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Raising Money Smart Kids: What They Need to Know about Money and How to Tell Them
Book by Bodnar, Janet
384 pages, Paperback
First published August 1, 2005
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July 3, 2024
Practical, well-written advice for raising financially-savvy kids, covering the preschool through college years. It tells how to teach and guide kids in saving, spending, investing, earning, and giving and receiving gifts. Each chapter includes many helpful questions and answers.
The book also includes advice for navigating financial interactions with your spouse, parents, and in-laws.
Bodnar writes from her experience with her own kids and in helping many other parents and kids in her years with Kiplinger.
The 2005 edition I read contains some outdated info, but the principles still apply.
Notes
The Perils Of Being An Expert
If your kids have money left from allowance or chores payment at end of month, consider paying them interest.
A Kid's Eye View Of Money
jumpstart.org has personal finance materials for kids.
The Adman Cometh
Teach kids, "If in doubt, don't buy."
The Apple Doesn't Fall Far from the Tree
Kids take parents literally, so be careful what you say about money around them (e.g., "You're sending us to the poorhouse.").
Differences in spending and saving between spouses
• If you can't completely change your over-spending or over-saving, at least meet spouse halfway.
• Exercise role reversal each week.
• Practice the opposite of your natural behavior for several weeks to change your behavior or at least appreciate spouse's position.
• Let spender spouse handle budgeting.
• Lay out financial goals, and see if you're on track. This can help each spouse see if they should save more or be more comfortable spending.
• People are willing to change their behavior as long as they don't feel like they're being blamed.
• Each spouse should have some money to spend, no questions asked.
• Don't criticize spouse about money in front of others.
Instead of telling kids you can't afford something, tell them why you're choosing not to buy it, or tell them you'd rather use that money for something specific.
As long as you're meeting savings goals, you probably don't need to use a budget.
Allowances: A Hands-on Experience
Allowance should be enough that kids can squander it, but not so much that you'll be upset when they do.
Discuss with kids what expenses their allowance is to cover.
Start with weekly base allowance of half child's age, and adjust based on cost of living and what you expect child to pay for.
Some parents don't want to give allowance without kids doing chores, because it's pay without work. Other parents think kids should do chores for free because they're part of family.
Paying for chores can turn kids into mercenaries, frequently looking to get paid for tasks. Some kids aren't motivated by money, so it doesn't help get chores done.
Paying for chores can become an administrative nightmare for parents.
If your goal is to teach kids money management, give a basic allowance that isn't linked to chores but to spending responsibilities based on their age and your expectations. This is easiest system to manage, and isn't a handout; it's tied to financial "jobs" they're taking over from you (being in charge of some of their own expenses). You can still offer to pay more for extra jobs.
If your goal is to pay for chores, to ease administration, pay as soon as chore is satisfactorily done, or make child responsible for tracking chores. Require them to still do a couple chores for free, so they don't expect payment for all chores.
You can set values for chores and let kids choose which they want to do.
For younger kids, you can use a point system for chores of roughly equal value, with a weekly payout for points.
You can put the week's pay in a jar at the beginning of the week, and each time child doesn't respond to your request for help, you take out some money. At end of week, child keeps what's left.
You can spot-check completion of chores, and pay only if they're done.
Teens should be able to buy birthday gifts for others and occasional articles of clothing for themselves. See if they can handle an allowance monthly rather than weekly. By the time they're juniors or seniors in high school, they could manage a quarterly or twice annual clothing budget.
Don't pay kids for grades or good behavior, because it distracts from virtue and sense of accomplishment that should be real reward. Give a hug, praise, or special treat.
If child asks why a friend gets a higher allowance, don't say the other parents must have more money. Tell kids up front that allowance is based on what you can afford, what you expect them to pay for, and how much money you think they can handle.
You usually shouldn't give advances on allowance, because allowance is to help teach delayed gratification. However, occasional loans for a specific purpose and defined payback period is OK.
