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Kids are like sponges. They’re ready to soak up whatever we’re willing to teach. Now is the time to be teaching our children about money.

Excess money mixed with lack of money maturity can ruin lives. At its extreme, money can be the difference between life and death. On the other hand, money can be a wonderful tool – controlling it can provide opportunity, security and flexibility. It allows us to do what’s most important in our lives.

So where do we start with the little guys and gals we love?

It’s All About Cash Flow

Controlling your money starts with managing cash flow. These critical cash flow habits start at an early age. Most young people never receive any education on this subject and tend to default to spending what they make. You can see these habits start to show up in the college years when people begin managing any amount of income and outflows.

Why not have an impact on how your children view cash flow from the get-go? It’s never too early to begin teaching. Start by figuring out what your children have to work with as far as money. Maybe you provide an allowance or maybe you provide payment for chores provided above and beyond a baseline household requirement. Or maybe your children receive cash gifts at holidays or birthdays. It doesn’t have to be a lot of money. The key is determining what they might have to work with as far as income.

Next, talk with your child about the responsibility of managing where their money goes. This conversation would obviously vary based upon ages. Either way, discuss the major categories of where people can choose to direct their income. The main categories are taxes, savings, giving and spending.


Share with your children how taxes work. Tell them they must set aside a certain percentage for taxes, maybe 20%, for this future potential obligation. Odds are they won’t really owe any tax on their income, but if that’s the case, maybe it gets transferred over to their savings for the time being. Nonetheless, it’s about becoming familiar with the concept & developing the discipline.


Next comes savings. Discuss how important it is for people to set aside a certain percentage for short and long term savings. Talk about the benefits that come with this. For certain personalities and ages, it might help to share how their balance can grow if they start early. Maybe you suggest they set aside 20% for savings. Help them set up a system for directing this 20% into a separate account. As their savings grows, you could begin talking to them about investing. Encourage them to do it themselves with your guidance so they can acquire valuable experience. Establish goals and targets for short and long term savings to make it more exciting.


Next, talk about giving. Talk about your values and share your experiences with giving to others. Talk about a good percentage to target – maybe you agree to set aside 10% toward giving. So every dollar they have come in, 10 cents gets directed to an account which will ultimately be given away. As their “giving” account builds, have conversations about choosing where to give. Talk about what’s important to them and get them involved with choosing where to give. Since it’s their money, they’ll be more likely to buy into the cause if they have input.


At this point, 20% has been deposited into the tax savings, 10% into the giving account, and 20% has gone into short and long term savings. The key is to prioritize in this order: tax, savings, and giving first. And then you can spend the remainder. This leaves 50% to spend on whatever they’d like.

If you’re feeling ambitious, you could also throw “debts” into the mix. Every young person will eventually be forced to learn about how debt works – why not teach them your philosophy at a young age? You could tell them they are able to spend more than 50% of what’s leftover, however, it will require they take out a debt from you. Explain the basics of how debt works. Set an interest rate on the debt, like 10% to keep the math easy. If they want to take out debt, keep track of it and set up repayment plans. Maybe you direct the 10% interest you charge to their 529 or savings. Or if you’re really hard core, keep it. Hold them to repaying the debt.


The key is creating an environment for them to learn real life lessons. This will prove to be extremely valuable as the stakes increase for them. Money failures and mistakes are great learning experiences and will inevitably occur – why not let them figure it out while it’s easy to fix? Put your children in position to fail forward at a young age under your oversight and at much lower dollar amounts.

Also, as any parent knows, your children are always watching. As you introduce these concepts, be prepared for questions on how you manage these things yourself. Use this as motivation to lead by example and practice what you preach. If you’re struggling with managing cash flow yourself, work on improving your habits to help lead your children in the right direction & help them put their best foot forward.

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Wrenne Financial Planning LLC (“WFP”) is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.