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What are the most important lessons you can teach your children or grandchildren about money?

How we act later in life often can be directly correlated with what we learned earlier in our youth. Here are a handful of things to teach the young ones you love:

The value of money

We probably all heard the line “Money doesn’t grow on trees” over and over when we grew up. But kids need to learn so much more, like:

• Where does money come from?
• What does it represent?
• How do you get it?
• What can it buy?

Have a conversation with a daughter, son or grandchild. Play the game “How much do you think this costs?” in the grocery store. Explain why one item might be more expensive than another.

Help them understand the basics of supply and demand. For example, the more people want something (i.e., high demand), the more stores can charge for it. Or if an item is hard to find (i.e., scarce supply), the store can also charge more for it. Give examples of the opposite too.

Even a lesson about day-old bread can help children understand the value of the bread (and money). Ask, “Would you want bread that just came out of the oven or bread that has been in the store for a week?” Then ask, “How much more would you pay for the fresher bread?”

For kids a little older, take them to a dollar store and explain why it is now the $1.25 or $2 store (and how it used to be the “five and dime”).

Help them understand the concept of inflation and that a dollar today isn’t going to be worth as much when they are all grown up. That will lead to a discussion about investing.

Living within a budget

As a financial planner, one of the saddest things I see is when people, even with wealth, cannot live within their means. Overspending often leads to stress and anxiety. It can ruin credit ratings, lead to high interest rates on money owed, and even lead to bankruptcy.

Before children get themselves in trouble later in life, take time to talk to them about spending when they are in elementary school. For example, take them to a penny candy store and give them a dollar and say, “You can only buy a dollar’s worth of candy.”

When they get older, take them to the grocery store and give them $100 to buy groceries, but again, they can’t go over what they have. Later, in the teenage years, help them understand what a budget is and how to live within it.

Before completely moving out on their own, let kids know what happens when one spends too much on credit cards. Show them how the debt builds up and interest compounds.

Explain what a credit score is and how those scores can impact them later in life when they want to buy a car or a house.

Spending doesn’t bring happiness

Ask a kid, “Does eating chocolate cake make you happy?”  Likely the answer is “yes.”

Then get them to understand that happiness from eating that one thing doesn’t last forever. It’s the concept of “fleeting happiness” that you want them to grasp.

Now take that lesson and apply it to shopping. Explain that there is a short-term happiness people receive when buying the things they want. Most times that happiness fades.

Help them understand that, just like eating too much cake can lead to bad things, buying too many products (and services) can also led to unhappiness.

Lessons on saving (at the store and in the bank)

Before sixth grade, help a child understand the concept of brand names. While quality might be better with certain companies, sometimes items are identical, but the brand name costs more.

Give an example of a T-shirt:  A shirt without a logo on it might cost $10, but the same shirt with a logo on it might cost $25. Help kids understand they are paying extra, and let them make up their mind if that is worth it.

Without confusing them, it does also help them to know that buying the cheapest item is not always the best decision, especially if it is an inferior product or service.

As kids become teenagers, help them understand that there is a big difference between the words “need” and “want.”  If they can get the lesson of “buy what you need, but don’t always buy what you want,” they will likely save more.

Help them understand that happiness then comes from having some savings, because it leads to “peace of mind.”

Before kids move out on their own, let them know they are making decisions now that impact themselves when they are older. If they do not save for retirement, they are likely cheating themselves out of some happiness they deserve later in life.

Discuss — and demonstrate — giving

Spending money does not always have to be self-centered. For example, donating to support a charity can bring happiness, even though that money is going to help other people.

At an early age, this concept is hard to grasp. A child really understands it when he or she sees the person benefiting from the donation.

For example, make a donation to a soup kitchen, but also volunteer there so the child can see the money goes to help feed those that are struggling. They might see another kid their age and likely get a “warm fuzzy” feeling from helping someone in need.

Have other good tips for children to learn about money?  Please email me at bshapiro@hms-financial.com. I’d love to read them.

© 2022 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.