Quick Tip Tuesday: Teaching Your Kids About Money with Just $1.25

Hey, it's Lee from Luminary Wealth.

It's Quick Tip Tuesday, where I share a quick, easy way that you can build wealth in your family and teach your kids early that saving is important.

Today, I'm talking to parents with children ages 4-14.  They're old enough to do little things around the house, but not quite old enough to get a job.

Just to set this up, I feel like I need to commiserate with you as a parent for a minute.

Kids are selfish!

They want what they want, and they're only thinking of themselves.  If you've got a 7 year old with a servant's heart, you get a gold star for today!  But most of us have to develop those "servant's heart" kids over a long time and a lot of coercion.

Kids have so few freedoms in life, we're constantly telling them what to do, what they can do, what they can't do, they don't feel like they have a lot of say in their lives.  So when your kid earns a little money, it's completely reasonable that they would want to pocket that money and use it however THEY want to.  They earned it, didn't they?  Not you, Mom.  Not you, Dad.  So convincing them to give any of it up might be a hard sell.

So go easy on them to start.  I've heard of, and been on the other end of, that parent who says, "Ok, here's your $20, but I'm going to take out $6 for taxes, $10 for rent, $2 for insurance, and $1 in bank fees.  So here's your $1 to go spend however you like.  Enjoy it!" 

And while, yes, that's 100% accurate to real life, the look on your child's face when you take $19 of their hard-earned cash and hand them a $1 bill will wreck your day, not to mention their thirst to work hard. 

It can be so depressing to see almost all our hard-earned money go to the cost of living, only to be left with a measly amount to play with.  Kids only see us buying stuff, they miss the part where taxes and retirement money is pulled out of our paycheck before we even get money to spend.  Then our mortgage gets taken out, insurance, car payment, college savings, etc.  And then we go to the store and we use this magical plastic card to, seemingly, in the eyes of your child, buy "whatever you want".  The reality isn't a whole lot of fun.  But you don't want to crush their little hearts too early, the real world will do plenty of that for you.

But to prepare them for the utter disappointment of the cost of adulting, let's just do one thing today that will help them understand that not all their money is actually theirs to keep.

So here it is - my quick tip for today:

Ask your child to wipe the counter, or empty the dishwasher, or dust the coffee table.  Whatever is age appropriate for your child.  Tell them you'll pay them $1 now and $10 later for the task. 

When they're done, pull out one dollar bill and one quarter.  Explain that the $1 they earned today can be used for anything they want.  And that the extra quarter you're paying them will be $10 when they retire if they put it away in their Roth IRA. 

That extra quarter equates to 20% of the money they earned for the task.  By giving them the whole dollar, and keeping the measly little quarter, they can see they got the most amount of money today.  But that measly quarter will be worth 10 times what they got paid today, if they wait to spend it until they're old.

That's it - super simple, super digestible for a child, and now they can take their dollar and go to the dollar store and buy something.  You can cover the sales tax this time, since you're such a nice parent. 

If you have any questions about how to set up a Roth IRA, or anything else, don't hesitate to reach out to me at Lee@LuminaryWealth.com.  I'd love to hear how your children are saving for the future!

Watch our Youtube channel for more tips on teaching your kids about money. 

Keep saving, and have a great day!