Have you ever tripped over a pile of toys in your kid’s room? Toys that seem to multiply but yet never really get appreciated or played with very much. Or perhaps cleaned out the minivan only to find a toy under the seat that seemed so important to your daughter at the time you bought it for her, but was quickly discarded for the next best thing? Both of these scenarios happened to me and I knew there had to be a better way.

A better way to teach my three young children the value of money and the proper value of the “stuff” that money buys. One of my biggest concerns, as a Dad, is sending my three kids out into the real world with no money smarts, which leads to a life of zero savings, and worse yet, a life of battling credit card debt. Here are the five things my wife and I did to turn things around in our home.

1. Teach Them To Value Money – A couple years ago, my son really wanted a Nintendo DS. The sticker price of $150 was shocking to me. But I told him, “Sure you can have one, you earn the money and save up, and I will personally take you to the store to buy one.” I then planted the seed of recycling and turning in our cans and bottles for money. He jumped all over it. Not only did he save and sort our recyclables, he also hit up all his grandparents for theirs.

After he had a sizable haul, we would take them down to the recycle station and he would unload them and even sign the receipt. He finally saved up enough money for the Nintendo DS. It was a great experience for him and taught him that money does not just grow on trees. It has to be earned by hard work and dedication.

2. Give An Allowance – My kids are just now getting to the age where they can start earning an allowance by doing chores around the house. This is also a great way to teach the value of an earned dollar.

The psychology of money is amazing to me. I have noticed in my kids that when they earn money they are less likely to waste it on something trivial. They will want to save it in their dresser drawer for something special that equals the value they have put on the money. Whereas if I give them a couple dollars to spend at the store, they will buy some candy or toy that usually ends up on the floor of the minivan.

3. Savings Account – When each of our kids were born, my wife and I opened a savings account for them. We add birthday money and Christmas money from the grandparent to their accounts every year. When the statements come, I make a point of talking to them individually about how much money they have and how much interest they have earned. They get very excited with the news that they have earned $1.75 last month by doing nothing at all.

The idea of saving money for things like college, or their first car, has to be planted early and often. My hope is that it will help to remove the sense of entitlement that is so prevalent with kids today.

Editor’s Note: ING Direct, one of my favorite online banks, recently added a kids savings account offering that may be of interest to parents looking for a safe place to park accumulated allowance money.

4. In Order To Receive, You Must Give – It happened the other day in the car and it gave me goose bumps. My 6 year old daughter was whining about why she could not have some toy. Tired of her whining and without thought or hesitation I quoted Rich Dad, Poor Dad, “If you want something, you first need to give.” Silence. I let that thought just hang in the air for at least 15 seconds. I could see in her eyes through the rear view mirror that her mind was working overtime trying to understand the concept.

This led to a great conversation about giving, whether it be toys you don’t play with to a charity, or time spent teaching your sister how to ride a bike, and how these things will bring you much more in return than you could ever imagine. I then explained that by being generous, people are going to want to be generous to you. By taking time to help someone else, others are going to want to take the time to help you when you are in need.

5. Personal Responsibility – They are responsible for the money they receive from allowance and otherwise. When it’s gone, it’s gone. So I tell them that it’s their responsibly to save it wisely or spend it wisely if that is what they choose to do. And definitely don’t leave it laying around the house or it may end up back in my wallet!

The idea of personal responsibility carries over into other aspects, like “You say you want dessert tonight? OK, well, let’s look around the house and make sure all of your responsibilities are taken care of. Then we can discuss dessert.” You do this enough times and you stay consistent, they will take care of their personal responsibilities long before they come to you asking for something.

Do you have any tips to add when it comes to raising “money smart” kids? I look forward to our comments. Another aspect of being money smart is using coupons when you do make a purchase. Here are some of the better online coupons on my website right now. Thank you Jason for letting me contribute to the Frugal Dad blog.

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About The Author: Kyle James owns and operate a website called Rather-Be-Shopping.com which specializes in online coupon codes for over 700 stores, organized in 25 shopping categories. He also has a blog, where he writes about frugal living tips, creative ways to save money, and other musings about the adventures and mis-adventures of raising 3 active kids.

It has been said in the news over the last few years that Americans are not saving enough money. Many people blame the lack of savings finesse on their inability to make ends meet, let alone put extra cash away, but the reality is that most people never actually learned how to save.

It is for this reason that teaching kids what it means to set and maintain savings goals is more important now than ever.

Getting Started

For some parents, it is the ‘getting started’ part of the equation that is the most difficult to conquer. They may feel their kids are too old or too young to learn the importance of basic personal finance lessons.

The reality is no one is ever too old or too young to learn money lessons. In fact, kids of any age have the ability to learn and effectively incorporate good money habits into their lives.

Establishing Allowances

Even toddlers can have a hand in keeping the household running smoothly. While some are quick to argue the effectiveness of financially rewarding kids for doing household chores, there are certainly lessons to be learned. Every parent can establish their own system for financial compensation based on work done at home.

If your child is old enough to earn cash of their own accord, that income can also be an essential tool for learning about money priorities.

Setting Goals

Once it has been decided among family members how allowances are earned or how much income is generated from a teenager’s job, it is important for parents to have a one-on-one conversation about basic money matters. Even younger children have ideas of what they would like to have or purchase with their money.

