Top Ten Things Kids Should Know About Money

“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.

Escape Poverty by Friending Up

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:

Escape Poverty

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.

Get Your Kids Motivated with Papersalt Books

Motivation Papersalt Books

(Today, I’m taking another detour from kid money to “kid life.” However, like my other detours, these topics can also come back to money. For example, we’ll cover a book on grit today, which is a quality that will help a kid make money. Of course, grit is essential outside of the world of money. There’s one more thing before we get started. Papersalt did not sponsor this article, but it may seem like they did. I may make some money, at no cost to you, if you buy these books.)

We were on a family trip to Lake Winnipesaukee when a book in a gift shop caught my attention – Grit for Boys – Empowerment Book for Tweens, Teens and Young Men.

I opened it up and thumbed through a few pages. I was amazed by the quotes. Here are a couple of examples:

“Life is 10% what happens to you and 90% how you respond to it.”

and

“Don’t be fearful of what could go wrong. Get excited for what may go right.”

Each page was one excellent quote after another. The pages are thick (130# stock) and seemingly waterproof. I don’t want to test it, but they have a plastic feel. With the spiral binding, it is clear that they’ll last a long, long time. That binding also lets me open it to display a different daily page.

There’s nothing magical about quotes about courage, grit, and perseverance. I’m sure you can find dozens with a quick Google search. There might even be many of the exact curated quotes in the book. However, the presentation and being able to put it in my sons’ hands is essential. I was going to try to get it from the library, but I didn’t see it available in any library in Rhode Island.

So I bought the book. But I didn’t just buy the grit book. I bought two more books: Papersalt’s Being a Big Brother and Papersalt’s Being a Boy.

These books remind me of Life’s Little Instruction Book, but aimed at the things that matter for kids.

I bought these books because I have boys, but there are versions for girls too. For example there are Being a Girl and Grit for Girls. I didn’t buy either of these two books (again, not having girls), but from the pictures on Amazon, it looks like they have the same content as the books for boys. Maybe some of the pages are different, but the example pages they show are the same, but with different art.

There are also books aimed at teens, but I haven’t looked at these. I know I will in a few years as my kids get older. If you have older kids and buy one of these books, leave me a comment. I’d like to know how they are.

In my searches for other Papersalt books, I found one more that intrigued me – Becoming Fearless. However, the Papersalt website didn’t have it. I wrote Papersalt, and they said it was out of print and wouldn’t know when/if it would be available again. It was still available at New York Puzzle Company, so I ordered that one. It’s just as good as all the others. There seems to be some overlap in concepts with the Grit book, but that’s to be expected. They are both about overcoming obstacles.

Teach Your Kids to Be a Loan Shark

Raise your hands if you are having a great Shark Week so far? I know I am.

Kids love sharks. Especially baby sharks (do do do do-do-do). I hope kids are learning lots about sharks. Did you know that sharks can teach you about money?

I found a shark who will teach your kid (or you, if you are a kid) how interest works. I’ve got an easy job of putting just a few words of an introduction together. The great people from Nex Gen Personal Finance are doing all the work. I love it when I can work smarter, not harder. Thanks, Nex Gen Personal Finance!

A couple of weeks ago, I was searching for something unrelated on the internet and stumbled upon this gem from the Nex Gen Interactive Library. You get to play the “bad guy” as you try to maximize profits from all the delicious victims that enter your office looking to borrow money.

Shady Sam Loan Shark

I made it so that you either click on the title or the image to play the game. It isn’t as easy as you think. I got a few wrong. I think it might be best for kids in the 4th grade or higher, perhaps ideally in the 5th or 6th grade.

I’m keeping it short today. It gives you more time for learning.

Tips: Teaching Kids to Earn Money

One of the kids’ favorite shows was Apple and Onion on Cartoon Network. Unfortunately, it got canceled earlier this year. Fortunately, if you have HBO Max you can stream all the episodes. It’s one of the few shows that parents will enjoy almost as much as the kids.

My oldest recently saw a set of Pokemon cards at Walmart that he just had to have. He knows the difference between needs vs. wants, but it was a strong enough want that it felt like a need. Alas, he hasn’t saved up enough allowance.

