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10 money lessons to learn from a young age

30th September, 2021

Like all life skills, learning how to manage money well takes a lot of practice and the later we start, the harder some lessons are to learn and the tougher the consequences.

While it’s unfortunate that the pandemic has affected the financial well-being of so many families, the good news is that parents are having more conversations with their kids about money. According to T. Rowe Price’s 13th Annual Parents, Kids & Money Survey, “parents feel an increased urgency in a need to have money conversations with kids.”

Research shows that kids, who have had frequent money conversations with their parents, are better positioned for financial responsibility in adulthood. And we couldn’t agree more, but we also know it’s easier said than done. Cents for Kids is a Davy initiative that supports parents with the tools and resources they need to talk with their kids about money and take advantage of everyday teachable moments, beginning with the basics at a young age.

1. You need money to buy things

From a child’s perspective, they see us paying with plastic or smartphones for just about everything these days, so it’s harder for kids to make the link – make sure they don’t think that we’re buying things with a magic tap.

2. You earn money by working

We’re all familiar with the saying “money doesn’t grow on trees,” but the bank link can appear to be a never-ending source of funds too. Rarely do kids see the hard work that goes into affording the essentials – let alone the extras – so make sure they know that you work hard for your money.  

It’s also a good idea to give kids an opportunity to earn their own money. Check out Start as you mean to go on and Where does money come from? for ideas on how to get started with pocket money, including examples of age-appropriate chores as well as helpful downloads.

3. You need to make choices about how you spend your money

We all have a finite amount of money to buy the things we need and want. We take for granted all the financial decisions we make in our head every day, so say it out loud and talk through why you’re not buying something or why you’re choosing one item over another. And the next time your kid nags you for one of those overpriced magazines with toys taped to the front cover, you can tell them that’s what their money is for.

Finding ways to emphasise money is a finite resource and establish limits is even more important in wealthy families. For ideas about how to discover your family values together and align your financial decision-making with those values to get more satisfaction from your choices, check out Waste not, want not—the value of knowing your values.

4. There’s a difference between things you need and things you want

At the end of the day, kids aren’t likely to be spending their money on basic food, clothing and shelter, but we all make choices and have to learn how to prioritise our spending. Although, if you want your teen to never lose a school hoodie or jacket again, have them replace it with their own money.

Ultimately, differentiating between needs and wants helps us to avoid impulse purchases or be more discerning when we must cut back on expenses. Discouraging your child from buying that Kinder Surprise Egg and explaining that it’ll keep them from reaching their other goal(s) sooner or that if they save that money instead, they could afford something even better they’ll actually use. That said, let your child make mistakes and don’t bail them out – buyer’s remorse is a tough lesson to learn, but the younger it’s experienced first-hand, the better!

5. You may have to wait to buy something you want

As if instant gratification wasn’t enough to contend with, we now have the rise of digital giants tempting us with “buy now, pay later” offers at every virtual checkout. It’s becoming increasingly easy to spend in the moment and deal with it later, so it’s important to be strengthening that resistance muscle in our kids while they’re young!

A good motto to live by is to spend on things you need and save for things you want. For example, kids shouldn’t be spending an entire week’s allowance on a single item or even in a single weekend unless it’s something they really want or already planned to buy with their money.  

If you have a kid with money burning a hole in their pocket, you can also try to curb impulse purchases by establishing certain ground rules. For instance, any item over €X or random purchases that weren’t planned for, requires a “cooling off period” to be sure it’s something you really want and to do some research before you buy.

6. You should shop around and compare prices before you buy

As children get older, you should start explaining your thought processes – now at a higher level – ahead of big purchases. We’ve got so much information at our fingertips and comparing prices doesn’t require us to go from shop to shop, so next time you’re doing a bit of research online before you buy, invite them to sit down with you or help them do their own.

You might also include your child in small buying decisions when you’re at the store, pointing out when you choose items on sale or highlighting a particular brand you like to buy because it’s organic or fair trade, which is why you’re willing to pay a bit more for it.

7. It’s important to save for a “rainy day”

While a “rainy day” for a kid looks more like not affording a treat or toy, we adults know the consequences of not having money set aside for emergencies can be really distressing. The rule of thumb for adults is to have at least 3-6 months of living expenses set aside for emergencies. The amount varies depending on income, types of emergencies that might arise for you, net worth and your essential monthly expenses – the lower your income certainty and net worth or the higher your expenses and potential risks, the more you should have set aside in cash.

For kids, it’s a good goal to have 2-3 weeks’ worth of savings before they start spending their money. Check out June's Cents for Kids newsletter, Teaching kids the basics of budgeting, for practical ideas on how to introduce money to beginners, including Budgeting tips for teens as well as conversation starters, activities and downloads that will help you take advantage of everyday teachable moments.

8. A goal without a plan is just a wish

Whether you’re saving for a down payment on a home or for a new Lego set, if you want to achieve something or be able to do something that’s important to you, you’re more likely to reach your goal and sooner with a plan.

Having a financial plan is simply knowing what you want, what it costs and what you need to earn, save, invest or borrow to make your goal a reality – kids’ goals may be smaller, but the approach is no different.

Help your kids identify a goal for their money and then a plan to reach it, check out our Goal Tracker to help kids keep track of their money and their progress toward goals. And our Budget Review Worksheet can be useful for tracking saving and spending even in the absence of goals – getting familiar with the money coming in and going out is a good habit to get into. 

9. Investing in yourself could be the best investment you’ll ever make

Ultimately, we invest to create income and opportunities for our future – this includes an investment in ourselves and our abilities. Education and training take both time and money, but it generally has a positive return in terms of the income that people earn over a lifetime. It’s good for kids to make the connection at a young age that the more you know about how to do something and the better you are at it, the more money you can potentially make.

Check out The more you learn, the more you’ll earn, which includes our Choosing the right job for you worksheet to help kids identify some of the things they can do to make money.

10. The sooner you start investing, the faster your money will grow

A good analogy to help your children understand the compounding principle is to have them picture an orchard, filled with trees that are filled with fruit filled with seeds – and how it all started from a single seed.

In the same vein as investing early, the sooner we give thought to what interests us and what we’re good at, the sooner we can identify possible careers and start developing the right skills. For older kids, check out Which careers match your skills? together and help them identify potential careers based on their skills and interests.

Check out these activities to teach kids about compound interest, which includes some really good games that are organised by age with easy-to-follow instructions that are downloadable for print.

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Cents for Kids is focused on building financial literacy in children and supporting parents with the tools and resources they need to model good money sense and teach their kids about money.

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