For many, it is toys and candy. Older kids may already be interested in saving for long-term goals in addition to the more current desires like a vehicle, new clothing, or entertainment with friends.

Help your child make a list of the things they might like to save for and try not to dictate their personal decisions with your own parental insight. Let them have the majority of control of their ideas so they will be more motivated to start saving.

Discussing Deposit Requirements

Parents can teach kids the basic workings of savings accounts. Depending on age appropriateness, the discussion can be as simple as describing how they get to go to the bank and write their deposits in their savings register. Older kids can benefit from learning about how interest accrues over time.

This is also the time to discuss the amount of money kids should strive to save from a job or from their allowance through regular deposits. For example, 10% of income is the norm for many adults to tuck away into savings from each paycheck based on the ‘pay yourself first’ theory of personal finances.

By teaching this lesson early, parents are essentially setting their children up for successful financial freedom in the future. By teaching kids to always account for 10% going into the bank on a consistent basis, they will likely carry that lesson into adulthood without a second thought.

Let older kids calculate what 10% means in cash terms and help the younger kids develop a list of percentage amounts based on dollar increments. For instance, create a kid-friendly list that shows how much of a deposit is expected based on the dollar amount they receive.

Younger kids can look at the list and easily be able to report back that $4 in allowance means 40 cents must be put into a savings envelope. Since little kids likely earn less in a week than older ones, let them decorate a savings envelop of their own where they can put their change in until they have a sufficient amount for a bank deposit.

Going to the Bank

For kids of all ages, it can be a big event to take a trip to the bank for the purpose of establishing a savings account all their own. It is a big deal to feel the sense of accomplishment in setting goals. While parents have to fill out and sign the majority of paperwork, kids can still enjoy a walk-through of how things work at the bank. They can also be put in charge of collecting their bank register and filling out their first deposit slip.

Older kids may be interested in obtaining a checking account as well, so they have access to some money not going into savings or can start paying some of their own bills as they get older – perhaps their car insurance. All of this can be turned into effective money lessons that will last a lifetime.

Sticking to Your Guns

As a parent, it can be hard to see your child go without something they want. Once you have helped them to establish their rules and savings goals, it is important for you to stick to your guns and not give in when they beg for money to reach their goal.

It is not uncommon for kids to slack off in their household duties therefore failing in their attempts to save for a specific want. If you give in and provide money they didn’t work for, you are essentially reversing the financial lessons you are trying to teach.

When your child heads to the toy store or the new clothing store at the mall and doesn’t have enough cash to cover what they want, they will soon begin to understand the importance of self-reliance and a commitment to budgeting, even if they pretend to think you are the meanest mom or dad on the planet.

There is little chance in their adult life that someone will always come to the rescue financially, so setting kids straight at a young age is one of the best financial lessons a parent can provide.

Debbie Dragon is a freelance writer for ComplexSearch, an online bank rate tracker. Find high interest savings accounts and money market accounts with ComplexSearch.com.”

Unfortunately, I ignored many of their lessons with regard to money and spent much of my 20s digging out of debt. I certainly don’t want my own children to repeat these mistakes, and I believe it may be harder for them to dig out.

With all the economic turmoil going on, I realize being fiscally responsible will be more important (and more difficult) for my children as they grow into adulthood.

Parents have always had to battle things like unrealistic media portrayals and an overall culture of consumerism. But layer on top of that the ridiculous levels of debt we’ve piled up as a country, and their future looks a little less certain.

Put another way, our kids probably won’t have the backstop we had. It’s doubtful social security will be around. Who knows where health care will wind up. Taxes are likely to be higher, and at least in the near term (meaning the next 5-10 years), things will probably cost more thanks to inflation, currency devaluation or some combination.

But it isn’t all negative. There will still be opportunities for our kids. People will still be needed to teach, to build things, to design building and bridges and roads, to provide health care and nursing and rehabilitation. To work on cars, to serve in the military, etc, etc.

However, to take advantage of those opportunities, our kids must first set themselves up for success. With all that in mind, I offer up:

10 Things I am Trying to Teach My Kids About Money Before They Reach Adulthood

1. No one owes you a thing. Too many people go through their entire lives with the expectation they are owed something. This is not the case, or at least it shouldn’t be. All you should ever expect is to be judged, compensated and respected based on your work ethic and your ability to create, inspire and hustle.

2. Debt is a cancer. Debt is a cancer on our society, on households, and on us as individuals. It saps creativity. It creates pessimism. It robs your future dollars. It limits your freedom. Avoid debt like the plague. Remember the old adage:

“He who understands interest – earns it. He who doesn’t understand interest – pays it.”

3. Save for emergencies…big emergencies. When you are young and many years from considering retirement (and not earning much), it’s tough to save money. But I have discovered no softer pillow than having money in the bank for emergencies. Aim to save about a year of your basic living expenses in a simple savings account (no risky investments here). With a one-year cushion, you’ll be able to weather storms many others will not.

4. Live simply. In 2011, life seems pretty complicated. By the time you are adults, I imagine it will be even more so. There will be new gadgets and toys and cool services and “got to haves.” The problem is, all these things compete for your earnings. I’m not advocating living like a pauper, but limit yourself to only a few of life’s luxuries.