He had a solution. He would invoke the Apple and Onion episode of Tips where the characters try to perform extra tasks for a hot air balloon ride. They have one day to do it.

There are pluses and minuses to parenting a kid with a photographic memory. This is one such time.

At first, it doesn’t work well. They are a disaster at earning tips:

Eventually, they learn how to be helpful:

Earning Tips in Real Life

My son knows that I write this blog. So he said, “Hey, by reminding you about that Apple and Onion episode, I kind of helped you with your blog, right?” I responded, “Yes, that episode is an entertaining way for kids to learn how to make some extra money.” He then said, “Can I have tips?”

Yep, I gave him a tip.

I then went to look when the next new episodes are coming out and I saw that it was canceled. On Twitter, I found one of the storyboard artists put together a guide of what it was like to work on the show – complete with Apple and Onion characters.

My 8-year-old loves art and cartooning, so this was a win. I saw that he was selling a physical for $5, but he was also giving a digital copy away for free, but via Gumroad where you can… give a tip. So I put in my credit card number and sent a few dollars his way. Both my kids loved it.

It seems that I’m a lot like Apple and Onion before they learned how to earn tips. I’m a lot better at giving tips than receiving them.

What I Know About Teaching Kids Money

  • Customize Your Money Lessons – All kids are different. I have two very boys who are only 15 months apart. They learn in very different ways. This has made me realize that there is little one-size-fits-all advice for teaching kids about money. When I write an article at Kid Wealth, I hope that you process it and keep the parts that are useful to you and your family. You know your family better than anyone else. If it’s anything like mine, there is a lot of trial, error, revise, and try again cycles. That’s how learning works.
  • Actions Speak Louder than Words – Your kids are watching and learning from you. When you set a good example, you get a tremendous head start in getting kids to think positively about money.
  • Those Actions Can Cut both ways – If you have bad spending habits and it leads to money (and other) problems, kids can see the bad situation and may be motivated to avoid it. I know several adults who specifically told me, “My parents struggled with money. I didn’t want to be like that.”

    Alternatively, my kids see me being frugal and are quick to say, “Dad, you are being cheap.” They may be right. I tell them that Aruba timeshares and Disney cruises cost a lot of money, so we have to save money sometimes to be able to afford those tremendous life experiences.

  • Tools To Teach Kids Money – If there’s one article to read on the whole Kid Wealth website, this is it. I’ve summed up a number of tools such as kid money television shows and money board games.
  • I also highly suggest that you give your kids an allowance and let them make money mistakes. It’s how they’ll learn.
  • Teach Compound Interest – Kids have two awesome advantages over adults. Their brains are awesome sponges that are perfect for learning new things. They have more time for compound interest to make a huge impact in their lives. For example, a Teach Kids Investing At Any Age – The concept of compound interest goes hand-in-hand with investing. It might sound strange to teach a preschooler about investing, but it’s very possible.

One of the best resources are these money books for kids:

  • A Smart Girl’s Guide to Money – This is a great book geared towards teen girls. However, I paid my 9-year-old son a couple of dollars to read it and give me his thoughts and he said it was fine for boys too.
  • Grandpa’s Fortunate Fables – This is my favorite book for kids in elementary school and tweens. It covers about a dozen money lessons, making it a perfect foundational book. Add it to your summer reading list and have the kids read a chapter a night.

You can also look for ways to teach kids money by age:

Finally, I firmly believe in getting kids started on building a business. Here are three ideas to motivate your kids to start a business.

I realize that this article points you in a lot of different directions. I hope it’s not overwhelming. The most important thing is to pick one thing and get started. I’ll check back in another six months an update this with a lot more resources. I hope you can keep up 😉.

The title of this article is inspired by this Oprah Book. I haven’t read it, but the title stands out to me.

Four Ways to Teach Compound Interest

Teach Compound Interest
Look at the difference between compound interest and simple interest!

“My wealth has come from a combination of living in America, some lucky genes, and compound interest”
– Warren Buffett

When one of the richest people on the Earth gives actionable advice that anyone can take it’s worth listening to. He’s used the magic of compound interest better than anyone.

