What we’re teaching our kid about money

Kids grow up so quickly. I originally wrote this post in 2015 when our son was 4 years old. Now, he’s 11! Back then, he didn’t really understand money, but he knew money is nice to have. He always picked up coins whenever he saw one and put them in his piggy bank. It was amazing how much money he found when he was little. Unfortunately, that changed when he got older. He hasn’t found any coins on the ground for several years now. My theory is little kids are so much closer to the ground and they can easily spot those loose coins. When they grow taller, those coins become invisible.

Anyway, let’s review these topics and see if we’ve done a good job so far. Also, he is older now and we can teach him more complex topics like saving and investing. I’ll add some things that we’ll work on for the next 7 years.

teach our kid about money

Delayed Gratification

One thing I tried to teach him is the concept of delayed gratification. When you see something you want, it’s best to sleep on it for a bit. You can take the time to shop around online and offline. Then if you still want it a few days later, you can buy it.

When I originally wrote this post, the weather was warming up. We took his old glide bike out to ride around and it was getting too small for him. It was also the right time for him to learn how to ride a regular bike. So I started shopping around on Craigslist and dropped by a few stores. We went to Walmart and Target first, but their bikes were pretty bad. They were cheap at around $100, but they were heavy and the quality was mediocre. We found a Raleigh and a Trek on Craigslist, but they didn’t work out. The Raleigh was too worn out and the Trek sold too quickly. Anyway, I always take RB40 Jr. on these bike shopping excursions and he’d say – “I want a new bike!” every time. Eventually, we found a Specialized bike on sale at a local shop and we got that. It’s expensive, but I know he will use it very often. When he outgrows it, the bike will go to his little cousin and it will last for years. I’m not sure how much of this is getting through to a 4-year-old, but I’ll keep working on this delayed gratification concept.

*Update* We did a good job on this one. RB40Jr can delay purchasing for a while. Whenever he needs something, we take the time to shop around first and wait for a good deal to come along. Oh, we gave the Specialized bike to his younger cousin when he outgrew it so that worked out quite well. We found a bigger used bike for RB40Jr and he likes it just fine. He doesn’t mind second-hand items as long as it works well.

Saving up for something

teach kid about money

The little guy saw a General Grievous Lego set at Target and he really wants it. I told him – maybe you’ll get it for your birthday or Christmas. He just had his birthday so the next one is a long way away. Next time he asks, I’ll tell him to check his piggy bank. He might have enough for it actually. This would be a good lesson on saving up to buy something.

On a side note, we’ve been watching all the Star Wars movies and animated series to prepare for episode 7. We love Star Wars! It’s a ton of fun to watch everything again. The new Star Wars Rebels series is pretty good, too. RB40 Junior’s favorite is the Lego Star Wars. He wants to be Darth Vader when he grows up…

*Update* Wow, things changed so much in 7 years. RB40Jr still likes Star Wars, but he doesn’t care about Lego anymore. I don’t think we did too well with this lesson. RB40Jr rarely spends money so he never had to save up for anything. I guess we’ll keep working on this one.

Banking

When he was young, RB40Jr went to the post office and the bank with me every Friday. Sometimes I’d find a check in the PO box and we’d go deposit it at the bank. Actually, I haven’t explained much of this process to him. I’ll try to talk him through it next time. Our bank has cookies on Friday, so he’s usually wolfing them down. I think he associates ‘bank’ with ‘cookies’.

We also go to the ATM once in a while to get some cash. I told him that the money comes from our bank account, but I’m not sure he really gets it. He probably has to be a little bit older to understand this concept.

*Update* These Friday trips stopped when he started kindergarten. Also, I changed everything to electronic deposit. These days I never go to the bank. We still stop by an ATM occasionally. RB40Jr understands that the money comes from work and gets deposited into the bank. In fact, he has a UTMA account. He likes to check on it once in a while to see how much money he has.

Math is the key

I think that’s probably all you can do at this age. When he’s a bit older, we’ll teach him about income (allowance), debt, investing, and all that good stuff. Actually, I just read something interesting in WSJ. A study found that personal finance classes don’t really help young people make good financial decisions. The knowledge is retained for only 6 months to a year and it’s usually gone by the time you need it. The researchers found that the biggest differentiating factor is really math. If you know math well, then it will be easy to understand concepts such as compound interest and mortgage.

Wow, I thought a personal finance class would be helpful, but maybe that’s not the case. It’s probably best to involve kids with your financial decisions at home so they will be immersed in it from a young age. We’ll make sure our kid is comfortable with math so he’ll have a good foundation to build on when he’s older. He’s learning to add on his own now. That’s pretty cool to see.

*Update* He learns math at school and he’s pretty good with them. I taught him about interest and he is familiar with the concept. Although, he doesn’t know how to deal with percentages yet. We’ll keep working on this one.

*New – Investing

Investing is so important. If you save and invest consistently, you’ll become wealthy someday. It’s really that simple. I told RB40Jr how companies and stocks work. He understands the concept, but he doesn’t quite get the detail yet. That’s okay. He’ll learn more as he grows up.