5. Sleep on big financial decisions. When it comes time to buy a car, or a house, or book your first major vacation as a family, sleep on the plans for a couple nights. People selling you these things want you to act immediately to lock in their commission, as I would expect them to, but remember that you are the one who has to pay the bill. Some of my biggest financial regrets came because of a knee-jerk reaction. Be slow. Be methodical. Listen to your gut.

6. Protect your credit. Not because you hope to borrow money, but because you may find people extending a service to you may do so for less cost if they think you aren’t a big risk. And if those people don’t know you well, your credit score may be their only determining factor. It’s not necessarily fair, but it’s a part of life. Credit blemishes can hang around for a decade, so it’s best to avoid them in the first place.

7. Learn to do things yourself, but don’t be afraid to call in the experts. You may remember the time your dad rescued a toy from the toilet trap, saving us an expensive plumbing repair bill. Or the time I climbed up in the attic to unclog the air conditioner drain. But your dad knows his limitations, and calls in the experts when necessary. That’s what emergency savings are for.

8. Shallow people judge your things, real friends judge your character. Some of the saddest, loneliest people I’ve ever known have been surrounded by the nicest things money can buy. They often acquired these things to impress people they thought mattered, and in many cases it did – temporarily. Meaningful relationships are based on things money cannot buy: trust, respect, integrity, compassion, love.

9. Don’t trade the things you care about for a big salary. Remember what mattered to you most when you were a kid: Family, fun, dreams. These things should remain important to you as a grown-up, but often adults sacrifice these things to earn a big salary. Now, everyone has to sacrifice some to earn a living, but by learning to be content, you may be able to earn a comfortable living while still enjoying other things.

10. Start saving early. Remember those money games we used to play when you were a kid? One of them was an attempt to get you to understand one of the great financial wonders of the world: compound interest. You see, when you save money you earn interest on it. The next month you earn interest on the money you first put in, plus the interest you earned the month before. That’s right; you earn interest on interest. Now carry out that example for many years, even decades, and you can understand how some people are able to accumulate wealth. The trick is, you have to start early.

Parents, consider opening a kid’s savings account to get them started early. Our kids deposit a portion of allowance earnings every couple weeks and it has taught them a lot about the mechanics of banking – completing a deposit slip, balancing their savings register, etc.

Finally, keep in mind something your great grandfather taught your dad about finding balance. Be frugal, but remember to occasionally stop and smell the roses. Life is short, and it is meant to be enjoyed. Take an expensive vacation every now and then. Buy something of your “heart’s desire,” even if it doesn’t make sense financially. Be frugal in other areas of your life to make room for things you truly enjoy.

This post was included in the Family Finance Carnival at About.com: Kids and Money

Your kids are moving out of the house to strike out on their own, and you’re understandably apprehensive about the situation for a number of reasons. We all know that some are more financially independent than others, but no matter how responsible they have been so far, there are a few things they need to understand about managing money—whether it’s theirs or yours.

Student Loans

While the temporary non-accruing interest can be appealing for students looking for some extra spending cash, insist that they borrow only what they absolutely need.

Maxing out non-interest bearing student loans may be an easy way to access additional funds immediately, but getting into this habit can mean your student might be paying back $100,000 or more in loans over a 20 year period once the interest starts to kick in.

Credit Cards

Tell your student not to worry about keeping up with the Jones’. They’re probably going to meet a lot of people their age who have a lot more money than they do, and that’s fine. That’s how the world works.

There’s a time and place for being flashy and making excessive purchases, and that time comes when you’ve established yourself as a successful professional who makes a consistent income—not when you’re in debt and unemployed.

The credit card situation becomes more complicated when you throw in the unemployment factor. Some students may not be able to hold jobs during college due to the nature of their studies (such as those who study law or aspire to get into a top medical program).

You’ll need to discuss the reality of whether it’s acceptable to get into debt now with the intention of paying off debt once a high-paying career has been established.

Paying Bills

Tuition. Rent. Utilities. Cable. Insurance. And of course potential student loans and credit card bills. You’ll want to be on the same page with your student about who is paying for what before they leave.

Maybe you’ll pay for tuition and rent, but they have to earn their own spending money. Or maybe you’ll give them a set monthly allowance for them to use as necessary and require them to come up with supplemental funds.

Prioritizing and Budgeting

How students choose to spend their money in college can affect the way they view money for the rest of their lives. When shopping, advise your student to ask themselves whether they actually need an item. If they think they need it, ask them to consider whether they could live without it.

Although they probably wouldn’t want to, asking these simple questions when shopping—even if it’s just for groceries—can be beneficial.

Another spending trend among college students—and many Americans, for that matter—is to overindulge within the few days of getting paid. This can lead to a lack of funds for the rest of the month, which can be uncomfortable to say the least. Introduce them to the concept of a no-spend weekend to help their limited funds last longer.

Saving and Investing

Nobody likes living paycheck to paycheck, and getting into this habit is especially easy during the college years when so many students are more concerned about having a good time than planning for the future.

Even though saving during such a financially restricting time might seem out of the question for your student, remind them that even saving a little is better than nothing at all.

Encourage them to get a summer job and then help them invest some of the money in low-risk options that allow them to access their money should they need it.

