Parents call Dave Ramsey’s radio show and say things like, “Dave, how do I teach my kids about money?” or “My teenager thinks money grows on trees. What do I do?” “Dave, we’re still supporting our 25-year-old son, what do we do?” Ramsey offers several easy-to-implement strategies for parents to use in teaching their kids about money:
Lead by Example
Ramsey says to always remember that children are watching you. He cites a Native American saying: “Tell me, and I’ll forget. Show me, and I may not remember. Involve me, and I’ll understand.” Children are going to handle their money the way you handle your money. The most important thing you can do, Ramsey says, is to make wise decisions yourself and show your children what you’re doing and why you’re doing it.
There are four main areas of money that children need to learn, Ramsey says. These are working, saving, spending and giving — each area handled differently for different aged kids. The areas are:
- Working: How money is made. Ramsey says kids need an emotional and intellectual connection between work and money. He says to never use the word “allowance,” rather to use “commission” for work completed. If no work is completed, don’t pay.
- Saving: How you control some of your circumstances and how you can buy big purchases since you don’t want to teach borrowing money. Goal setting is very important for saving. Ramsey says make a game out of saving to buy something: divide the price of the goal by the amount you plan to save each week and see how many weeks or months it takes to ring the bell.
- Spending: How you relinquish what you earned. Kids will think seriously about spending when it’s their own money and not yours they are using. Spending is one of the rewards of working and disciplined saving; it can be the celebration of a goal reached. When spending occurs in this way, kids feel a sense of satisfaction and achievement.
- Giving: Makes us less self-centered and brings depth of character.
The Plan in motion
Kids Ages 3 – 6
WORKING & COMPENSATING
Ramsey says to give kids this age small chores with which you assist, then give them all the credit and pay the commission on the spot. Children need to have instant “atta boys” and money for work, he says. This allows them to make the emotional connection between work and money, and they’ll be more willing to do chores next time.
Goals should be short-term, Ramsey says. When a child saves for a Barbie and buys it with her own money, there’s a sense of pride that will make her smile a lot more than if you simply buy it for her. When children are young, put their money in a clear container. This helps them visually register the savings increasing and the spending decreasing their balance.
Let their giving be spontaneous and follow it with tons of affirmation for giving to anything. There are many years ahead to teach judgment about how much and where to give. Just let your little one grab some of her cash from her jar for children’s church, Ramsey says. She will beam with the look of a job well done.
Kids Ages 6 – 13
WORKING & COMPENSATING
Pay your child weekly only for completed work and use a tracking system to list chores that need doing and how much is paid for each one. In this age bracket, Ramsey suggests $5 per week for five chores — simple things like clearing away the dishes, feeding the dog and keeping the bedroom clean. These are things you probably expect anyway, but paying for them gives you teachable moments about money and helps make the emotional connection between money and work. If your child misses a chore one week, don’t pay for it. Keep in mind, some chores should be done without pay just because kids are part of the family, but if they’re all done without pay, there are no teachable moments. Once the work week is done, have a payday.
Teach your child to divide his money between three envelopes: spending, saving and giving.
Financial Peace Jr. Kit, Storybooks and Saver Bank
Dave Ramsey’s latest financial peace kits for kids are redesigned, but the strategizing is the same: teach kids money sense by working, spending, saving and giving. Products include: a Financial Peace Junior Kit ($18) that comes with a parent guide; activity book; see-thru give, save and spend envelopes; free video lessons; a chore chart and more. Junior’s Adventures Storytime Book Set ($34.99) includes six storybooks showing examples of working, spending, saving, giving, integrity and debt. The Smart Saver Bank ($17.99) is split into three compartments for spending, saving and giving. Buy separately or purchase the bundle at daveramsey.com for $45.
DAVE RAMSEY'S TOP THREE FINANCIAL LESSONS FOR PARENTS
- Be intentional. Many people get into financial trouble because they don’t know where their money is going or what they’re spending it on. Create a written budget each month so you can be intentional with where your money goes.
- Avoid Debt. Debt robs you of income and causes immense stress.Without debt you can spend and give freely.
- Save. There are three things you save for: large purchases, emergencies and retirement. By saving for these things you’re not only able to avoid debt, you’re able to set yourself up for long-term financial success.