Here are four fun ways to teach compound interest to kids:

  1. Read A Book About Compound Interest

    My third grader did a play at school called One Grain of Rice. We had read the book earlier this year.

    One Grain of Rice is a lesson on how a grain of rice doubled every day for a month becomes a huge number – enough to bankrupt a kingdom. Substitute a penny for the grain of rice and there will be enough money to fill a mountain!

    Read my One Grain of Rice article here. It has an interactive spreadsheet, which illustrates it better than a compound interest calculator in my opinion.

  2. Give Kids Firsthand Experience

    You can read books about fixing cars or programming computers. Reading is not the same as doing.

    In The First National Bank of Dad (Review), I learned a technique where kids are given monthly interest payments on their deposits. Shorter compounding periods help kids notice the money growing faster. This creates an incentive to save more.

    For example, a 3% monthly interest rate is an annual 42% interest rate. It’s something that many parents can do because kids don’t have $100,000 of principal to break the bank.

    You may think that putting kids’ money in a traditional savings account is a great choice. However, the interest earnings are so low it will take them the rest of their lives to earn much. It’s no way to show how the rewards of compound interest are often described as the eighth wonder of the world.

  3. Watch a Video About How Compound Interest Works

    This video explains how the above works with a 10% monthly interest rate. It also illustrates how compound interest works over a lifetime:

    While the video says it is geared to grades 5-8, I think it works for grade 3 and maybe even some second graders. The multiplication at the beginning is the most difficult part, but it’s very quick and kids don’t have to follow the math exactly to get it.

  4. Take A Course
    MoneyTime is a course to teach kids about money in general. It covers much more than compound interest. MoneyTime has some gaming features like allowing kids to create their own avatar.

Teaching compound interest to kids is especially useful because they have more time to grow their money. The video above showed how much of a difference there is between an 18 and a 25-year-old saving over time. Imagine if you can start even seven years before the video’s example.

Week’s Best in Kid Money (#9)

I hope everyone had a good Independence Day weekend. Independence Day is a great time to get kids started on financial independence. It might sound silly to start so young, but a lot of it boils down to some core life skills and letting compound interest do the rest. That article has tips such as learning to cook, which is something many parents do with their kids. You may also want to read If You Made a Million.

This past week, I like the following Tweets:

  • I don’t come across Walter the Vault’s Tweets often, but whenever I do they make me smile. It’s one thing to give sound financial advice, but it’s another to do it in rhyme. Here’s a great example:

  • I love Tweets that get dozens of useful responses and this is one case.

With so many tips to read in that last Tweet, I’ll cut this post short so you can get right to it.

Teach Kids Money and Math with Monopoly

Is Monopoly useful to teach kids about money? Yes! However, I found that money is a secondary skill.

Last week, for Family Board Game Day we played Monopoly. My wife had found the Nintendo version in a yard sale for $1. (The game was in perfect condition, except that it didn’t have the instructions. They were easy enough to find online.) Instead of Boardwalk and Park Place, we worked with Mario and Luigi. It’s a classic rebranding that Hasbro has done thousands of times with Monopoly. Since my kids love Nintendo, the Monopoly version was doubly appealing to them.

At ages 8 and 9, they are the perfect age for Monopoly (Official suggestion 8+). We had played Monopoly Junior with them when they were 5 and 6, but I never liked it. Doing all the money transactions electronically didn’t feel like Monopoly. I’m much happier playing the real thing now.

monopoly teach kids money
monopoly teach kids money

Monopoly is More about Math than Money

Everyone thinks of Monopoly as a money game. It is, but I was blown away by all the math that we were doing. I’ve been using a credit card for so long that I don’t do a lot of cash transactions. We were doing all sorts of math to make change. For example, often when I had to pay a rent of $14, I’d give a $20 and my kids would have to give me $6 back. One time, I paid $102 for a $52 rent. The kid knew that I did it so that I would get a $50 bill back.

As we played longer, the math became more complex. Instead of dealing with rents under $30, the houses and hotels had us doing math with hundreds of dollars. That’s great place value practice especially now that the kids are out of school for the summer.