He also has several investment accounts – UTMA, Roth IRA, and College Savings account. We log in once a month so I can update our net worth spreadsheet. He enjoys seeing those accounts grow. Unfortunately, 2022 has been really bad on his account. But that is also part of the lesson. The market goes up and it comes down. You need to keep investing no matter what. If he can learn to ignore the swings, he’ll be a great investor later.

He also knows about real estate investing. We live in a duplex and rent one unit out. He knows that we borrowed money to buy the home. Also, he sees that our tenant sends us a rent check every month. Lastly, he knows that the price of our home is going up every year. He’ll be able to put them all together later. For now, we’re just telling him all the different pieces of the equation.

I’ll teach him more details about these investments as he gets older. We’ll see how much he understands in a few years.

*New – Financial Independence

Financial independence is a bit tricky. One comment below said I should teach him the value of hard work by going to work at least 40 hours/week. Being a SAHD is teaching him the wrong lesson.

I disagree. The reason I can be a stay-at-home dad is because we achieved financial independence. We have enough passive income to cover our expenses. That was the result of hard work and investing when I was young. He can pursue the same goal if he wants to. To me, that’s way better than working hard every week. I talked to him about this a bit and we’ll keep working on it. It’s good to learn about financial independence when you’re young. That way you can get started early.

For more about kids and money, check out Kid Wealth from Brian. It’s a site for kids and parents to learn about money together.

What should we teach our kid next? When did you start getting an allowance when you were little?

*I invest in real estate across the United States with CrowdStreet. This is a great way to diversify your investment. There are many interesting commercial projects available so sign up for a free account and check them out!

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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28 thoughts on “What we’re teaching our kid about money”

  1. You have potty training accomplished. Now teaching kids the value of money is a great thing. I received an allowance at a pretty young age, maybe 2nd grade. But I had to do work.

    Teach them some business skills now. If they want something, they should come to you with their idea why they need it. Have them start to develop selling skills, and cost/benefit analysis on a limited scale.

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  2. Teaching delayed gratification and saving money is important, but kids also learn lessons from observing parent’s behavior. One of the most valuable lesson you can teach them is the importance of working hard and persevering through the tough periods to achieve something. Being a stay at home dad and working part time is fine while children are very young, but once they’re school aged, it’s a terrible example to set. One doesn’t need to work at a corporate environment, but at least work 40 plus hours at a minimum to set a good example.

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  3. I agree with you and applaud your efforts. They are never too young and yes, it will take time to teach certain concepts.
    I started playing monopoly with my kids, I purchased a game that stressed certain money principals in order to get out of the “rat race” game. Money concepts are difficult to teach because as I have seen in my own experiences – even adults don’t understand it well.
    For instance, I wrote a book for my kids about success and becoming rich – the goal of the book was to teach them that success starts now. What you do now even at an early age counts. The big pull was on education – learning, the love of learning in orderr to succeed (that means doing well in school). Long story short I published the book for fun and many of my own family were shocked that I wanted to teach my children how to be greedy, self centered money grubbing capitalist. I have even had strangers comment on my blog about how my title was in appropriate because I shouldn’t be teaching my children to want to be wealthy or rich.
    It’s not about being greedy, it’s not about being selfish – its about financial freedom.

    And whether people realize it or not – it is necessary to “learn” how to manage money if you truly have any aspirations in life. Take it from someone who learn that lesson too late in life.

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  4. Wow, I’m impressed. Beside delayed gratification, you also taught him to shop the around for the best price and patient. These are all great skills to have. I agree math is the clear winner. Everything come down to math, the goal is to simplify everything into equations and concept to math – physics is math, science is math, music is math, draw, painting, and obviously investing.
    You can also teach him risk and strategy. I grew up playing poker, blackjack and other card games. I also played chess, checker, gomoku, reversi, and a lot of board games. I don’t go to the casino. I can make calculations very quickly in my head, probably because I was playing card games.

    Reply
    • We are playing board games with him now. We simplify the rules a lot. He cheats a lot, though. He doesn’t really understand the concept of rules and win/loss yet. He always want to win and if he doesn’t, he’ll cry… We’ll work on this one. 🙂

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  5. Delayed gratification will help him grow into a more responsible and thoughtful person. The kids that think that they should have everything right now are doomed for failure. Also, I like the idea of matching money for purchases instead of giving outright. For instance if one of the nephews want a new bike and it’s $500 bucks, then I will agree to pay for some portion of it. That way they have skin in the game and will likely take better care of it if they had to sacrifice to help purchase it.

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  6. Get him to build something with you. Something that takes a while that you guys can do together. It requires focus, commitment and if you repair something and buy the parts for it (say, an old bike that you guys turn into an electric bike or something), it also teaches him what it takes to create value for something, and he gets the fulfillment of building something with you from the ground up. Plus, it’s father/son time. I used to check the oil in the morning and help my dad rewire parts of the house when I was little, and it helped me later on with life skills, as well as made me see value in some things others take for granted.

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    • That’s a good idea. I’ll think of something to build. Maybe we’ll have to wait until he’s a bit older. He’s too little to help with anything right now.

