We tend to inherit our relationship with money from the people who raised us.
Consciously or not, the people who raised us teach us the most about how we feel and what we know about money. Which for a lot of us, means we didn't learn much or may have learned negative habits. After all, our parents probably weren't taught these skills by anyone either.
So, for all the parents or guardians out there, here's how to teach your child financial responsibility, so that you can set them up for future success.
How My Parents Taught Me About Money
The Value of a Dollar
The first thing my parents taught us was how to value a dollar.
To get our allowance, we had to do household chores, like for doing things like helping out in the garden, unloading the dishwasher, keeping our rooms clean. That taught us that we had to work to earn money.
Our parents also made us pay for things ourselves.
They'd buy necessities for us, of course, like food and clothing. But if we wanted something just for fun, like a toy or game, we would have to pay for half of it ourselves.
And since our allowance wasn't big, we'd have to work and save up for multiple weeks to cover even half of the price. This taught us to think hard about whether or not we really wanted that thing. We learned how to make smart spending and money decisions from a young age.
How to Invest and the Power of Compound Interest
The second lesson my parents taught us was the power of compound interest, which is one of the key principles of investing. To do this, my dad invited us to bank at the daddy bank. (Quick note — this could very easily be called the mommy bank. It was just my dad — a textbook Virgo — who kept track of the finances in our house.)
I just got back from visiting my family in Idaho, where I grew up, and found the investment journal I had when I was 7 years old.
On the first page, it says, “Daddy bank journal deposits in the daddy bank will earn interest at a rate of 5% per month (5 cents for each whole dollar) for each full month until age 10 years old.”
So, it operated just like a normal bank, except I had to do the math. I would enter my deposits on one side and my withdrawals on the other. Whenever I made a deposit or withdrawal (by handing money to my dad or getting money from my dad), I would calculate my new balance in my messy, childish handwriting.
And what was really cute is my dad had to sign off on it to make sure I did the math right.
As a kid, I noticed how quickly interest multiplied by money.
In November 1995, I got an interest payment of $5.75, which was more than my allowance for the week. One year later I had grown my balance to $370 just by calculating my interest payments each month and depositing my allowance money.
I became pretty diligent about saving. There's even an entry where I deposited 96 cents into the daddy bank
Compound interest gave me a strong incentive to save and invest my money. I'm sure my parents were thrilled that this little game worked out, and it taught me such strong money habits at a pretty young age.
Teach Your Child Financial Responsibility
Feel free to use some of these methods for yourself. If you use the daddy (or mommy) bank, you can set your own rules, interest rate, and criteria for an allowance. It's a great way to teach your child financial responsibility and what it means to invest their money through hands-on experience.
How you decide to keep teach your kids about money is up to you. I'm sure every parent will adapt what works for their family.
But remember that how you treat money and how you talk about money is being passed onto your children, whether you like it or not. So, why not pass on some good lessons?