If you have kids, you likely worry more about them than you worry about yourself.How do you make sure they don’t fall in the same financial traps you fell into?

I know how you feel.I have 3 kids. The oldest is 22. The middle one is 19 and my youngest is 11. I worry about them.

I was fortunate enough not to have made huge financial blunders growing up – I didn’t have any money to be stupid with. I never had to worry about getting out of credit card debt. I didn’t even have a credit card until I got married.

Because I was so broke growing up I was super careful and never spent money I didn’t have.Fortunately, my kids haven’t grown up under the same circumstances.

That’s why I worry.

They really don’t know how hard it is to make money. And they don’t know what it’s like to go without.I want to make sure they don’t fall into the traps other people do.

The question is how? Here’s the approach I’ve taken so far:

1. Talk

I’ve told my children about my experiences growing up and I think that’s helped. I’m also lucky to be in the business. I talk about how to spot and avoid scams.

But it’s been more important to tell them about our situation in real-time. When my business suffered in 2008 I told them what was happening and what it meant to us as a family.
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Of course I tried to put it in perspective. I explained that we weren’t going to be homeless and we weren’t going to go hungry, but when things got lean, we had to scale down.

I later learned that by doing so I did them a favor.

They already knew there were problems. By talking about it, they were able to reduce their anxiety. Things weren’t as bad as they’d imagine.

2. Stay Calm

Kids think of money like you and I think of water. You go to a faucet. You turn it. Water comes out. It’s a no-brainer.

For kids, we are they faucet. They don’t understand how we earn money and what it takes. I can’t expect my kids to really “get “ that until they experience it for themselves. With young kids, I have to remember they have limited experiences and just can’t really understand it fully. That’s why I encourage them to work as soon as they can. With or without a college degree, any job can be a great job.

3. Encourage them to love spending money.

You probably think I’m nuts…but give me a chance to explain.

Too often, kids think of saving as the opposite of spending. Not so. You can either spend money now or have more money to spend in the future. You can either spend money on something you don’t value or wait and spend money on something that’s truly important. Frame it that way and you’ll see your kids embrace a new attitude towards current wasteful spending.

Once kids understand that money ain’t like water, this concept will be clear. They’ll understand that money is a limited resource and must be spent wisely.

4. Put them on a budget

Give them a fixed amount and let them do with the money as they sit fit. Advise them often, but let them make their own decisions and accept the consequences. When they blow it, don’t bail them out.

If the kids are in college, divide up the support you send into 12-monthly installments. Don’t pay for tuition, room or board. Add it all up, divide it by 12 and put that amount in their accounts each month. Let them learn how to work within a fixed income.

5. Jobs.

If you can, let the kids work for their money. Even if they are full-time students, they can find things they can do to earn money. Encourage them to be resourceful. They can even use Craigslist to find jobs. The bottom line is to give them as much experience as possible in handling their own affairs and refusing to bail them out.

What have you done to raise money smart children?

A recent post on Frugal Dad, Do Your Kids Have Too Many Toys? reminded me of a frequent topic on the parenting forums I used to administrate: how to deal with your extended family and the gifts (or lack of) that they showered on your kids.

Many of us who limit the amount of toys our children own aren’t solely motivated by the desire to save money. Toys are expensive but the real goal is to raise children who aren’t focused on material things, who take care and pride in what they do have and who value quality over quantity. It can be frustrating when well meaning relatives ignore our desires  and give our children mountains of flashy toys that don’t fit into the lessons we are trying to teach.

Even trickier is when one child or children in the family are favored above the rest and you are left trying to deal with questions about why Suzy got more or why Timmy gets less.  What’s more, whatever the issue is surrounding gifts in your family, chances are good that it’s complicated by feelings from the past and current power struggles.

If you’re experiencing conflict over extended families and gifts, here are a few points to keep in mind to help resolve the problems in the best possible way for all involved.

Sometimes it’s best to just let it go

If the problem is just that your family members are giving your child too many gifts or aren’t buying the kinds of gifts you prefer (for example loud, plastic toys over simple, wooden ones) it might just be better to let the matter drop and choose to feel grateful that your child has so many  people that love them. This is not to say that it’s not annoying that your wishes are being annoyed, just that it’s not worth the time to feel angry over something that is not that big of a deal in the long run.

You can always put away some or most of the toys and bring them out for rainy days so that they are not cluttering your house. Don’t worry about your child become spoiled because they get too many birthday or Christmas presents, as long as you are giving them a good example every day of a frugal, sustainable lifestyle they’ll get the message.

Be Proactive in Offering Gift Suggestions

Nobody wants to been seen as greedy or a gift-grubber, but sometimes it’s best to be direct about asking for what you want on behalf of your kids. You can’t control what other people do, but if you give helpful suggestions with solid reasons why you think it’s a good idea, there is a chance that they might do what you want.

Don’t be offended if they balk at the idea or insist their idea is better. After all, you think your ideas are better, too! Sometimes people need to feel like their point of view has been acknowledged and respected before they concede so don’t turn it into a power struggle. Instead respond with grace and tact and you might find that they change their mind and do as you suggest after all.

