Seven tips for practical financial education at home

Published in

Meta Humans

8 min readJun 22, 2021

I went to public and private school, then went to college — 18+ years of classes and lessons that were supposed to prepare me for life. Yet it was only after major life events, including my marriage, that my financial education seriously started. By then I was 25 and, like anyone, really could have used some guidance on how to save, budget, and invest before I launched into adulthood.

For most of us, the informal observation of our immediate family and friends constitutes the bulk of our financial education, and it is often very basic. Knowing that we, as parents, are our kids’ primary instructors on this critical life skill, how do we help them build healthy financial habits?

“We were not taught financial literacy in school. It takes a lot of work and time to change your thinking and to become financially literate.” — Robert Kyosaki

Commission vs. Allowance

Traditionally, a commission is earned, while an allowance is given. There are a couple schools of thought on which is more beneficial.

Dave Ramsey says the the word allowance “implies that a child is entitled to a certain amount of money just for living and breathing.”¹ I happen to disagree with his beliefs on entitlement, but I understand what he means to say. Still, I think there’s value in offering children the tools they need to get started on their financial literacy, including real dollars and cents. An allowance typically means it’s a set amount, which allows them to budget and plan.

At the end of the day, this is more about perception (because the child won’t actually “earn a commission” for doing additional chores either), and your own relationship with money. We, as parents and educators, make up the rules we use to teach children certain concepts and behaviors.

We give them money anyway

Kids are expensive. Beyond basic needs, most parents spend regularly on treats and toys, and, as they grow older, nicer clothes and outings with friends. An allowance can offer your kids the decision-making agency on these expenses that are smaller (but quickly add up). If your daughter really wants a pair of pricey jeans like her friends, she can save her allowance to buy them. That also helps her learn to weigh the true value of what she purchases.

Most importantly, having a set allowance helps kids practice budgeting. It can also give them the resources to explore investing. Children need to understand the nature of money, the different forms of money, how to earn, spend and grow money, and the tools available to them to manipulate money in real life. We also want them to understand the perils of consumption culture (the pressure to spend all your money on fancy jeans, for example) and how to handle the constant exposure to advertising and marketing.

At a minimum, the following concepts should be introduced:

The history of money and the banking system
Budgeting
Savings benefits and misconceptions
Compounding interest
Basics of investing in bonds, stocks, etc.
Basics of real estate investing and the potential and risks involved
Mortgages
The effect of taxes
Basics of accounting
Time vs. money and passive income

Techniques you can use at home

That’s a lot to learn (and teach), and each lesson will take time. Here are a few tools you can implement at home to build a strong foundation and get your kids started on the right path:

1. Weekly budget

We wanted to give our son Bob a weekly sum that he would have to manage himself. The budget would have to cover clothing, toys and any other extras he may want (not including the occasional gifts and purchases when needed, of course). Any money left can be placed in Mommy’s special bank investment account with a high interest rate. More on that below.

With a budget and a bank account to manage, we are able to introduce banking concepts, document management, security concepts and basic accounting.

2. Additional expenses

For any large expenses (like a new bike), he will have to make a presentation on why we should purchase the item/service or wait for a birthday or special occasion. In addition to helping him really consider the value of a purchase and justify expenses, this also helps him learn to make compelling arguments and finesse his communication and presentation skills.

3. Bonus chores and other additional opportunities

In addition to the unpaid chores to participate in normal family life, we will be setting up challenges and additional tasks that will earn him money.

Regular family chores include things like making his bed, taking out the trash, setting the table, organizing his room. These are basic expectations.

Extra chores include work outside of those basic expectations, such as vacuuming common areas or washing the car.

Challenges include tasks like completing four books in four consecutive weeks, or not missing any family chores for six days in a row.

4. Games and videos

Years ago we started playing with the CASHFLOW game² created by Robert Kiyosaki. I find the board game a little steep, but the iPad version is inexpensive and fun to play and they have a free version online. It is amazing to watch how quickly kids absorb complex concepts when they get to experience them through play.