What About Monopoly’s Money Lessons?

It was just the kids’ first game of Monopoly. They played it very cautiously and saved their money until they landed on the premium properties. As a result, my wife and I were able to gobble up whatever properties we landed on. We had the unfair advantage of years of experience. I also had an extraordinary amount of luck the whole game.

Once most of the properties were owned, we started trading. This is where younger kids can learn the art of negotiation. My youngest son traded two of the greens for my Luigi (Park Place) to complement his Mario (Boardwalk). After the game, I explained that having three properties for other people to land on is better than two. Getting back to math for a second, this conversation dipping our toes into probability.

We didn’t get into real estate discussions like the landlord, renter relationship. We did cover how to mortgage the properties in the context of the game. However, we didn’t get into the common use of how a mortgage works because you can’t get a 30-year fixed to buy Marvin Gardens.

From a money perspective, there was still a lot going on. We were all making change all game long. We were buying assets and even selling them to other players. One of the things that’s great about money games is that it is a fun way for young children to get a basic financial education.

Final Thoughts on the Monopoly Game

For this age group, it’s hard to beat Monopoly. The worst part of the game is that it takes a very long time to play. I’ve been a little more focused on my kids’ math skills than their money management skills, but Monopoly gives us both at once. Even if you can’t find it at a yard sale for a dollar, it is still one of the best purchases you can make. You can buy Monopoly on Amazon here. I suggest teaming it with the Game of Life that covers more real-world situations such as having a career and earning a salary.

For more ideas, visit our list of best money games.

Make a “Things I Like” List for Kids

This is our “Kid Life” first article. The idea of Kid Life is to take a step back and realize that a wealthy life isn’t always about money.

School is out and summer is here. That means many kids will be home looking for things to do. We had a little break before camps start, so we did a couple of staycations. (Hence, why there have been fewer articles here lately, but we’re back and articles will be more regular now.) During those vacations, I got to reflect on all the things our kids have done. Then I realized there were still so many things that they haven’t done.

I did what comes naturally and started a spreadsheet. It was blank with a heading of “Things I’ve Done” and next to it “Enjoyment (1-10)”. I left a lot of boxes and below that, I put, “Things I Want To Do” and “Priority (1-10)”. I had to explain what priority meant, but the rest was easy for them to pick up. My 9-year-old came up with about 15 things and my 8-year-old came up with about 10. I helped with several items by throwing out anything I knew they did off the top of my head, “Karate, Snowboarding, creating comic strips, etc.”

If you were to ask me if my kids like a specific thing, I could answer you and be accurate about 90% of the time. However, it’s different to put it all on paper. That’s where you get to see what you should try to do more of. For example, my 9-year-old loved archery, but when COVID happened the classes ended and we never picked up on it again.

I took all the things they wrote and edited out the nonsense (watching TV and video games were both 10s on the “enjoyment” scale). I typed them all back into the spreadsheet, leaving plenty of room to add more. This first draft was very helpful, but I had bigger ideas. I did a Google search for “bucket list for kids” and clicked on some of the top results. Each page had about a hundred ideas of things for kids to do. Some were simple things like “roll down a hill”, which I didn’t find very useful. Others were “learn to play the piano.” It was easy to cut and paste these lists into a spreadsheet.

This is when my 9-year-old surprised me. He came up with a code for each one. A check meant that they did it and a circle meant that they haven’t done it. A plus meant that they want to do it and a minus meant that they didn’t want to do it. It was easy to see that “Swim with Dolphins” was far more popular than “Climb a mountain”.

I then asked them to take their thoughts from this and put them into the other spreadsheet. This second version is very good now. Some of the items are difficult bucket list items, but that’s okay. For example, “tour the White House” is a lot tougher than “go whale watching”. (Whale watching isn’t difficult in Rhode Island.) While I was hoping to get more skill items like “get a black belt in karate” all of these one-time experiences are useful too.

One thing that didn’t come up directly in this exercise is money. I purposely left it out. I didn’t want the kids to lose focus on what they wanted. As we start to narrow down the lists, we can talk about budgeting, planning, and saving for the things we really want.