Try Not to Focus on the Past

Often dealing with these kinds of gifting issues can be surprisingly painful. Seeing your own child showered with gifts by grandparents that never visit can remind you of how you wished your own parents would spend more time with you. Or, if you were the odd child out, seeing your sibling’s children get more gifts and attention than your own can bring up feelings of rage and resentment that you thought had been buried years ago.

Your feelings are valid, but it’s important to remember that you are an adult now and your children don’t deserve to be saddled with your baggage. Do go to your spouse and friends for a supportive ear but be careful of what you say in your children’s earshot. Keep all discussions focused on the here and now rather than using it as an opportunity to bring up hurts from the past.

When to Speak Up

While sometimes it’s better to just say nothing and chalk things up to family weirdness, sometimes speaking up is necessary.

• When relatives are constantly giving your child things that are not age appropriate or go completely opposite your values or give items that present serious safety issues. Scale your response to the seriousness of the offense – giving an infant preschool toys might only require a gentle reminder to check the ages on the package while constantly giving your children who are being raised Jewish Christian themed items is a good call for a firm discussion on boundaries.

• If the discrepancy between gifts that the grandchildren receive is large and noticeable to all concerned, it’s important to take action so that relationships between family members are not permanently damaged. It might become necessary to avoid family gatherings to protect your children’s feelings. Ideally, these discussions should take place between the blood relations to avoid adding tension to relationships between in-laws.

• If family members are involved in the everyday care of your child and you feel that bad habits are being established. There is a large difference between getting spoiled rotten a few weekends out of the year and every day over-indulgence. Remember to show your appreciation for all the love your family member has for your children and be ready with suggestions of things that they can do to bond with your children that won’t cause issues with materialism or entitlement down the line.

Other Suggestions:

• Ask family members to buy things that provide value all year long, such as a zoo or museum membership rather than buying more toys. Point out all of the educational and social opportunities that this will give your child to make it extra attractive and promise lots of pictures.

• Suggest that family members draw names or buy family gifts for major holidays rather than buying for each person.  Family members might see this as a welcome relief from the stress and expense of buying for so many people.

• Let grandparents and Aunts and Uncles know that your child would treasure some one on one time with them more than a gift on their birthday. A lunch date and the movies would be a treat for both.

• It’s fine to ask for a gift receipt if your child is truly not able to use the toy because it’s age inappropriate or unsafe.

• Make sure that you give your child great lessons about money, consumer culture and the value of spending time together as a family on a daily basis. No matter what, you are your child’s best and most influential teacher.

Your turn

Have gifts to children caused any conflict in your family? How have you dealt with it? Did it work as planned?

This article was included in the Carnival of Money Stories

And what about these new Legos? When I was a kid you could buy a ton of plastic Legos blocks for cheap. They came in four colors – red, blue, green and yellow. Now, a larger Star Wars Lego set runs about $99, and includes hundreds of tiny pieces and 37-step instructions for assembly! I digress.

You see a pattern developing here? My son, like many kids, goes from one greatest thing to the next. Individually, these things are not that expensive (save the aforementioned Star Wars Lego sets), but collectively they can add up.

In addition to being expensive for parents, they do have a cost for kids, too. And I’m not just referring to toys’ way of eating into allowance savings.

Too many toys usually means too many distractions. Between the television, the Wii, the computer, the buckets of army men, trucks, Legos, etc, etc. there is little time to devote to things like books, and outside play.

I’m certainly not advocating getting rid of all toys. In fact, some toys can be quite educational. Others can be incorporated into outside play (my kids love the game Hyper Dash). But often toys are played with a while and then tossed aside, collecting dust and taking up space in the kids’ closets and toy boxes.

The number of toys accumulating never seems to diminish, nor does our kids’ appetite for more of them. Are kids born with a consumer gene?

Hey Mom and Dad – Make Sure You Don’t Own Too Many Toys

Kids learn much from the behavior modeled for them by their parents. Many parents are guilty of buying too many toys themselves. And many of us fall for the same toy fads that kids do, although our “toys” are often much more expensive.

Need evidence? Just hang out around a Best Buy store the morning Apple releases a new product – any product. I’m quite certain most people in line for the iPhone 4 already owned a phone – maybe even an iPhone 3. But they had to have the latest and greatest.

Kids notice this stuff. Maybe Dad buys a new pickup truck every two years. Mom picks up a new laptop with the first hint of a problem with the one she just bought 6 months ago. And both parents are always buying new shoes, new clothes, new jewelry and watches, etc.

Allow Kids to Buy Their Own Toys…At Least a Few of Them

At around age 5 we started giving our kids an allowance. Over the years we’ve gone back and forth on whether or not this allowance should be tied to chores. A final compromise was to identify a set of basic chores to be performed throughout the week that must be completed as a contributing member of the household. Additional chores could be performed to earn extra money, or not, depending on school schedules, motivation, etc.

We encourage the kids to use a portion of their allowance for spending, a portion for saving and some for giving. With their spending allotment, they usually pick up something small during weekly grocery/household supply trips – a magazine, a CD, a movie, a game, etc.

Of course, we still buy them a few things all along (I rarely turn down a request for a new book), and don’t expect them to pay for things like clothing (not yet, at least) and basic supplies. Eventually, as they mature, I’d like to increase their budget and include more spending categories for which they are responsible.

