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January 20, 2020

How to Teach Kids the Value of Money (And Why They’re Never too Young) – with Liz Frazier


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Almost half of the US would not be able to cover a $400 emergency.

Around 40% have credit card debt. And 1/3 of Americans have saved $0 for retirement.

If we want our children to survive these financial trip hazards and truly thrive, we need to start their financial education early. Our guest today, Liz Frazier, is a leader in the financial literacy movement and she's helping parents teach their young kids the value of money as soon as possible.

Liz is a fee-only certified financial planner and the author of Beyond Piggy Banks and Lemonade Stands, How to Teach Young Kids About Finance. She is a regular contributor for Forbes and has been featured in national media such as The Wall Street Journal, PBS, CNBC, ABC and Fox Radio. Liz lives in New York with her husband and two young kids.

We’ll be discussing how to get started with educating your kids about money, how to help children determine needs versus wants and how to encourage them to be grateful and appreciate what they have.

Teaching Kids Needs Versus Wants

As a certified financial planner, Liz Frazier meets with people to talk about their financial situations on a regular basis. She believes it all starts in childhood; if you start your kids off with positive money attitudes as early as possible, it pays off in bucket loads in the future.

She also emphasizes the importance of having your money situation in check, since children absorb money behaviors and beliefs just by watching their parents. 

Liz compares finances to nutrition; when is it too early to start talking to your kids about nutrition? The earlier the better. Same with money. No need to take out the spreadsheets and discuss hedge funds – start with something simple such as the building blocks of finance: needs and wants. 

teach kids about money

The “needs versus wants” topic is the basis of our budget. It’s exactly what “smart spending” is: taking care of our needs first. Our wants come after our needs are satisfied. Liz works on this with her own kids by creating poster boards, getting them to pick out pictures from magazines and then asking them: is this something that we need for survival or is this something that we want?

It’s a fun way to bring the budget to life and get them engaged in the process at the same time. From there, it’s easy to move on to priorities:

  • Water
  • Food
  • Clothes

How about prioritizing our wants? Liz breaks out a catalog, sits down with her children and starts talking about priorities. She talks to them: “Here are 500 things you want. If you could only have five, which five would you have?”

From priorities, she moves on to decision making, a core part of smart spending. Her kids have their own “spend” money, and whenever they go out to buy something Liz walks them through the decision making process.

She walks them through the pros and cons of each one but ultimately lets them make the decision. Even if it may seem counterintuitive at the beginning (e.g. a toy you know they’ll hate in five minutes), it’s important to let them “feel the pain” so they won’t make that mistake later on. 

Related Article: Managing Gift Expectations with your Kids During the Holidays

How Allowance Helps Kids Learn About Money

Giving an allowance or not giving an allowance is a hot topic among parents. Liz is a big fan of allowance. She believes that the best tool that kids have to learn about money is money.

A great way to start practicing is by giving them their own money. But not just any money, money that they feel they’ve earned so they have some skin in the game. 

Personally, Liz likes a hybrid approach to allowances. The kids do their chores, which they don’t get paid for (e.g. cleaning up the room, etc) since they’re part of the family and expected to do those chores. Separate from that, she gives them an allowance every week. Her daughter is six years old and gets $6 per week.

Then, on top of that, they can identify extra chores to do so they can make additional money which is still related to working. If they want to save up some money, they can rake the yard or wash the windows for an extra $5, anything that is not part of their daily routine. 

Related Interview: Why Parents Shouldn’t Tie Allowance to Chores

What Kids Can Do With Their Money (Smart Spending, Saving, Giving)

Liz is a big fan of the Save, Spend, Share piggy banks. Those are three clear jars (so the kids can see their money actually grow), and every time the kids make money through extra chores, their allowance or gift money, they put the money in the three jars.

Save Save and Give Jars

What’s the right percentage? It’s whatever you’re comfortable with. Liz does 80%, 10%, and 10% – but it’s really up to you. When building these early habits with kids, you're practicing the importance of paying yourself first every time you make money. 

Saving money doesn’t have to be boring.

Liz shares the example of a $40 Lego set. She creates a big poster board and puts it next to the savings jar. She also creates milestones for them along the way. When they reach $7, she makes it into a big family thing and they go get ice cream.

When they reach $15, she matches it and gives them $15. Every time, they are engaged and excited, and it’s genuinely all attainable. When they reach the goal, they get a huge sense of accomplishment. 

The monetary reward or present is pretty exciting, but if you also show how excited you are for them and give them a big hug when they’ve done something well, you’re also making positive messages towards money as well. 

Related Interview: 5 Smart Ways to Save and Invest for Your Child’s Future – with Damian Dunn

Getting Kids Interested in Giving

When it comes to teaching your kids how to give back, it doesn’t have to start with finances. Start with basic acts of kindness: helping a neighbor shovel snow, baking cookies for the mailman, and supporting family members when they are sick. That’s teaching your child about charity because it’s really about helping somebody in need. 

When it comes to charitable giving, you can get them engaged by letting them choose where their money goes and let them know what kind of opportunities they have out there. For example, if your kid is an animal lover, you can help them donate to their local shelter and make it fun.

At the end of the day, you’re not only helping the animal shelter, but you’re also helping your kids because they’ll feel a huge sense of accomplishment, worth and confidence from doing just that. It’s a great positive experience that makes them want to do more. These small baby steps are exactly how you build habits.

How to Teach Kids to Appreciate What They Have

When building wealth and a healthy financial situation for your family, it’s normal to be worried about how this will affect your kids. We don’t want our kids to be spoiled or ungrateful, so how can we make sure they appreciate what they have?

teach kids about money

Liz says that it comes down to talking to your kids about the little things that they’re grateful for every day. Help them understand that if you have a roof over your head, food and a loving family, you are one of the lucky ones. Teaching them the value of wealth and money comes from teaching them gratitude for what they have. 

How do you put this into practice? Liz asks her kids at the end of every day to list three of their favorite things from the day and three things that they’re thankful for. She really drills down and talks through the great events of the day and it ends the day on a positive note. It’s a way of being intentional about the positive things of that day and it encourages you to think a little more about the impact you can have on others. 

Related Article: 10 Kids Books About Money

When it comes to financial education for our kids, we all want to do it right and make sure they build the right habits early on. Liz explains that this is normal and that you don’t need to be too hard on yourself.

The advantage you have is that you have experience and perspective. You might not be perfect at saving or spending, but you do have experience. You don’t have to be perfect to teach your child something, all you need is to be willing to take small steps, and support them through every process of their journey. 


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Carpe Diem Quote

“Children have never been very good at listening to their elders, but they have never failed to imitate them.”

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What are you doing to teach your kids the value of money?

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Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.

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