Money as a Medium of Exchange: Teaching Kids about Money
I was recently invited to speak with a junior boy’s club. The club leader requested I share a few introductory principles of money with the boys. The junior boy’s club leader added how exciting it is to work with boys of this age. The education these young men receive now will impact them over their entire lives. I appreciated the opportunity teach the boys a few financial fundamentals, intending to create a strong base on a very important subject.
In preparation, I thought back to when my son was the age of the boys in the club, and I considered how he thought about money back then. His understanding of money was best illustrated when grandma sent him a card in the mail This is a fond memory because when he opened the card from grandma and found the money in it, he would start jumping up and down in excitement. He knew that he could exchange the dollars in the card for a Thomas the Tank Engine toy at the store. My son had learned that he could exchange the piece of green paper for what he wanted. He also understood that pieces of green paper had different values and that certain bills were worth more than others. By this age, he had learned the first two fundamental concepts of money. Firstly you must have some money, second, you can exchange money for something you need or want.
These first two concepts of money are fairly simple. But they prompt the question, how does one acquire money to make an exchange? In short, I tell the boys they need to earn the money. Notice that I did not say to work for money, but rather to earn the money. Money can be earned in a variety of ways, not just work. Yes, it is often generated by exchanging your time working for a wage. But, money is generated when your money makes more money through an investment return. Other times money is generated when you have a passive income source that generates money without your direct physical labor. And if you are lucky, sometimes it is given to you in the form of a gift.
Most individuals would say, so far so good. Kids learn these concepts quickly, and most adults understand them as well. It’s the next steps that people start to have trouble with, and kids sometimes struggle to understand. It’s the concept of managing money among competing areas. Over time, individuals start having responsibilities like buying food, shelter, transportation, insurance, paying taxes, retirement savings, health care, emergency fund, lifestyle, wants, and tithes. All these things are competing for the limited dollars we earn. Looking back to my son, he only had one thing competing for the money grandma sent him, his desire to have a new Thomas the Tank Engine.
The task of managing competing needs/wants with limited resources can cause individuals to have sleepless nights. The idea that just earning more will end all your worries really sets people up for failure as well. A better place to start is by effectively managing what you currently have. Often, more money will just magnify someone’s current behavior. How many stories have we all heard about a famous person living in poverty later in life? The more money you have doesn’t make it easier, it ultimately creates more responsibility because your choices are now magnified.
Ultimately, defining our values and determining what is important to us, helps us decide what to exchange our money for. This process of defining values begins when we are very young. Teaching children about money helps them become adults who have a good relationship with and understanding of money. We ask new clients the question, “What lessons about money did you learn when you were growing up?” They respond with a variety of answers. However, we consistently observe that the relationship with money they learned as children stays with them throughout adulthood and beyond.
This next generation may never step into a bank building, nor pay with cash. Their entire financial world will be virtual. My generation might complain about telemarketers calling our cell phones. The next generation will need to deal with highly focused ads that entice them every time they look at their phone. For these reasons, teaching kids about money is as important today as it has ever been. Thankfully, access to money management tools is easier than in years past. In today’s world, you can run most of your financial life on your smartphone.
T. Rowe Price’s 11th Annual Parents, Kids & Money 2019 Survey found that nearly half of parents said they miss opportunities to talk to their kids about money and finances. A quarter of respondents said they are very reluctant or extremely reluctant to discuss financial topics with their children. Kids, on the other hand, are eager for their parents to share their wisdom. Half of the children surveyed said they wish their parents taught them more about money.
Helping children learn how to have a good relationship with money can change their future!
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