment to develop money habits and fail safely, they will learn by doing.

This is not rocket science here.

Your children need a certain amount of freedom to manage money in an age appropriate way and be faced with dilemmas. Money dilemmas are how they grow.

Because they live through them. They are triumphant when they succeed. They are despondent when they fail. But most importantly of all, they never forget.

They learn. They Pivot.

There are several ways to do this. For us, we give the kids an annual allowance and make them budget through the year as well as pay for non necessities. This creates a series of money decisions they have to navigate through to make it successfully to the next payment. If they spend too much too quickly, they pay for it later.

Final Thoughts

There are three mechanisms to teach your children about money. They are all important and none should be ignored. In my opinion, didactic teaching is the least effective. There is a lot more bang for the buck with modeling and experiential learning.

I guess one point is of utter importance. You have to be intentional and have good financial habits yourself if you really want your kids to learn. They are watching you!