We got back from a Disney cruise a couple of weeks ago. My kids thought it was the best time of their lives. They couldn’t wait to do it again next year.

The only problem is… Disney cruises are very, very expensive. Going every year isn’t in the budget. I explained to them that it costs us nearly $1,000 each day when you count the cost of flying, excursions, ground transportation, and other incidentals. They were able to understand that it is a big number. However, they don’t have a reference to compare it to.

That’s when I realized I had to give them a comparison they’d understand. I explained that Great Wolf Lodge, a long weekend they loved before the pandemic, was closer to $250 a day. I said that we could spend nearly two months at Great Wolf Lodge for what we spent on the Disney Cruise. My oldest responded that he’d prefer that longer vacation at Great Wolf. My youngest disagreed – he liked visiting Norway and the other countries.

I often like to ask them about alternative ways to spend money. In this case, I said we decided on the Disney cruise because mom and I haven’t traveled to Europe for more than a decade. We get more value from visiting Westminster Abbey than the cute upselling wolf. We also can’t take two months off from work. I also explained that we chose Disney because we knew it would be a good vacation for them too. Everyone gets a little of what they want.

I’ve been looking into next year, and it seems that Royal Caribbean has a cruise that costs only about one-third of the Disney one. We found some videos online, and they looked like they had fun stuff for kids to do too. They said that they’d be interested in that cruise too. We’d be able to go on that cruise, a road trip to Hershey, PA, and have some money left over for a weekend or two at Great Wolf Lodge.

As we ended the conversation, I explained that one of my jobs is to write about making money choices. Spending money wisely is as important as earning it.

It’s hard for young kids to know about all these options. They don’t have the life experience and access to the tools to evaluate costs. These “buy this… or that?” conversations are critical for helping them grow their money skills.

“What should my kids about money?” That’s one of the first questions I get when I tell them that I run this Kid Wealth website. It’s a fair question, but I had never set down and tried to make a comprehensive list… until now. Here’s the obligatory “Top Ten” list of what your kids should know about money.

1. Create a Budget
   Tracking where you spend money is crucial at a young age. Budgeting is more challenging to teach than I initially thought it would be. Kids generally don’t have to be responsible for many needs (clothing, food, transportation) that adults do. It’s easier to “budget” when allocating your allowance to wants like Pokemon cards.
2. Being Frugal for Frugal Sake
   Developing a frugal mindset at a young age will pay off for a lifetime. Kids that learn this are less to spend more than they can afford on their house and car. Those two purchases alone can be significant setbacks to the goal of financial freedom.
3. Make More Money
   It can be either through entrepreneurism or focusing on a career that has a high average salary.
4. Compound Interest
   I’ve covered this a lot recently. It’s important to teach kids compound interest. Making your money work for you is when personal finance becomes fun.
5. Get Your Head in the Money Game
   Grit, motivation, having a positive attitude – it’s all important.
6. Avoid Bad Debt
   Usually, I like to teach compound interest as a positive – how to make it work for you. However, bad debt like credit card and payday loan interest work powerfully against you.

   There’s a gray area of debt, like mortgages and student loans. Generally, they are good debt, but sometimes they can spiral out of control.

7. College Planning
   It’s easy to get caught up in the big business of college. That can leave you with a lot of debt and a degree that doesn’t make enough to pay it off quickly. To learn about the inner workings of the college business check out The Price You Pay for College. The subtitle is appropriate: “An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make.”
8. Insurance
   It’s easy to forget about insurance until a disaster happens. We teach kids about preventing dangerous situations, from avoiding strangers to using crosswalks. Most kids don’t need insurance, but they hear parents talk about it. Protecting their hard-earned money may be the most important thing on this list.
9. Tracking your Net Worth
   There’s an old saying, “What gets measured gets improved.” I started tracking my net worth in 2006, and it was motivating to see that good money decisions like saving and investing were paying off. Tracking your net worth can take a little time to set up, but once you have a system, it’s quick. I have a dozen accounts, and I can update my monthly net worth spreadsheet in half an hour.
10. Spend Less Than You Make
    I saved the most important one for last. It’s a combination of the first three items on the list. If there’s one golden rule of personal finance, it’s this. This topic easily flows into discussing savings rates and investing/compound interest.