Don’t miss Warren Buffet’s Secret Millionaires Club web series for business-oriented advice geared toward young people. Each clip is clearly explained, short (4–5 min) and fun to watch.

5. Mommy’s special high interest investment account

A special high interest investment account’s purpose is to teach kids about compounding interest in a more accessible timeframe. Whatever money Bob manages to save after all his expenses (remember he has to pay for supplies, clothes, etc.), can be placed in this account and earn interest at an accelerated pace (months instead of years). This one is tricky to set up because if not done right, the numbers may not work for you.

Here’s why:

Let’s assume that our interest rate is 10% per month, and let’s assume that he manages to put aside $50 per month. Because he will earn interest on accrued interest each month, and because we start him at 11, he can expect to have a whopping $1,648,934 in the bank by his 18th birthday. Needless to say, numbers matter with this one, which is the point of the exercise after all!

Options to make your own parent-funded, high interest account work better for your family:

Lower the monthly interest rate
Set a longer timeframe (quarters instead of months)
Cap the amount he can invest
Lower his allowance
Or my personal favorite: Add transaction fees and taxes on his gain (tough love, I know!)

Right now we are aiming for something that looks like this with the assumption that he would be able to save about $70 per month (not accounting for future increases at this time):

Interest rate 5% monthly, no fees, no tax: At 18 years old he might have $90,000
Add 20% tax on interest income (no management fee): At 18 he might have $45,000

6. A real life IRA

Children may open and contribute to a real life IRA³ as long as they earn income through a business or investment. We won’t be pushing him to create his own business unless he expresses interest, but if he does, this is an effective avenue to help him realize the power of time when it comes to compound interest. As a budding businessperson, he may already understand the value of starting early and deferring taxes as long as possible. If not, you can quickly make the case for contributing to an IRA by playing with contribution figures and retirement-age outcomes through any number of IRA calculators, available with a quick Google search.

7. Don’t forget: Reward the process, not the outcome

The goal isn’t to teach our children that completing a chore is what holds monetary value; that would promote the idea that relationships and life are transactional. Do we want to teach them to make their beds — or are we teaching them important lessons on finance and mindsets?

“The bottom line on culture and grit is: If you want to be grittier, find a gritty culture and join it. If you’re a leader, and you want the people in your organization to be grittier, create a gritty culture.”
― Angela Duckworth, Grit: The Power of Passion and Perseverance

We must focus on building good behaviors and an internal drive to follow through. Children must understand that the money they are receiving isn’t the carrot. The real prizes are mindset, knowledge, control and influence over that money.

The bottom line

We feel good about this combination of formal/informal teaching and practical experience. As long as we keep an eye on the numbers and have monthly financial reviews together, our goals should be attained and Bob may have some money in the bank in the process.

Warning, it may backfire. When Bob turned 11 years old, he asked for “a passive-income-producing asset.” Not kidding!

Adapting those home strategies to Meta Humans

While we focus on real-life skills and knowledge, introducing financial literacy using real money in an education center is clearly not practical. We are designing our curriculum and programs following a set of guidelines that also includes financial concepts by leveraging and replicating the rewards. Young Meta Humans “earn” as they work through projects and challenges.

For example, we want our kids to have the patience and the drive to work on multi-day projects instead of the standard 45-minute, pre-packaged sessions they are used to.

A person’s ability to delay gratification relates to other similar skills such as patience, impulse control, self-control and willpower, all of which are involved in self-regulation. Broadly, self-regulation encompasses a person’s capacity to adapt the self as necessary to meet demands of the environment. — Wikipedia https://en.wikipedia.org/wiki/Delayed_gratification

Delaying gratification has many benefits (including those connected to financial decision-making), and we use several approaches to help our kids develop it. Two of them are related to our topic:

Multi-session projects come with higher rewards.
While working on a multi-session project, kids can “invest” their rewards (points), and the more sessions they complete, the more those rewards grow.

There’s the magic of compound interest again. The ultimate reward is greater than the sum total of individual contributions (even better when a project requires collaboration!). Hard work, discipline, drive and patience are fruitful in life and overall well-being, financial and otherwise. That’s a worthwhile lesson for any child.