Penny-Wise: Kids and Saving
Offer to match kids' savings (from 10% up to 100%).
If your child wants something expensive that you think is a waste, you can offer to pay for some if they pay for the rest.
Kids should be allowed to spend their savings, even to empty savings. However, it would be appropriate to require a teen with a part-time job to save a portion for college. Or you could require kids to maintain a minimum balance in savings.
Of Lawn Mowing and Milkshake Stands
A kid-run biz should charge 25-30% less than pros. Kids who make products should charge twice the cost of materials.
You don't need to pay kids for helping you, but should pay when their helping you prevents them from taking a paying gig during that time. You could negotiate a family discount.
Federal worker age limits apply to employer-employee relationships, not independent contractors or kids employed by businesses owned solely by their parents.
Kids should register their biz with county, and may need a license.
If kids sell taxable goods or services directly to public, they'll need to collect tax.
Kids need to pay taxes if they earn self-employed income over a threshold.
If your kid runs a biz from your house, ensure your home insurance covers biz-related injuries to customers and employees.
Teens: The Early Years
Main purpose of allowance is to provide kids with regular income when they don't have a job. Once they do, cut back allowance, immediately or gradually.
Have teens follow 70-20-10 rule (70% spend, 20% save, 10% invest), or 33-33-33 plan, or 50-50 spend and save (or even 90-10 spend and save).
You can have teens pay for use of family car (e.g., gas, parking, speeding tickets) and help with maintenance. Some parents require teens to pay portion of auto insurance. Others charge mileage fee.
Teens shouldn't have credit, debit, or prepaid cards too early because they're too abstract. To make spending real to them, have them start with cash. Once they have a job and have proven they can spend responsibly, they can have a checking account and ATM or debit card. College students can apply for credit during senior year, after years of practice.
You could give a teen a prepaid card if they've proven responsible but are too young for a checking account, or you want control over a college student's spending, or kid will be on a long trip.
If teen's trip is part of the academic curriculum, you should pay for at least part, but the teen will appreciate it more of they pay for part. If teen's trip is purely social, you don't need to pay for any of it.
You should help pay for prom, at least for the clothes, but kids should pay for most, because they'll want to keep expenses down.
As soon as kids become teens, get them involved in college planning so they know how much you plan to contribute.
To Work or Not to Work?
The more hours kids work, the more negative outcomes, especially over 20 hrs/wk. They disengage from school, grades suffer, they have less contact with parents, and drug and alcohol use increase. However, it's not clear if this is causation or correlation. Some research shows that working doesn't have an adverse effect. Teens working >10 hrs/wk got better average grades than kids who didn't work.
A kid can open a Roth IRA with earned income from a job, including babysitting, lawn mowing, and regular chores for family. Without a W-2, they should keep a careful log of work. Investment income, savings interest, allowance, or sporadic payment from chores doesn't count for IRA.
Kids can contribute up to IRA max or 100% of earned income. You can give kids cash equal to their earnings to put into IRA; it doesn't have to be their money.
Start with 10 hrs/wk is enough for sophomores and 15 for juniors and seniors, and adjust up or down based on grades.
YouthRules.gov has child labor laws.
Parents have a legal right to at least a portion of the money their kids earn (amount varies by state).
Before kids start working, make an agreement about how much they should save, and for what.
Kids may not have to file taxes, but it's the only way to get back money withheld from paychecks (except for Social Security).
Off to College, and on Their Own (Sort Of)
If kids get into debt while in college, don't bail them out. You could loan them the money at a lower interest rate.
Don't cosign for kids' credit, as it could hurt your credit rating.
If you want kids to have a credit card, consider a secured one with a credit line limited the amount in a linked savings account.
Giving and Getting with Grace and Gratitude
$10-20 is sufficient for gifts to other kids. Add $5 for special people (best friends, relatives). For older kids, giving money is appropriate.
Whoever invites others to a social event should pay for guests.