Here are a couple of bonus topics that I felt fit just outside the top ten.

• Automate the Process
  This is a top candidate to move into the top 10 in a future update. Everyone is busy and managing various aspects of their lives. Few people want to add more to their to-do list. A surprising amount of money management can be automated. I never think about writing a check to a credit card company or paying a cable bill. The kids’ college 529 plan gets new money invested every month. Our mortgage and rental properties get paid automatically, and we build equity without action. Saving money in a retirement account is a “set it and forget it” event.

  I wish I could automate the dishes, laundry, and cooking as much as I can money management.

• Adulting
  While on the topic of dishes, laundry, and cooking, there are a lot of general “adulting tasks” that kids should be aware of. They can help with all those, but we can add anything that requires running a home, such as fixing stuff, getting health care (not as easy as it seems in cases), and anything in between.

  Kids don’t need to know much about this; they’ll pick it with their life experience.

• How Taxes Work
  Kids should know that adults pay taxes and what they are used for. Older kids should know how tax brackets work. Too many adults wrongly believe that it’s financially disastrous to land in a high tax bracket. Growing up, I had a friend whose father had a saying, “I don’t mind paying a lot of taxes – it means I made a lot of money.”
• Investing 101
  You can get kids started with investing by explaining how one fund, a total market index fund is all you need. In most cases, it will have low expenses and beat all the professional stock pickers.

This list is useful for more than kids. That may make sense since kids become adults and have to work with adult money situations. Preparing kids for those situations earlier is usually fine as long as the explanations aren’t too complicated.

A recent article in the NY Times details research on how children can rise out of poverty by making friends with rich people (not paywall – available with a free NYT account).

In particular, they cite three things:

1. Education

   Education is always important. That includes all the way back in pre-K and continued through college. While the article didn’t call it out specifically, I thought it was worth noting that education counts, even at the Pre-K level.

2. Money

   It seems like money is a great way to get out of poverty. Wait, that’s a sentence that is so common sense that it doesn’t make any sense. The article says, “Longer, deeper bouts of poverty can affect children for decades.” Now that makes sense. It also pointed out that avoiding adverse life events like eviction and having good health care is important. As you might imagine, two parents raising a child is much better than one. I don’t truly know what it’s like to be a single parent, but sometimes my wife is deployed for 4-6 weeks, and I get a glimpse of what it is like. It is not good.

3. Friendships and Social Capital

A study in published in Nature (a very respected journal) found that friendships with wealthy people tends to lift lower-income people up the income ladder. This makes sense because I’ve read for years that you are likely to have an income around the average of your five closest friends (generally credited to Jim Rohn).

Here’s how friendships are generally grouped:

The NY Times article suggests three ways that friendships can help boost someone out of poverty. The first is motivation or ambition. You see a friend with money and think, “Hey, I can do that.” The second way is simply basic information, such as sharing money tips (buying a house, applying for college). Lastly, there’s general networking which can lead to increased job opportunities. When I was a kid, I was able to get a high-paying job* as a pharmacy technician at a local hospital because my mother was a nurse there. When we needed more people, I asked a friend, who came on board.

The article ends with a path forward. If we can increase the amount of cross-class interactions, we can lift more people out of poverty. That’s certainly a big part of the puzzle.

If you low-income and are here and reading this, you are also more likely to move up a class. You’ve shown an interest in education and specifically the kinds of basic information that you might get from rich friends. You know how compound interest works and how kids can make money.

* The pharmacy technician job paid $8.41/hr, which was tremendous for a 16-year-old in 1993.