Raising Financially Fit Kids by Joline Godfrey is one of a very small handful of personal finance books that have made a deep impact on my life.
The book’s focus is a straightforward one: how do you raise children so that they have a healthy relationship with money? Godfrey breaks this question down into ten basic money skills, then looks at the actions a parent can take at each age (early elementary, late elementary, middle school, high school) to teach those skills.
This brings me back to my own children. My oldest child is a first grader and roughly in the middle of the age range that Godfrey describes in her “early elementary” bracket. Our middle child is right on the bottom of that bracket. How are we doing in teaching these children basic money skills?
Without evaluating, I’d guess we are doing well overall, but are weak in a few areas here and there. Let’s take a detailed look, though, and see how our teaching lines up with Godfrey’s ten basic skills.
1. How to save
Godfrey’s first suggestion is to simply give your children an allowance that’s not directly tied to chores. An allowance is a tool used simply to teach money skills, not to reward (or punish) behavior at home. We do this by paying our children an allowance equal to $0.50 times their age.
With that allowance, one should establish three containers for weekly allowance: spending, saving, and giving. We do this, too, and we even add a fourth slot for investing. Right now, we require them to put a certain amount of each week’s allowance in each container.
You should talk about savings. We talk a lot about the value of saving for the future, both for short-term goals and for long-term goals. We help them think about their own short- and long-term goals, too.
The final tactic here is to visit a bank and open a savings account, and to stop by regularly. Our plan has been to open a savings account for each child when they turn seven, which means we’ll be doing it in the next few months for our oldest child.
2. How to keep track of money
When your child collects money from some source, have your child count that money. Your child should also count the money he or she spends and keep track of all of it on a piece of paper. We have them count up the money they receive and save (sometimes with help from mom and dad), but as of yet, we haven’t started to make a log of it.
You should choose something your child really cares about and make them aware of the regular cost of it. It can be anything, but it should be something your child cares about and something that you have to replace regularly. We don’t really do this at all with specific items, but we do discuss the expenses of groceries overall with them.
Godfrey also suggests having them count change and even roll it up as well as buying your child their first wallet. We do have them count change with each allowance as part of the routine and we have a change roller that they have used. Our oldest child has a wallet, but he very rarely carries pocket money with him, so it doesn’t really have a purpose yet.
3. How to get paid what you are worth
Godfrey’s one suggestion here is to post a list of “extra credit” household jobs that your child can do to earn a small bonus on his or her allowance. We don’t have a formal list of these, but we do offer these occasionally. This is definitely something we’d like to do.
4. How to spend wisely
When you go to a store with your child to spend money, plan in advance how they’ll spend it. Have them figure out how much they’ll spend, and have them identify things they actually want. This is something we do very, very well.
Godfrey also suggests having a budget for pet care, but as of yet their only pets are fish which have very low costs associated with them. She also suggests giving your child a calculator so they can add up the costs of items as you go through the store, but we often don’t shop with the children, so this is something that rarely has the chance to happen.
A final tactic is to be a model of sensible spending, which is something Sarah and I do well (at least, I think we do).
5. How to talk about money
How do you talk about money with a young child? Ask your child how money is used. What do you use money for? Talk about what food pantries and homeless shelters are for. Sometimes, say that you can’t afford something or that you can afford something, but it’s not a sensible purchase (and why).
We do all of these things. Money is a fairly regular topic with our children.
6. How to have a budget
The first step is to start an allowance program, which is mentioned above.
Beyond that, Godfrey suggests giving your child a menu and a dollar amount and having that child order food (with some guidance). In other words, turn restaurant visits or take-out night into a money lesson. While we haven’t given such control to our children, we have talked about how the bill really adds up in a restaurant and why it makes sense to order less-expensive options.
Of course, part of that is letting your child see the consequences of going over a budget. We have done this before. We allowed our oldest child to “borrow” money once a year or so ago to buy an expensive item that he thought he had enough money to buy. It really hit home for him the next few weeks for allowance, when we scooped up the money that should have gone to his allowance to pay back the loan. Neither child has even attempted to do this since, and the older one tells the younger how bad the idea is if it ever comes up. Lesson learned, I think.
7. How to invest
Godfrey’s big suggestion here is to open a 529 account for your child’s educational future, which we’ve done for our kids.
After that, she suggests talking about compound interest and using your child’s savings account as a learning tool for this topic, something we need to do. She also suggests talking about the idea of equity by working together on a project that will earn money, such as a lemonade stand. We’ll talk about this in a second.
8. How to exercise the entrepreneurial spirit
You should encourage your child to take on entrepreneurial projects, such as the aforementioned lemonade stand, and help your child figure out what to charge, and you should praise them when they step up to the plate and act entrepreneurial. Our children have run a lemonade stand several times over the past couple of summers. In terms of the idea of equity, they used the proceeds from the stand to buy the materials used from us, so they did understand the cost, although it was more along the lines of a loan.
Another tactic is to highlight entrepreneurial children for your own children, something we could really work on.
9. How to handle credit
Godfrey’s first suggestion is to get your child their own library card. We do use the library all the time and we have such a fixed routine with it that this wouldn’t be very beneficial to any of us. It’s a sensible idea, though, especially for families without a strong library routine.
You should allow your child to borrow small amounts from you, something we’ve done, as described above.
You should also show your child any bills related to them when they come in, such as an item on a credit card bill, so that they understand that “buy now, pay later” has real consequences. This is a solid idea. As of now, we use cash for most purchases directly involving the kids, but it makes sense to do things this way.
10. How to use money to change the world
Godfrey suggests having your child donate food at Thanksgiving. We actually donate food as a family much more regularly to a local food pantry, so this is more than taken care of.
You should also have your child contribute to a charitable gift during the holiday season. For the past two Christmases, our children have each given some of their “spend” money to the Salvation Army. This year, they’re going to each “cash in” their “giving” savings and give a nice contribution to a charity of their choice at the end of the year, too.
A final tactic is to volunteer some time as a family for a community project, something that’s actually on our schedule.
Things for us to think about
Here are some of the key items that we’re not yet doing with our oldest children that we should consider.
First, we should consider having them start a “money log” of money they receive and spend. This helps them be more organized with their money.
Second, we should talk about the routine cost of something they care about, such as milk. This helps them understand that everything has an expense and it’s usually a regular expense.
Third, we should post a list of “extra-credit” tasks (and their value) for our kids to do. This is going to take some real conversation to get right, because we have some tasks around the house that are simply “expected” tasks.
Fourth, we should find examples of entrepreneurial children to share with our kids. Time to do some research here!
Finally, we should use a credit card for some child-related purchases, then show them the bill when it arrives. This shows them that eventually you have to pay the money when you use a credit card.
We’re doing well, but we have some things to work on.