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'If you don't teach your kids about money, the world will': How to raise financially empowered kids

Exposing children to finances at a young age can pay dividends as they get older, but many parents don't know how to teach them. Experts say it's easier than you think.

Twenty/20

One in four U.S. adults with young children said their parents taught them essentially nothing about money when they were kids, according to a 2019 survey by CreditCards.com. If you're a parent, it can feel important to break that cycle.

While some schools have infused their curriculums with some level of financial education, parents are still the main conduit through which children — particularly young children — are going to learn about money. Warren Buffett has talked about the importance of parents teaching kids about money by preschool, and research shows that children who are exposed to financial concepts at a young age are better equipped to handle their finances as adults. 

"If you don't teach your kids about money, the world will," says Rachel Cruze, a financial expert and co-author of the best-selling book "Smart Money Smart Kids: Raising the Next Generation to Win with Money," which she wrote with her father, personal finance guru Dave Ramsey. 

"If your kids are still under your roof, you still have an opportunity to raise money-smart kids. It's better for them to make mistakes with their money under your roof than in the real world," she says.

The really important financial lessons are likely less complicated than you think, experts say — you don't need your preschooler to be able to trade stock options, for example, or have your fourth-grader preaching to their classmates about the virtues of the Volcker rule.

Start small. Look for chances to teach during your everyday comings and goings, and your kids are likely to pick up the basics. Here are three tips experts say can help you raise financially empowered kids.

Gamify the learning process

Kids love games, and often adults do too. That's why many financial companies, and others, have set out to gamify the world of finance.

For parents, making learning engaging, and even a little competitive, can be the way to get their kids excited about money. "Any way you can make it fun, it definitely adds to the learning experience," says Jedidiah Collins, author of the book "Your Money Vehicle," a certified financial planner, and the father of two young girls.

"We all learned about money playing Monopoly," he says — but turning finance into a game that gets your kids interested can be challenging: "Trying to gamify this topic and subject is not easy."

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Jim Brown, a financial consultant and the founder of Jim Brown Investing, says that he used "shopping games" to draw in his two children, who are now in the fourth and eighth grades.

Brown, who has also written on the subject of teaching kids about money for CNBC Make It, tells Grow that he'd "give them cash and send them to the store" to see if they could buy the right items without overspending. That was an easy way to introduce the basic functions of money to his kids.

From there, his children were able to understand one of the most basic premises of finance, he says: "You need to have more money than you spend."

If you don't teach your kids about money, the world will.
Rachel Cruze
Financial expert, co-author of the book "Smart Money Smart Kids"

Look for real-world opportunities to teach

While games may be a fun, safe way to help your kids learn, at some point your kids will start venturing out into the real world — when they will not only begin conducting their own transactions, but also take more note of their parents' behaviors with money, too. 

"I always say that 'more is caught than taught,'" says Cruze. "They need to see you living out the principles you're teaching. If you're teaching them not to take on debt, but they see you swiping a credit card, they're going to pick up on that."

Start looking for everyday opportunities to give kids hands-on experience with money, or to try and give them a taste of higher-level financial concepts, experts say. A common and simple way is by giving your kids an allowance so that they can start making decisions with their own money as to whether they want to spend or save it. 

I always say that 'more is caught than taught.' [Kids] need to see you living out the principles you're teaching.
Rachel Cruze
Co-author, 'Smart Money Smart Kids'

You can also use special occasions like holidays to teach money lessons. For example, Collins says that a recent visit from the tooth fairy opened up the chance for him to teach his daughter about the importance of savings and delayed gratification.

"I asked my daughter, 'The tooth fairy came, what are you going to save up your tooth fairy money for?'" he says. His daughter, a big fan of the "L.O.L. Surprise!" line of dolls, decided that getting a new doll was her goal. Collins explained that dolls cost a certain amount of money and broke that down, explaining how many tooth fairy visits would be necessary to afford one.

"I told her: 'You need three teeth to save up for a L.O.L doll.' That lesson, it happened organically and in a language she understood," he says.

Brown says similar tactics helped his kids eventually to "buy-in" and get excited about money and start learning on their own. "Creating buy-in," he says. "That's what you really want. You want them to buy into the process and then start to do it on their own."

Make your lessons age-appropriate

Perhaps the most important thing parents should keep in mind is to make sure the financial lessons you're trying to teach your kids are appropriate for their age. You may not want to try and teach your kindergartner about credit card debt for example, whereas the finer points of interest rates and best practices for using plastic may be important for a high-schooler to know.

"Up until a certain age, the learning process is going to be organic," Collins says. "It is going to be situational — up until around the teenage years," which is when more formal education may come into play. Some schools teach financial basics, as well as mathematical and economic concepts.

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Financial lessons need to be "more intentional when kids are younger," says Brown, and will become more practical and conceptual as kids get older. If you try the same old tricks with older kids as you do with younger kids, they're likely to tune out or, in some cases, feel that they're being talked down to.

"Make it age-appropriate — meet them where they are, and make it relevant to them," Brown says.

You're not trying to scare your kids or turn them into penny-pinchers. The idea is to foster a sense of confidence and empowerment so that they can make wise financial decisions. 

"Your job is to teach your kids to live well within their means," Brown says. That, he adds, is something "that's going to serve kids for life."

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