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  7. Studies show that delayed gratification is/was key for later success in life. The taking time to comparison shop is a good start. Soon he’ll be an expert at it.
    It took my kid a while to “get this”. I always said, “she doesn’t “get it (understand)” now, but she will eventually “get it”, meaning, we wait for a sale, discount, best fare first. This And also learning wants vs. needs.
    Work ethic is another good start. I tricked her into picking berries all summer. It felt more like fun, but it was work! Hope this all makes sense, y’all!

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    • Delayed gratification is tough, but it’s a valuable lesson. It’s too bad that most people don’t understand this concept or just can practice it.

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  8. I like the idea of him wolfing down cookies at the bank, as a kid you look forward to those things, one of the joys of childhood.

    How about putting back 10% of everything into a permanent savings. Starting that process at an early age would have been a great thing for me. Not a savings to buy that Lego set you really want, but one that buys your first house, or funds your retirement. When I was a teenager working hard for that weekend money, putting back a percentage would have gotten me started on the right track. Can you imagine having a percentage of everything you ever earned?

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    • Yeah, he’s looking forward to Friday every week. The 10% idea is a great one. We’ll open a checking account for him and starting putting in 10% as he earn. I’ll probably match it to teach the concept of employer matching too. 🙂

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  9. Joe,

    I believe you are doing the right thing too start teaching Junior at eraly stage even if he doesn’t understand everything the first time.
    Take you time, repeat and repeat.

    I geet my first weekly allowance when I was 10 or 11, the by 15 I got a monthly allowance, which was more difficult to manage. But my parents gave me a challenge to put some money in my saving account when I was receiving the check. I must say it’s how I started and continued since then.

    Cheers, RA50

    Reply
  10. We recently shopped for a balance bike for my two year old son. Each time we went into a bike shop, he would want one. We started explaining that we were looking for just the right bike for him. He was very accepting when we left without one as we had not found The Right Bike.

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    • Wow, that’s a great 2 year old kid. Actually, our guy listened more when he was little too. Now he’s thinking more for himself and making life tough for everyone. 🙂

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  11. Our kiddos are 5,3, and 1 so most of our lessons center around their piggy banks and bank accounts as well. Additionally by us being Christians, we have explained the concept of tithing to them and how they are to give 10% of any money that they receive to church. We even let them walk our tithes and offering up to the front and put in the basket.

    I think giving kids incremental lesson while they are young, will help lay the foundation to add the more complex and detailed explanations of personal finance later.

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  12. I think you’re taking the right approach in teaching them about delayed gratification and thankfulness in what you got. 4 is just really too early age for kids to understand the concept of money. I think around 7-8 you’ll get a lot more traction.

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  13. I want to say I was around ten when I started getting an allowance. I had to do chores and behave myself, otherwise, no money for me. I remember always thinking I wasn’t getting as much as my friends were. Although, my parents did let me do extra chores for bonus money like washing the car or mowing the lawn. Looking back now, I appreciate the fact that my parents didn’t just hand me cash.

    I love that the bank has cookies! Our dogs love going to the vet for that same reason.

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  14. Another way to start teaching the fundamentals of money and saving without real money is to do a sticker chart. So – you would like draw say 50 squares on a piece of paper and then at the end of the chart have a picture of the toy he wants. Then let him earn those stickers, so he can see how they build up and get closer and closer to his goal.

    My son is just a tad younger than yours – and he likes to try and earn ‘coins’ but a penny and a quarter are just as exciting for him, so he doesn’t quite get the value concept… stickers are more visual, and seeing the blank and filled spaces helps him understand the goal.

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    • I’m not good with sticker charts. It seems to work wonder for the other moms. I’ll talk to the missus and see if we can set something up. A picture of a toy at the end is a great idea.

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  15. I think I was around 8 when I first started getting an allowance. My parents were good at teaching us delayed gratification. There were a lot of things we wanted that they would not buy for us. We had to do chores to earn the money and then buy the item we wanted. At the time, I hated the idea, but it has helped me now that I am older!

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      • Well, my Dad figured out how to teach us right from kindergarten that money has to be earned. He did it by rewarding us with money for getting good grades, landing on the honor roll, etc. We could either go to the store right away and buy something with the money or we could “bank it with Dad” until it built up enough to buy something we had targeted.

        And an allowance? What is that???

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  16. I think the delayed gratification lesson is a great one–and, I’m sure it helps that you illustrated it so well with the bike examples. I like how you’re integrating financial lessons into daily life with your son, seems like they’ll be more likely to stick that way.

    I’m not sure exactly when I started receiving an allowance, but I think it was probably around 1st or 2nd grade to the tune of maybe $1/week. I remember trying to convince my parents to pay me more for doing extra chores around the house, but I’m pretty sure that never panned out.

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    • It’s tough to explain to the little guy that we should wait. Kids just want things right away. He’s getting better at waiting and not whining about it, little by little… I don’t remember when I started getting allowance. My childhood is a big haze. My memory is so bad.

      Reply

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