A few weeks back I interviewed with Inc.com’s Tamara Schweitzer, one of the online magazines staff writers on the subject of “How to Recession-Proof Your Kids”. There were several great contributors to the article and I believe it would be worth your time to check it out (it’s linked below), and this is especially true if you have children or plan to some day.

“Aside from the usual worries about massive layoffs, foreclosures, and a tumbling stock market, what appears to be a looming recession is presenting another kind of personal dilemma: How much should we tell our children about the gloom and doom, and how can we best prepare them to face the economic monster in the closet when they grow up….” (the rest of the article)

Send me a comment after reading it and let me know what your thought of the article. I think you will enjoy it!

Hopefully, by the time your children grow into their teenage years, you have instilled in them the basic principles of money management. If not, you’ve got some catching up to do prior to them leaving the home. Either way, the teenager years are when it’s time to start letting them explore the larger financial world.

1) Basics of Loans (13-18 years old): While the goal is to teach your teens to pay for things with cash, save, and invest, it is still important to teach them the “why” behind those goals. Show them what a car loan looks like and how it works. Using a loan calculator to plug in the numbers for the average car payment and terms will help them visualize how much gets paid in principle and interest. Doing the same thing for a home loan using a mortgage calculator will also help push the point across that loans cost a lot of money in interest and they always limit your cash flow.

2) Long Term Investing (13-18 years old): Perhaps one of the greatest money lessons for a teenager to learn is how investing early in life pays huge benefits later on. Using a simple investment calculator can illustrate how investing $2,000 per year with a good rate of return can add up to millions by the time they hit retirement age. It will also help them see the value in starting earlier in life verses waiting until they’re “grown-ups” to start this process.

3) Accountability (13-adulthood): Without accountability even the greatest planners or savers will make poor financial decisions. Be honest with your teens about the importance of always having financial accountability in their life. Sharing a few personal stories about what can happen when accountability isn’t included in financial decisions is always helpful (most of us have a handful such stories!). Make it clear that accountability isn’t a friend that doesn’t care what they buy, but someone that cares enough to question the “what, when, and how” you buy.

Never stop teaching you children, even after they are grown. Too often children grow up and leave the home only to still have unanswered questions about money choices. Left unanswered, many of those questions turn into poor decisions that have long-lasting negative effects on their life. Stay involved with them over the years. Keep the communication streams running smoothly. Just knowing that they can always talk to you about their finances, good or bad, will help them avoid costly mistakes.

In part one of this subject we dealt with techniques for teaching children about money during their first six years. So what comes next?

1) Small Jobs (6-12 years old): Whether it’s a lemonade stand on the sidewalk, mowing a few neighborhood lawns or weeding someones garden, your children have the ability to equate work with money. Small jobs such as these allow them to start learning basic business principles prior to entering the real world “work force”. If the child is younger, the parents will supply the lemons, sugar, or the lawn mower. As the children grow older though, they can take part in buying the supplies needed so they can begin associating the principles of product cost, inventory, and how to make a profit.

2) Checking Account (10-15 years old): Opening a checking and savings account for your child that they manage with parental oversight is a great step in their learning experience. Knowing what the perfect age for your child to have this is totally dependant upon how much your child has already learned and their maturity level. My father helped me open my first checking and savings account when I was 10 years old, but we had been taught a good deal of money management by then.

3) Let the kids spend the money! (13-18 years old): If your children have been taught all the basics and have proved to you that they are ready for more responsibility, let them spend your money! Here’s what I mean. If you would normally spend $150 per month on your child’s clothes, gas, school supplies, and haircuts, let them manage it on their own. Let them know that they are now responsible for covering all of those items themselves each month, and you will contribute the same $150 to their checking account each month. When the money runs out, it’s out, and you can’t come asking mom and dad for more. This places all of the responsibility of planning a month’s mini-budget on them. It also let’s them learn the real cost of life, and allows them the opportunity to stretch the funds or blow it all. Regardless the age, this is a must learn lesson for all children prior to leaving the home!

When it comes to teaching children about money, the younger you start the better off your children will be. Within every age category there are things that we as parents can do to help teach our children good money management techniques and begin laying the foundation for solid financial decision making in their future. This post will be dedicated to the first 7 to 8 years of children and techniques you can use to help teach them about money.

1) The Piggy Bank (1-3 years old): I’m sure several of you had a piggy bank as a kid, and dropping coins into the pig is a basic way of teaching even the smallest children about savings. The only change I would encourage in using a piggy bank is selecting one that is clear, something that allows the kids to see the money pile growing larger the more they put in. Visual lessons at a young age are paramount!

2) Basic Math (3-6 years old): I know they are supposed to be learning math basics in school, but following up at home with basic addition and subtraction exercises that correlate with money is a great tool. For instance, instead of doing all of the work on paper, use coins and paper money. For the older children you can do situational drills using real money, like “how much does it cost to buy a newspaper?” Have them make the correct amount with a variety of coins. The visual element of a child touching “real money” and using it to establish the value of each penny is very effective. 

3) Hard Work = Money (2-adult years): Staying age specific, instead of giving your child an allowance, give them a commission that correlates to work they can accomplish. It doesn’t have to be a large amount of money. The key getting them to understand the principle that “if you work you get paid, if you don’t work you don’t get paid!” As a side note, not everything they do needs to be accompanied by a financial reward, but pick a handful of chores or jobs around the house or yard that helps them learn this principle.

4) Envelope System (3 to adult years): Use 3 envelopes when your child is old enough to be receiving money, or earning commissions, and mark them as Giving, Saving, and Spending. Anytime they get money help them breakdown where the money gets put. Teach them the value of giving charitably by putting 10% into the Giving envelope, as well as the value of saving by placing 20% into the Saving envelope. The rest goes into the Spending envelope. Doing this every time they earn or are given money will set them up for success as they grow older.