“We’re not gonna get that,” he said, laughing at their reaction.
Wade and Alyssa Pruett make it a habit to talk to their kids about money, something that started several years ago with discussions about the family budget.
Wade admits that she didn’t think about budgeting until her children were born, but once she realized the financial pressures of raising children, “I felt like it was really important to introduce that concept to my kids early on,” she said.
The Washington Post spoke with Pruetz and two financial advisors about effective lessons for teaching kids the value of money.
Keep your money in the bank, not in your pocket
Like most parents, the Pruetts give each of their two children a weekly allowance equal to half their age. But rather than giving them cash, they deposit the money into a checking account so it doesn’t get spent right away. If the kids don’t see the money, “it accumulates,” Alyssa Pruett says.
Parents also let their children earn extra money by doing chores beyond what would normally be expected of them — for example, while the daughter was saving up for something she had her eye on, she helped load the dishwasher for a few weeks to boost her income.
Recently, the Pruetts introduced their 11-year-old son to the concept of compound interest, using an online calculator and numbers he understands. They plan to open an interest-bearing account for him and want him to understand what interest will do over time.
“We put in the numbers and if you have this much money and you donate $100, [dollars] “Just think of how much money you’d have saved if you saved that much every year until you’re 65,” Alisa Pruett said. “That was his ‘aha moment.'”
When asked how he would explain compound interest to someone who is hearing about it for the first time, Odin was quick to reply: “Compound interest is when you put money in the bank and you just leave it there, don’t spend it, and it just grows and grows, like algae, because it grows on itself, so it just keeps growing and growing.”
When the kids got old enough to ask for more expensive gifts and toys (like when Odin asked for an Apple Watch), the Pruetts got out their budget sheets and listed each category of spending. They used them to introduce the concept of opportunity cost, the trade-off that comes with each financial decision.
Wade explains that he simplified the idea for his kids this way: “If you buy that item that costs twice as much, you can’t buy anything else.”
Now, when the kids ask for more, the Pruetts suggest they use their own allowance, and when they resist, Wade and Alyssa tell them they don’t want to spend the money either, giving the choice back to the kids.
Make mistakes and learn from them
Sometimes, after such a conversation, kids go ahead with the purchase, as Soren did recently when he bought an expensive Lego set with his own money, only to end up regretting it because it didn’t live up to his expectations.
It was a valuable lesson, Wade Pruett said.
“They need to feel the pain [of remorse] We need it to process,” he explained.
John Chesbrough, a financial advisor with Trail FP, has worked with the Pruetts and agrees that letting kids make financial mistakes, within common sense, helps them develop a sense of responsibility.
“If you’re going to teach people agency, you really have to give them the ability to make mistakes and the ability to succeed,” he said.
Huyen Nguyen, a financial advisor at Inclusive Wealth, also emphasizes the value of mistakes: She encourages parents to make a list of the best and worst financial decisions they’ve ever made, ask themselves why they made them, and then think about what they want to teach their kids.
“that [understanding] “It makes you think about how to control your money instead of it controlling you,” she said.
Set priorities and make decisions in real time
The Pruetts often go out running errands or shopping to naturally start conversations about spending so their children can make quick decisions when they need to.
For example, at a local consignment store where the Pruetts drop off their clothes, their children watch as salespeople carefully select clothes suitable for resale, so they know the items on the shelves are in good condition and cost a fraction of the price of new clothes, Wade said.
Another money-saving tip Chesbrough recommends is to “keep the change.” When giving kids money for unnecessary purchases, Chesbrough says to give them just enough to cover the cost and tell them to keep the change. This way, kids will immediately start looking for bargains and pocket any money they find.
“You’ll notice their purchasing decisions change completely,” Chesbrough said. “They’re not ordering drinks. [at a restaurant]They are happy in the water.”
Beyond day-to-day living, Nguyen suggests parents help their kids make a list of things they want to buy and number them according to priority. Then, after a period of time, the child can revisit the list and see if there are any changes to their wish list. This way, children understand the relationship between how much money they have in the bank and how they can use it to make meaningful purchases in the long run, Nguyen explained.
Looking at all these strategies, Alisa Pruett emphasizes that you don’t want to stress and it’s important to make sure your kids are well educated.
“When I was a child, I was given an allowance, [but] “We didn’t really talk about money,” she recalls. “I had no idea how much things cost.”
