3 Principles for Teaching Kids Financial Intelligence

[Editor’s note: The article below is from my dear friend, Eric Ludwig, who is one of the best, most thoughtful parents I know. I invited him to write about his parenting, and to focus his article on any topic he was inspired to address. Please enjoy his article about teaching kids financial intelligence.]


“I hate that list!” Calvin again blurted out as we reminded him about it at the Mall.  The Pokemon game would have to wait.  Our son has always had the tendencies of an impulse shopper, so from an early age we kept a list on the fridge.  If he wanted something that cost more than $5 it had to be written on the list for at least a week before he could go back and purchase it.  Inevitably, nine times out of ten it would be written, but never purchased.  This system protected not only his wallet but helped him to more fully appreciate the things he wanted. This is one of three ways that my wife and I tried to teach our kids financial intelligence.

Another way we illustrated this first principle of delayed gratification while introducing budgeting was with a whole lot of cash.  One Saturday morning I went to our credit union and withdrew a month’s worth of my earnings in twenty dollar bills.  I drove home and spread the bills out all across our dining room table.  Our son came in and said, “Wow – we’re rich!”  Then I proceeded to sweep off 10% of the bills and said “this is for giving/tithing,”  then I swept more chunks off for savings, mortgage, utilities, food, etc.,  until all that was left was $125.  I then said – “And this is what we can use to have fun.”  He seemed to understand the lesson well as the next day he came in and asked, “So if we keep our ‘fun’ money for two months, we can buy an xbox, right?”

The second principle for teaching kids financial intelligence was touched on above; namely, giving back.  Whether you choose to give to a church or charity of choice, the act of giving releases the power that money can have over us.  We can’t be a slave to something that we freely give away.  Encouraging children to give can help loosen money’s grip over them.  Ultimately we’d want this giving to be done cheerfully and from their heart, and not in a legalistic way.  I suggest you follow other advice on this website that speaks to how best to get to our children’s hearts.  And my all means – this has to be modeled, not just taught.

Our third principle for teaching kids financial intelligence, said in a manner that

teaching kids financial intelligence
Putting money away for a rainy day

children can understand, is “Don’t spend money you don’t have.”   Of course as parents, there are savvy ways we can leverage debt, but for building sound financial principles in our children, we want them have money before they spend it.  Borrowing first and paying back later can lead to financial habits that negatively impact their future.  Children should be taught about money at ever-increasing levels of complexity. Using debt in proactive ways may be a lesson we want to teach when they are older, but at younger ages, it is important for children to understand how to build up cash reserves before they make a purchase.

So in summary we encourage you to find creative and impactful ways to both teach and demonstrate these 3 principles in your child raising:

Delayed gratification – make them wait for it, to make sure they really want it.

Giving Back – teach them the importance of sharing with others.

Don’t spend money you don’t have – Enough said.

If you want to learn more about teaching kids financial intelligence, check out another article that I recommend here.

Happy parenting!

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