Smart Money Smart Kids summary

Did anyone ever teach you that working leads to earning money? Many of us just sort of picked up that knowledge along the way.

But this is one of the most basic concepts you need to teach your kids – the connection between work and making money. This is something you can start young, but you’ll need to adjust the lessons as your child grows up. Instead of giving them an allowance, Ramsey and Cruze suggest a commission format for this lesson. An allowance doesn’t directly teach the connection between hard work and earning money like the idea of a commission does. Ramsey used this very idea with his own kids, including Cruze.

When your kid is about three, you can start making the connection by giving them options to earn a few dollars for some key chores. From about age three to five, your kid will need some simple chores, things like putting toys away in their baskets, making their bed, or carrying in lighter items from grocery trips.

Pay them immediately upon completion of the chore to really build the connection between work and earning. Use a big, clear jar to store their money, and pay them in single dollar bills. This introduces a fun element for young learners. Plus, using single bills helps fill the jar quickly, making it look impressive. This helps get kids excited about the concept of work and earning! 

As your child grows older, you can increase the difficulty of the chores and introduce the envelope system. Use one envelope for saving, one for spending, and one for giving or charity.

It’s important to teach your kids wise spending and saving habits both. For younger children, start with spending habits. This is the most fun for younger kids, and we don’t want to bore or overwhelm them right at the start of their smart money journey!

Smart spending habits include things like looking for deals or bargains, waiting at least overnight before deciding whether to purchase something, and the opportunity cost of spending.

Need a refresher on that last one? No worries! It’s the idea that when you spend money on a toy this week, you won’t have that money to spend on the new game you want that comes out next week. Obviously, this lesson is easier for slightly older kids as opposed to your three-year-old!

As your child grows older, start introducing wise saving habits as well. Explain things like saving for bigger purchases. If a younger child spends money on candy every week, they won’t be able to save up for buying something bigger, like a new doll. You know your child best, so use examples that apply to them! These early lessons will then apply as they get older and start saving for bigger purchases like a car or college or a house. Be sure to revisit every lesson as they get older, because these concepts need repetition and applicable examples to really stick.

As you teach your child saving and spending habits, keep in mind that most people are either natural savers or spenders. Neither is better than the other, but it’s smart to be aware of our own personal inclinations and to adhere to wise habits either way. Cruze admits she’s more of a natural spender, but that by being smart about her spending habits and implementing other smart money habits like budgeting – we’ll get to that later! – she’s been able to live debt-free and thrive anyway. Your child’s spender or saver inclination might be different from yours, and that’s okay!

A CNN report about college students at University of Illinois at Urbana Champaign showed that nearly all those who demonstrated good financial skills reported that they’d picked up the habits based on their parents’ guidance when they were younger. So get your kids in the habit of saving and spending wisely now. They’ll take these skills with them throughout life.