Kids should be allowed to keep and spend money they receive as gifts. If you don't want them to spend it all, consider requiring them to save 10-50%, or deposit checks in the bank but let them spend cash, or set spending rules based on child's age).
Lost Wallets and Other Sticky Situations
Give each kid a roll of coins at start of road trip. Take a coin each time they misbehave.
To minimize whining for purchases on vacations, give kids a vacation allowance, or make clear what you'll buy and not.
If your kid is invited to join another family on a trip, assume that family will pay for transportation by car and overnight lodging, but not travel by air or rail, or for meals and other expenses. Ask other parents how much money your kid should take. Send kid with money to treat host family to ice cream or breakfast. Tell kid to watch for a gift to give as thank-you gift.
If you invite another kid on a trip, tell the other parents what you'll pay for, and that kid might want spending money.
When dining out with a friend, assume each person will pay for themselves, unless otherwise agreed in advance.
Money Smart Grandparents
When kids are going to stay with grandparents, as grandparents what they'd like you to pay for. If they say nothing, still ensure kids have pocket money for souvenirs and gifts.
They're Back. Now What?
If your post-college age kid lives with you and has a job, charge something for room and board. They should also pay for their own expenses (e.g., phone).
If young adult doesn't have a job, consider charging 10% of salary once they get a job. In the meantime, have them cook, do yard work, etc.
The book also includes advice for navigating financial interactions with your spouse, parents, and in-laws.
Bodnar writes from her experience with her own kids and in helping many other parents and kids in her years with Kiplinger.
The 2005 edition I read contains some outdated info, but the principles still apply.
Notes
The Perils Of Being An Expert
If your kids have money left from allowance or chores payment at end of month, consider paying them interest.
A Kid's Eye View Of Money
jumpstart.org has personal finance materials for kids.
The Adman Cometh
Teach kids, "If in doubt, don't buy."
The Apple Doesn't Fall Far from the Tree
Kids take parents literally, so be careful what you say about money around them (e.g., "You're sending us to the poorhouse.").
Differences in spending and saving between spouses
• If you can't completely change your over-spending or over-saving, at least meet spouse halfway.
• Exercise role reversal each week.
• Practice the opposite of your natural behavior for several weeks to change your behavior or at least appreciate spouse's position.
• Let spender spouse handle budgeting.
• Lay out financial goals, and see if you're on track. This can help each spouse see if they should save more or be more comfortable spending.
• People are willing to change their behavior as long as they don't feel like they're being blamed.
• Each spouse should have some money to spend, no questions asked.
• Don't criticize spouse about money in front of others.
Instead of telling kids you can't afford something, tell them why you're choosing not to buy it, or tell them you'd rather use that money for something specific.
As long as you're meeting savings goals, you probably don't need to use a budget.
Allowances: A Hands-on Experience
Allowance should be enough that kids can squander it, but not so much that you'll be upset when they do.
Discuss with kids what expenses their allowance is to cover.
Start with weekly base allowance of half child's age, and adjust based on cost of living and what you expect child to pay for.
Some parents don't want to give allowance without kids doing chores, because it's pay without work. Other parents think kids should do chores for free because they're part of family.
Paying for chores can turn kids into mercenaries, frequently looking to get paid for tasks. Some kids aren't motivated by money, so it doesn't help get chores done.
Paying for chores can become an administrative nightmare for parents.
If your goal is to teach kids money management, give a basic allowance that isn't linked to chores but to spending responsibilities based on their age and your expectations. This is easiest system to manage, and isn't a handout; it's tied to financial "jobs" they're taking over from you (being in charge of some of their own expenses). You can still offer to pay more for extra jobs.
If your goal is to pay for chores, to ease administration, pay as soon as chore is satisfactorily done, or make child responsible for tracking chores. Require them to still do a couple chores for free, so they don't expect payment for all chores.
You can set values for chores and let kids choose which they want to do.
For younger kids, you can use a point system for chores of roughly equal value, with a weekly payout for points.
You can put the week's pay in a jar at the beginning of the week, and each time child doesn't respond to your request for help, you take out some money. At end of week, child keeps what's left.
