Teaching Kids About Money

Teaching kids about money is one of the most important roles a parent or significant adult can have. There isn't much guidance or advice to help us in this vital task, compared with the resources available to parents for teaching kids about sex and reproduction, for example, or nutrition and healthy eating.

Many people are uncomfortable talking about money, and feel they, themselves, missed out on something in their own education. When it comes to educating their kids, they find it difficult. The whole issue seems too complicated and difficult to begin when kids are young.

Others have managed to acquire a range of money knowledge, but sometimes find it hard to bring that knowledge back to is most basic components and explain those component concepts in simple terms, using examples their kids can identify with.

How Complex Is Too Complex For Kids?

Kids can absorb remarkably complex concepts - think about the arcane rules of some of the computer games they play, for example!

When our girls had their rat-breeding business, they were paying interest on their start-up loan out of their pocket money. (The full story is at www.cash-smart-kids.com) Two of them wanted to pay more than just the interest, to reduce the loan faster, and one didn't.

In the end, they agreed that the one who didn't would become an employee. This was a great opportunity to explore the differences between being a business owner and being an employee. Every time the cages were cleaned, the employee was paid $2, whether there was profit or not. But then, when there was profit to be distributed, the other two would get $20 or $30 each, and the employee would get nothing.

We explained very carefully all the way along why things were different for directors compared with employees, and nobody complained (for long) that it was unfair. Even at age nine or ten, they could grasp the principles - the owner takes risk and does work for free now in the hopes of a big reward later, while the employee gets paid every time they work, but gets nothing more than that.

We compared each situation in their little business to full-sized businesses they knew, with real owners and real employees, so they understood that this was exactly what happened in the adult world.

When it came time to liquidate the business, the two directors became deadlocked over whether or not to distribute the last money in the business. The younger director wanted to buy something, and the older one was enjoying the power trip of being able to say "no". We had a bit of a chat about the duties of a director, and the young megalomaniac quickly transformed into a responsible corporate custodian, and made the decision which was in the best interests of the shareholders.

Later on, the oldest, who had been one of the directors, reached the age at which she could become a real employee at McDonalds. They then ran the employee/entrepreneur comparison with real sums of money, comparing her employee income with the entrepreneurial income the younger two were making from internet-based businesses.

It can be very difficult, even if you have run your own business, to sort out in your mind and explain the way business works. Many people who are directors of companies would be hard-pressed to explain the difference between revenue, cash flow, and net profit to another adult, let alone a child!

The kids, however, have absolutely no problem understanding the ideas, when they are presented in a concrete way that engages their interest.