We’ve noticed that the kids are much more selective about what they buy, and often fret over “spending all their dollars” on a new game – leaving them with an empty wallet for another week.

I’m not unlike any other parent. I want my kids to have things better than I did. I want them to have more. I want them to have the best. But I also want them to grasp the connection between having nice things and the sacrifice required to earn them. I want them to be able to say “no” to themselves; to avoid the trappings of debt and consumerism as they grow older. Maybe they will avoid some of the mistakes I made along the way, or at least be prepared to learn from the ones they are bound to make themselves.

My parents divorced when I was very young, and I don’t have many specific memories of them arguing, except over money. Unfortunately, that’s a common memory for many kids, especially when economic times are tough. While it is impossible to shield kids from all that goes on around them, I happen to believe money worries are one of those things we should not share with kids. There are a number of ways to do that – some very specific, and some more subtle.

Don’t Fight About Money in Front of Kids

This one seems the most obvious. When it comes to transferring anxiety over money to your children, there is no faster way than to fight over it with your partner. Asking couples not to argue over money at all is a little unrealistic, so when differences arise, at least try to do it in private and out of earshot of your kids.

Spenders and savers are bound to clash, but when they fight in front of kids they give kids something to worry about beyond Mom and Dad fighting. Will we run out of money? Is Dad losing his job? Will we have to move? Will we have money for food? Even if parents are unsure about the answers themselves, they owe it to their kids to exude confidence when it comes to money. If things really do get bad, emphasize that no matter what, you’ll all be together and that home is where you make it – wherever that may be.

Avoid Language Like “We Can’t Afford That” or “We’re Poor”

This is one I’ve had to relearn myself. When kids ask to buy things, and money is tight, I try to rationalize with them instead of simply saying, “we can’t afford it.” Tell kids that instead of spending money on toys this week, you need to focus on buying some basic things like food and gasoline for the car. Ask them to come along to the grocery store to help pick out a few favorites. If you simply say you can’t afford something, kids will begin to wonder what else you can’t afford, and this could cause worry.

I will not allow anyone in our house to use the word “poor” when describing our economic situation – even when times were pretty lean in our own household. We might have been broke, but we certainly weren’t poor. It’s more than semantics. The word poor seems to connote inferiority, or having some unfortunate circumstance. We suffered from neither. We simply spent more money than we earned and had to live on far less to turn things around. We may have been stupid, but we weren’t poor!

Now, let’s shift away from things not to do around kids, and focus on some positive things to teach kids to help them with their own financial futures.

Start Teaching Kids About Money

When I was growing up, money was taboo. Parents would no more rather talk about money with their children than their love life. While this is still true to an extent, I think most of us have recognized that kids need to be more aware about the potential financial pitfalls out there than we were.

Start giving kids an allowance to budget their savings, spending and giving. Help them open a savings account and begin to teach the mechanics of a bank account – completing deposit slips, balancing a checkbook and explaining how compound interest works.

As kids get older introduce them to increasingly more complicated topics like investing, borrowing money, insurance, etc. By the time they are teenagers they should have a good grasp on Personal Finance 101 topics to better prepare them for life.

Encourage Saving Over Spending

As adults, we know it is prudent to put back a sizable emergency fund of several months (I actually recommend a full year) of basic, household expenses. Because kids are not responsible for everyday expenses, it is hard to get this message across to them. Instead of focusing on saving money for emergencies, teach kids to save money for opportunities.

Here is a very subtle example. Saturday night I took my son to Toys R Us. He had accumulated allowance money, along with a birthday gift card or two. I helped him find a few things in his price range, and naturally, he wanted it all, which would have wiped out his savings.

I gently reminded him of events coming up where he might like to have some money, and explained if he spent all his money today he would get no more until he received his next allowance. He came to the conclusion on his own that saving some back for a future opportunity was a good idea. He put back all but one toy and we left with cash in hand – I was a proud frugal dad!

Foster Entrepreneurialism in Your Kids

My parents and grandparents were probably a lot like yours – they worked 40-50 hours a week, punched a clock and recharged over the weekends. After doing this for several decades they were given a cheap retirement gift, maybe a small pension, and a retirement send-off. Well, times have changed.

The recession has underscored the importance of developing an entrepreneurial streak at a young age. Chances are very slim that your child will graduate college, pick one job and stay there for 40 years. More likely, there will be many jobs with many employers, and many periods of being “between jobs” in their lifetime. Wouldn’t it be great if they developed a “side hustle” to get them through those periods of unemployment, or to supplement their full-time income all along?

Perhaps you enjoy building things and have turned your one-time hobby into a side hustle building decks and fences on the weekends. Get your kids involved in the process as they grow older, and perhaps you can pass along a valuable trade. Even if they become accountants or fire fighters, having the knowledge and experience of a trade to fall back on could be incredibly valuable to them over a lifetime.

The point is not to stifle your kids ideas by forcing them into some ideal career path you have selected for them. Allow them to cultivate their own ideas. Over the next few decades, personal branding, and the branding of individual ideas will likely be hotter than any particular industry. Think about it – iPhone apps may be the next lemonade stand!

In a way, social media, and new media, have greatly expanded the opportunities for kids to create new products, explore new ideas and push new content into the mainstream. It’s never been a better time to have an entrepreneurial mindset, and fostering that in your children at an early age is invaluable.