You can spot-check completion of chores, and pay only if they're done.
Teens should be able to buy birthday gifts for others and occasional articles of clothing for themselves. See if they can handle an allowance monthly rather than weekly. By the time they're juniors or seniors in high school, they could manage a quarterly or twice annual clothing budget.
Don't pay kids for grades or good behavior, because it distracts from virtue and sense of accomplishment that should be real reward. Give a hug, praise, or special treat.
If child asks why a friend gets a higher allowance, don't say the other parents must have more money. Tell kids up front that allowance is based on what you can afford, what you expect them to pay for, and how much money you think they can handle.
You usually shouldn't give advances on allowance, because allowance is to help teach delayed gratification. However, occasional loans for a specific purpose and defined payback period is OK.
Penny-Wise: Kids and Saving
Offer to match kids' savings (from 10% up to 100%).
If your child wants something expensive that you think is a waste, you can offer to pay for some if they pay for the rest.
Kids should be allowed to spend their savings, even to empty savings. However, it would be appropriate to require a teen with a part-time job to save a portion for college. Or you could require kids to maintain a minimum balance in savings.
Of Lawn Mowing and Milkshake Stands
A kid-run biz should charge 25-30% less than pros. Kids who make products should charge twice the cost of materials.
You don't need to pay kids for helping you, but should pay when their helping you prevents them from taking a paying gig during that time. You could negotiate a family discount.
Federal worker age limits apply to employer-employee relationships, not independent contractors or kids employed by businesses owned solely by their parents.
Kids should register their biz with county, and may need a license.
If kids sell taxable goods or services directly to public, they'll need to collect tax.
Kids need to pay taxes if they earn self-employed income over a threshold.
If your kid runs a biz from your house, ensure your home insurance covers biz-related injuries to customers and employees.
Teens: The Early Years
Main purpose of allowance is to provide kids with regular income when they don't have a job. Once they do, cut back allowance, immediately or gradually.
Have teens follow 70-20-10 rule (70% spend, 20% save, 10% invest), or 33-33-33 plan, or 50-50 spend and save (or even 90-10 spend and save).
You can have teens pay for use of family car (e.g., gas, parking, speeding tickets) and help with maintenance. Some parents require teens to pay portion of auto insurance. Others charge mileage fee.
Teens shouldn't have credit, debit, or prepaid cards too early because they're too abstract. To make spending real to them, have them start with cash. Once they have a job and have proven they can spend responsibly, they can have a checking account and ATM or debit card. College students can apply for credit during senior year, after years of practice.
You could give a teen a prepaid card if they've proven responsible but are too young for a checking account, or you want control over a college student's spending, or kid will be on a long trip.
If teen's trip is part of the academic curriculum, you should pay for at least part, but the teen will appreciate it more of they pay for part. If teen's trip is purely social, you don't need to pay for any of it.
You should help pay for prom, at least for the clothes, but kids should pay for most, because they'll want to keep expenses down.
As soon as kids become teens, get them involved in college planning so they know how much you plan to contribute.
To Work or Not to Work?
The more hours kids work, the more negative outcomes, especially over 20 hrs/wk. They disengage from school, grades suffer, they have less contact with parents, and drug and alcohol use increase. However, it's not clear if this is causation or correlation. Some research shows that working doesn't have an adverse effect. Teens working >10 hrs/wk got better average grades than kids who didn't work.
A kid can open a Roth IRA with earned income from a job, including babysitting, lawn mowing, and regular chores for family. Without a W-2, they should keep a careful log of work. Investment income, savings interest, allowance, or sporadic payment from chores doesn't count for IRA.
Kids can contribute up to IRA max or 100% of earned income. You can give kids cash equal to their earnings to put into IRA; it doesn't have to be their money.
Start with 10 hrs/wk is enough for sophomores and 15 for juniors and seniors, and adjust up or down based on grades.
YouthRules.gov has child labor laws.
