Today we’re taking a break from tax season technicalities to discuss something a little bit more fun but often more stressful: children. Actually, children and money. That doesn’t sound very relaxing, now does it?
Today’s post was inspired by my daughter who will be turning 6 ½ in two weeks. She has decided that she wants to make YouTube videos with me where we talk about finances. But first, she needed to learn about finances. So that’s what we discussed all weekend. What? Isn’t that what all first graders are into?
I was actually amazed at how much a 6-year-old can learn and understand about finances. I explained budgeting to her and she immediately turned around and re-taught the lesson to her older brother. She now understands insurance, taxes, and compound interest. She’s really excited to start investing. She has $7.08 and wants to open an investment account already.
Now, my daughter might not be totally normal, but she’s not some rare genius. I think we often sell our kids short these days, thinking things are too complex or too advanced for them. Kids are a lot smarter than we give them credit for.
My daughter wanted me to write today’s blog post about kids and money. She was right. The sooner we start teaching our kids these things, the better off they will be in life. So, here you go. I won’t get into investing quite yet, because I think it’s important to first lay the proper foundation. Here are 6 things that you need to teach your kids about money starting now, written as if to a 6 ½-year-old.
Nothing Is Free
Everything costs something. We have a house to live in because mommy or daddy goes to work to earn money to pay for it. Because why would someone take all the time to build a house and give it away? They put a lot of work into building it, so we have to pay them for that work. We have to pay for the clothes that we wear, the food that we eat, and the car that we drive.
Nothing is free. If it seems like something is free, it’s because someone else is paying for it. You might think that your birthday presents are free because you don’t have to pay money for them. But, your friends and their parents paid money for them. Every time you get something, someone somewhere paid for it.
You Have To Pay To Use Someone’s Money
Even using money isn’t free. If you borrow money from someone, you have to pay them to use it. Otherwise, why would they give it to you instead of keeping it for themselves? What you pay to use money is called interest.
If you borrow money, you have to pay interest. If you let other people use your money, they pay you interest. And interest compounds, which means it gets bigger and bigger. So, if you borrow money to buy things, you end up paying a lot more for them. If you invest your money and let other people use it, then you can earn a lot more money because they pay you. I showed my daughter the following chart to explain how interest gets bigger and bigger, or compounds:
| Account Balance | Interest Earned (10%) |
| $10.00 | $1.00 |
| $11.00 | $1.10 |
| $12.10 | $1.21 |
| $13.31 | $1.33 |
| $14.64 | $1.46 |
| $16.10 | $1.61 |
| $17.71 | $1.77 |
| $19.48 | $1.95 |
How To Earn Money
There are two ways to make money; work and investing. In order to work, you need time. In order to invest, you need money. It’s best to do both. Work and save up some money. Then invest that money so that it can start to earn compound interest like we just discussed in the last point. You’ll end up with a lot more money if you’re working and your money is working for you as well.
We All Pay Taxes
Sometimes, there are things that we want or need that we can’t do on our own. We need everyone to work together and help to be able to have them. You want to be safe, but you can’t pay for an army or police on your own. We need roads to drive on, but we can’t afford to build them all on our own.
When we join together to do things like that, the people that we put in charge of doing them are called the government. Everyone has to help pay for the things we want, like the army, so we each give money to the government. That’s called taxes. We pay taxes to the government when we buy things (sales tax), when we own a house (property tax), and when we earn money (income/payroll tax). Everyone has to pay taxes so that we can all have things that we couldn’t get alone, like an army, policemen, roads, or schools.
Some people think that what the government does for us is free. But nothing is free, remember? We pay for everything that the government does by paying taxes.
Money Is Just A Tool
A tool is something that isn’t good or bad by itself, though it can be used to do good or bad things. A wooden spoon can be used to make brownies or to hit your brother. The wooden spoon isn’t good or bad, it’s how you use it that matters.
Money is a tool like a wooden spoon. You can use it to do really good things or you can use it to do really bad things. It’s your choice of how you will use your money.
None Of It Is Really Ours
Who made the world? Who owns everything in it? If God made everything, doesn’t that mean that he owns everything? If God owns everything, then our money isn’t really ours, is it?
Everything that we have really belongs to God. But he lets us take care of it for him. When you go to a friend’s house, she will let you play with her toys and play however you want with them. But, in the end, they are still her toys and not yours.
It’s the same way with God and money. He lets us use it however we want to, but in the end, it’s all his. Because of that, we should use it the way he would want us to. Don’t hit your brother with the wooden spoon, make him brownies with it!
Those are some foundational financial principles, in kid-friendly form. If my kids can understand them, then so can yours. If you don’t teach them now, they will end up learning the hard way later on in life. I just tucked my daughter into bed and she gave me a hug and told me, “Thanks for teaching me that stuff.” I’m sure she’ll feel the same way twenty years from now.