Every year, when Father’s Day rolls around, the media floods the airwaves with statistics reminding us how many bad dads are out there. From deadbeats who don’t support their children, and their children’s mother, to males who abuse the same (son, these are “males,” they do not deserve to be called men).

Unfortunately, too many good examples of great dads go unreported. The truth is, this land is full of hard-working men providing for their families. An even greater set of men (and women) serve this great country by willingly signing up to defend it and its allies around the world. Your great grandfather is one such man, and many of the lessons I’ll share today I learned from him.

A Legacy of Frugal Dads

Your great grandfather, Papa, as you know him, was born in 1925. Most of his formative years were spent in the rural south during the Great Depression. One of nine kids, his mom and dad struggled mightily to keep food in their kids’ bellies and shoes on their feet. In fact, most summers (and occasionally into the winter) they went without shoes.

Your Papa’s father was a carpenter, as was his older brother – a darn good one, too. The three of them had the opportunity to work together when Papa got older, but before that, Papa earned money for his family selling newspapers and magazines, stuffing bags of meal and flour in a mill, and a variety of other odd jobs. He might have kept a dime or two out for himself each week, but everything else went to his family.

These were hard times son. Harder than any of us can imagine. Few of us have known such despair, and I hope you never will. As a parent, your greatest fear is losing the ability to provide basic needs for your children. You’ll understand this as you grow older and one day have a family of your own.

As soon as he was old enough, Papa signed up for the Navy, and quickly joined the Marines as a fighter pilot. He served in Korea and Vietnam, flying both jets and helicopters, and did long tours in the Mediterranean, Japan, and other spots around the world. This meant he had to leave behind his wife and kids for long periods of time, which to him, was tougher than the duty he was sent off to do. He served 29 years in the Marines, and retired in his late forties.

Despite a tug to continue lucrative work in the private sector, he left the D.C. area and returned home to care for family members, an obligation he continued for nearly 40 years. At 84, you may have noticed it is now he who needs a little help from time to time, and your dad is happy to lend a hand. After all, it was an example set for me at an early age.

Being a Dad Worth Looking Up To

Once upon a time, dads were looked up to as an iconic figure – Dad could fix anything, he knew everything, and he always knew what was best. Over the years, for a variety of reasons, this respect for fathers has waned. I blame some of it on a few bad examples, but most of it on the media. As I mentioned in the beginning, the media loves to remind us of the bad examples, and rarely focuses the spotlight on the good ones. And believe me son, there are plenty of good ones out there. Here are two of my favorites.

“Dad, when we run it feels like my disability disappears.” – Rick Hoyt

Dick Hoyt, former military man and father to a disabled son, heard these words from his son as he towed him around on his bike, boat, and carried him during runs. And that was all he needed to hear. He and Rick participated in training runs, bikes and swims and competed in triathlons all over the country. Dick Hoyt raised his son Rick to be a productive, independent young man with his own career, despite physical challenges unimaginable to you and me.

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Jim Redmon, father of track star Derek Redmon, didn’t just sit around and watch his son leave his race unfinished in the 1992 Olympics in Barcelona. He quickly made his way to the track to help his son, stricken with a torn hamstring, limp to the finish line in tears. Derek didn’t win that race. In fact, I don’t even remember who won it. What I do remember is the example of this dad being there for his son to lean on. To share in his agony, and provide a steady shoulder to help him through to the finish line – even chasing away track officials trying to stop them.

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Those were two high-profile examples of great dads, but there are millions of other dads anonymously going throughout their days with family as the number one priority. They are working a night shift to save enough to send their kids to college, or help get their family out of debt.

Maybe money isn’t a problem, but to earn that money they have to stay in a job they don’t particularly like, or work for someone that treats them like dirt.

When they were younger, they dreamed of another career, but for now are content holding onto the job they have to help their children achieve their dreams.

They are raising their children alone after an illness or an accident claimed their spouse.

They are supporting their kids even though things didn’t work out with their kids’ mom.

Maybe they don’t have a job at all right now, and are living 24 hours a day in worry over their family’s well being. They are pounding the pavement looking for another job, or working part-time, or donating plasma, or doing whatever they can to make ends meet. You see son, a real man swallows his pride, and does what he has to do for his family.

Becoming a Frugal Dad

My son, there are so many things left for me to teach you about the real world. Much more than I could write in a single letter. But above all else, remember that no one owes you a thing. You are responsible for taking care of yourself, and one day, your own family.

You will be tested, by our culture, by our government, by bad examples, and by a lazy streak that attempts to attach itself to all of us at some point in our lives. You must ignore these influences, and remember that your goal is to grow to be as self-reliant as possible.

Here’s a few things to keep in mind as you grow older:

• Do not depend on government for your well-being. In an emergency, don’t be too proud to accept help, but do not make it a way of life.

• Do not depend on banks for financial security. The best credit line available is the one attached to your emergency savings fund. Remember, the borrower is slave to the lender, and you don’t want to be a slave to big banks. Take my word for it!

• Do not depend on schools to provide 100% of your education. You must self-educate beyond the lessons taught in school. Challenge your educators, and challenge your own thoughts. Read books. Read books contrary to your own opinion, so that you may learn another point of view. Read books on subjects you don’t think you care about and you just may discover your passion.