Parents have a legal right to at least a portion of the money their kids earn (amount varies by state).
Before kids start working, make an agreement about how much they should save, and for what.
Kids may not have to file taxes, but it's the only way to get back money withheld from paychecks (except for Social Security).
Off to College, and on Their Own (Sort Of)
If kids get into debt while in college, don't bail them out. You could loan them the money at a lower interest rate.
Don't cosign for kids' credit, as it could hurt your credit rating.
If you want kids to have a credit card, consider a secured one with a credit line limited the amount in a linked savings account.
Giving and Getting with Grace and Gratitude
$10-20 is sufficient for gifts to other kids. Add $5 for special people (best friends, relatives). For older kids, giving money is appropriate.
Whoever invites others to a social event should pay for guests.
Kids should be allowed to keep and spend money they receive as gifts. If you don't want them to spend it all, consider requiring them to save 10-50%, or deposit checks in the bank but let them spend cash, or set spending rules based on child's age).
Lost Wallets and Other Sticky Situations
Give each kid a roll of coins at start of road trip. Take a coin each time they misbehave.
To minimize whining for purchases on vacations, give kids a vacation allowance, or make clear what you'll buy and not.
If your kid is invited to join another family on a trip, assume that family will pay for transportation by car and overnight lodging, but not travel by air or rail, or for meals and other expenses. Ask other parents how much money your kid should take. Send kid with money to treat host family to ice cream or breakfast. Tell kid to watch for a gift to give as thank-you gift.
If you invite another kid on a trip, tell the other parents what you'll pay for, and that kid might want spending money.
When dining out with a friend, assume each person will pay for themselves, unless otherwise agreed in advance.
Money Smart Grandparents
When kids are going to stay with grandparents, as grandparents what they'd like you to pay for. If they say nothing, still ensure kids have pocket money for souvenirs and gifts.
They're Back. Now What?
If your post-college age kid lives with you and has a job, charge something for room and board. They should also pay for their own expenses (e.g., phone).
If young adult doesn't have a job, consider charging 10% of salary once they get a job. In the meantime, have them cook, do yard work, etc.
September 27, 2022
Enjoyable book - easy to read considering the topics. Nice tidbits of info. My chapter takeaways below:
Ch 1- The Perils of being an Expert:
- Thank you cards are important
- ParentBanc Kit- Neat "checking" idea for allowances
Ch2 - A Kid's eye view of Money
- Better not to use credit (more abstract)
- www.Jumpstart.org
- www.kiplinger.com/tools
6 Skills for kids: 1) How to manage a cash allowance; 2) How to manage a checking account; 3)How to save for a goal; 4)How to figure out the time value of money; 5) How to get out of debt (or not); 6) How to compare prices
Ch3 - The Adman Cometh
- check out resources at Young Americans Bank in Denver
Ch 4 - The Apple doesn't fall far from the tree
- Remember Suze Orman
- Communicate Spend, Save, Gift (consistent amounts - doesn't matter as much %'s as consistency)
Ch 5- Small Change: The Preschool Years - list of easy piggy bank references below
- www.moonjar.com
- www.msgen.com
- www.mmforkids.com
- www.prosperityforkids.com
Ch 6 - Surviving with Tweens
- Have children help with groceries or eating out budget
- Check out "The Allowance Game" - www.lakeshorelearning.com
Ch 7- Why is $ green?