• There’s no such thing as get rich quick. Building wealth takes time, and a lot of hard work. If you want to be successful in anything, you must work at it for hours every day – sometimes late into the night, and early in the morning. If you are happy with mediocrity, punch the clock after 8 hours, plop down in front of a television and waste valuable time until you fall asleep. Repeat this process until the weekends when you can do even more of the same.

• Be skeptical. Don’t believe anything you read, most things you hear, and even a few things you see with your own eyes. Question everything. Nothing in life is black and white.

• Choose your spouse carefully – it is the most important decision you will ever make. Love has a way of robbing us of our intellect, and in many cases leads to irrational decisions based solely on emotions. Choosing someone to spend the rest of your life with is far too important for that. Look for someone that shares your hopes and dreams. Someone who is ambitious, but not too much. Someone who has the same values and beliefs as you do. Like you’ve heard your dad say before, opposites do attract, but they rarely stay together forever.

Love,

Dad

*This post was selected as an Editor’s Pick in the Carnival of Personal Finance #262: 80s TV Edition, hosted by Personal Finance Journey

Here lately, I have been thinking more and more about the need for financial education curriculum in public schools. I am constantly amazed by the number of young people (and young adults) I interact with that have no basic understanding of how finances work. I mean a very elementary understanding – like how to balance a checkbook, how to compute interest, or what a mutual fund is.

After watching story after story from this latest recession, it is clear to me that our national personal finance IQ is too low. Perhaps if we raised more financially savvy generations we could avoid many of the same mistakes.

What Age to Start Teaching Basic Finance?

I like the idea of teaching kids about money when they are fairly young – like eight years old or so. By this time, many kids are receiving allowances, or receiving money for birthday presents. This makes money lessons a little less abstract – they can actually touch, and spend, their own money.

If we start at seven or eight years-old, that means plenty of very basic financial concepts could be well-covered over the next ten years. We could teach kids the value of saving money. We could teach kids the dangers of taking on too much debt. We could teach kids the power of compounding interest to foster and early interest in investing their money.

Will every child “get it” and become a future Warren Buffett? Of course not. Just like every kids doesn’t fully grasp chemistry and become a research scientist. But for the general student population, a general course each year in personal finance could go a long way towards creating a more financially-savvy young adult population.

Isn’t It Up To Parents to Teach Kids About Money?

Yes, it is. I believe it is up to parents to teach their kids most of life’s lessons. However, teachers can supplement that learning, and in cases where parents are unable or unwilling to participate, teachers may provide the only education source for children. It is a sad reality that the latter scenario plays out far more often than the former. Lack of parental involvement makes teachers jobs much more difficult. This is especially true in “real world” subjects such as personal finance.

How Can Parents Teach Kids About Money?

Besides modeling responsible spending habits for your children, there are a few things we can do to help kids learn financial concepts outside of a classroom setting.

Take your kids grocery shopping. Rather than having kids passively follow along while you do all the shopping, encourage them to help with your math tasks. Teach them how to calculate the unit price and compare two items for the best value. Weigh your produce and let them estimate the total cost by multiplying the weight by the cost per ounce/pound. Let them keep a running total of your bill on the back of your grocery list (for bonus points, older kids can even calculate the sales tax for a total bill).

Take your kids to the bank. My grandfather was in his 70s before he first used an ATM, and I don’t think he has ever used a drive-thru window at the bank. He believes in “eye balling” people when doing banking business. So growing up, I knew my way around the bank after tagging along with him. I watched him cash a check for cash (he called this “walking around money”). We rolled coins and deposited them into my grandparent’s account. Of course I loved it, because I always got a lollipop from the teller. Little did I know I was actually learning about how banking works, something I now hope to pass along to my own kids.

Give kids a four-quarter budget lesson. It’s a simple exercise, but helps kids understand that money is finite. If only Congress understood this! I digress.

The link above explains the exercise in detail, but basically you give your child four quarters representing major categories of your budget (taxes, mortgage, transportation, everything else). Ask for a quarter back to pay taxes on your income, another to pay for your home, and another for your car, auto insurance, gas and maintenance. Then explain with that last quarter you have to put some in savings, some towards food, lights, water and most of the rest towards bills. With that last little fraction of a quarter of your budget you can spend on toys and fun stuff.

Let kids pay the power bill. No, not out of their allowance! Let your child sit down a couple months and write out the check for the power bill. Show them the bill and explain the various lines. This is how much electricity we used every day. This is how much it costs us to run the television, lights, air conditioner, etc. This should also help them understand why you constantly go through the house behind them turning off lights and the television (I’m not the only one doing this, right?).

Buy kids a share of stock, and let them pick the company. If they like Disney movies, buy a share of Disney. If they like chewing gum, give Wrigley’s a look. And who doesn’t like McDonalds (which is actually a pretty good dividend play, too!). Show them how to look up the stock quote in the newspaper, or online. Consider adding a second share in a completely different industry – a great introduction to diversification.

What are you doing to teach your kids about money? I always enjoy learning new teaching methods, games, etc, so please share.

*This article appeared as an Editor’s Pick in the Carnival of Personal Finance: Famous People With Tax Troubles Edition