- Kids think in concrete terms - try to explain
Ch 8 - Allowances: A hands-on experience
- Routine Tasks; Teaching needs vs. wants
- www.kidscashmanagement.com - Kidsca$h - allowance ledger
Ch 9 - Penny-wise: Kids and Saving
- www.saveforamerica.com
- establish goals - show how compounding interest works - pg 146 table (find one similar online)
Ch 10 - Your Kid, the Investment Guru
- www.sharebuilder.com <-- low amount of stock buy-in
Ch 11 - Of Lawnmowing and Milkshake stands
- don't squash kids' ideas <-- small successes to us may be big successes to them
- Encourage young entrepreneurship
- Laws on kids working - www.dol.gov
Ch 12 - Teens: The early Years
- set baseline spending limits on regular expenses (eg. shoes)- and any overages by choice can come from allowance
Ch 13 - To work or not to work
- Less is more - this is more about learning about the idea of balancing time and establishing spending priorities than making an actual "living"; If not working, volunteering is a good opportunity for similar time and experience management - If working, can open a ROTH IRA
More chapters - find notes
Ch 1- The Perils of being an Expert:
- Thank you cards are important
- ParentBanc Kit- Neat "checking" idea for allowances
Ch2 - A Kid's eye view of Money
- Better not to use credit (more abstract)
- www.Jumpstart.org
- www.kiplinger.com/tools
6 Skills for kids: 1) How to manage a cash allowance; 2) How to manage a checking account; 3)How to save for a goal; 4)How to figure out the time value of money; 5) How to get out of debt (or not); 6) How to compare prices
Ch3 - The Adman Cometh
- check out resources at Young Americans Bank in Denver
Ch 4 - The Apple doesn't fall far from the tree
- Remember Suze Orman
- Communicate Spend, Save, Gift (consistent amounts - doesn't matter as much %'s as consistency)
Ch 5- Small Change: The Preschool Years - list of easy piggy bank references below
- www.moonjar.com
- www.msgen.com
- www.mmforkids.com
- www.prosperityforkids.com
Ch 6 - Surviving with Tweens
- Have children help with groceries or eating out budget
- Check out "The Allowance Game" - www.lakeshorelearning.com
Ch 7- Why is $ green?
- Kids think in concrete terms - try to explain
Ch 8 - Allowances: A hands-on experience
- Routine Tasks; Teaching needs vs. wants
- www.kidscashmanagement.com - Kidsca$h - allowance ledger
Ch 9 - Penny-wise: Kids and Saving
- www.saveforamerica.com
- establish goals - show how compounding interest works - pg 146 table (find one similar online)
Ch 10 - Your Kid, the Investment Guru
- www.sharebuilder.com <-- low amount of stock buy-in
Ch 11 - Of Lawnmowing and Milkshake stands
- don't squash kids' ideas <-- small successes to us may be big successes to them
- Encourage young entrepreneurship
- Laws on kids working - www.dol.gov
Ch 12 - Teens: The early Years
- set baseline spending limits on regular expenses (eg. shoes)- and any overages by choice can come from allowance
Ch 13 - To work or not to work
- Less is more - this is more about learning about the idea of balancing time and establishing spending priorities than making an actual "living"; If not working, volunteering is a good opportunity for similar time and experience management - If working, can open a ROTH IRA
More chapters - find notes
November 5, 2011
6 Skills Kids Need to Know
1. How to manage a cash allowance
2. How to manage a checking account
3. How to save for a goal
4. How to figure the time value of money
5. How to get out of debt
6. How to compare prices
10 Rules to live by to teach financial literacy
1. Don't be afraid to talk about money with your children
2. Don't indulge your kids
3. Don't send mixed messages
4. Don't be inconsistent
5. Don't quit before you start
6. Don't fall back on platitudes
7. Don't brush off your children
8. Don't relieve yoru childhood
9. Don't overload your kids with information
10. Don't gripe too much about your job
1. How to manage a cash allowance
2. How to manage a checking account
3. How to save for a goal
4. How to figure the time value of money
5. How to get out of debt
6. How to compare prices
10 Rules to live by to teach financial literacy
1. Don't be afraid to talk about money with your children
2. Don't indulge your kids
3. Don't send mixed messages
4. Don't be inconsistent
5. Don't quit before you start
6. Don't fall back on platitudes
7. Don't brush off your children
8. Don't relieve yoru childhood
9. Don't overload your kids with information
10. Don't gripe too much about your job
January 30, 2014
I really enjoy all the practical advice. I think raising children who can handle money well is very important. This book shows you how to do that.
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