Teaching Kids How To Earn Money

We Believe that Actually Earning money as a kid is less important than understanding how to earn money

“If your only goal is to become rich, you will never achieve it.”

-John D. Rockefeller

The question of how do you earn money sounds simple, right? But how many of us have ever stopped and thought about it or were taught explicitly how to do it growing up? We need to know how to earn money to help create the life we want, after all, so why wasn’t this something we learned in school or from society?

We bet most of us were probably asked the following question instead:

What do you want to be when you grow up?

Sound familiar?…Now, the implication to this question is different because it is trying to have you think about what you want to do for a living.

We are not saying the answer isn’t important (it is), but in our mind it is an incomplete question about your future. The reason for this is because what we want to do as a profession is only a piece of our broader life.

Perhaps more importantly, the answer to this question tends to be influenced by a lot of external forces as we get older. We may decide or want to do a certain profession because it is what our parents or society wanted us to do; we may chose a profession because it was recommended by a close friend or teacher; we may just kind of fall into it after years of school because we need to make money.

There are many paths our lives can take (and our kids lives too!), and when it comes to focusing on this question above, we would argue that it sets kids up to think about things wrong from the beginning.

Instead, the more important question we think grown ups should be asking kids and having them think about from a young age is:

What do you want your life to look like when you are an adult? What is the life you want to live?

Trying to come up with an answer to this question will shift a child’s thinking from focusing solely on a profession to thinking about the totality of their life. The answer will not come right away of course, but it will force our kids to think about how to design the many different pieces that go into the life they want (not just a profession).

If we start with this approach, we can start to better fill in all of life’s pieces from a young age.

Do you like to travel a lot? Would you want a big family one day? Where might you like to live?

These are simply a few of the many questions that come to mind when thinking about the full picture of life.

Once we start there, we can then work backwards and think about how to earn money and use it as a tool to fit that ideal life.

That’s where it gets tricky because very few of us have ever sat down and thought about it or been explicitly taught how to earn money.

So lets get started.

Looking at the question of how you earn money, there are three main consistent ways of doing so (we break this down in our inaugural, psychologist reviewed course, Nuturing Financially Mindful Kids). The three ways are what we like to call Skills For Self-Empowerment (this is entrepreneurship or self-earning), Skills For Hire (this is working for a company or someone else), and Investing (or some combination of the three).

It is also important to say right from the outset that we believe here at Future Funders that there are no “right” answers on which is better or worse (they all have pluses and minuses), but instead the decision should be more a function of the above: which path fits best with the life your child wants to live.

Below we talk more about each and give some ideas on how to teach them.

Skills For Self-Empowerment

The Skills For Self-Empowerment method of earning has several positive attributes. Among them, it allows for your earnings potential to remain in your hands vs. at the discretion of someone else and can also allow you better control of your time. On the negative side, success or failure is all on you (i.e. if you don’t sell your product or service you don’t make any money) and requires a lot of self discipline.

In terms of teaching kids about Skills For Self-Empowerment, should you want to get them going at home first we would advise the following three steps in setting them up through an allowance:

Step 1 — Ask your child to think of a task they can help accomplish in exchange for money. If they are not ready to come up with something on their own right away, it is okay to suggest a task for the first week, then tell them that they will have to develop their own idea for the following week.

Suggesting their own tasks will help establish creativity when it comes to ways to earn money vs. forcing them to do something. We also suggest that the task move beyond their regular chores (i.e., making their bed, folding their clothes, cleaning their room).

The task could be a one off activity or something they repeat weekly/daily for a given period of time. Some examples include washing the car when they notice it’s dirty, raking the leaves when the yard is cluttered, or babysitting once a week (if they are old enough and capable of handling the responsibility).

Step 2 — Begin paying them a small sum per week starting that first week. The amount can vary based on your decision (we don’t think the actual amount matters a lot -- it is more about teaching the principle of self-earning).

One rule of thumb is to pay them the dollar amount equivalent to their age per week. For example, if they are five years old, you would pay them $5 per week. Of course, the amount can be less or more. Only pay them if they complete the agreed upon task or tasks. If they don’t do it, then they don’t get paid.

Step 3 — Tell them that after a month or so of performing the agreed task (or a time period of your choosing), they will be required to come up with a new task or add one to what they were already doing last month -- this means that they should keep their eyes open for opportunities!

Again, the key is to try to get them to think creatively about what might be useful to you and propose ideas.

One final reminder: these tasks should not take up a considerable amount of time (we are not trying to work them all day!).

Skills For Hire

Using the Skills For Hire method to earn, or working as an employee, can also be a very rewarding experience. Great employers provide their employees with guaranteed income, benefits, and vacation time. Furthermore, you can develop some amazing relationships at work that can last a lifetime. On the flip side, you need to usually complete tasks on other people’s time and you generally have less freedom of income or mobility vs. the Skills For Self-Empowerment method.

Should you want to start teaching Skills For Hire at home, here are some suggestions:

Having Discussions — Use moments when you are out of the house with your child to look for opportunities to explain how people use their Skills For Hire. For example, if you pass a fire station, consider popping in and talking to someone about what his or her job responsibilities look like. If you are going to the movies, talk to the person working at the concession stand. As you see people working, point out what they are doing and how they are using their skills to earn money.

Showing Them What You Do — If possible, bring your child to work or spend some time showing them what you do for money (assuming you work as an employee for someone else). If you do not work for someone, you can use a relative or other grown up with Skills For Hire who might be willing to explain or show your child what they do.

Highlighting The Difference to Skills For Self-Empowerment - Now that we have established a way to teach the Skills For Self-Empowerment method at home in the above, show your child the difference in what they are doing (self-earning) vs. working in a Skills For Hire situation. For example, in a Skills For Hire situation, they might not come up with a task on their own each week; instead, their boss (you) might assign them a project.

Additionally, they might not be allowed to complete the task when they wanted, because their job would require them to report to the site during a certain time frame (ie. you will tell them when it gets done). On the other hand, they would have the security to know what you expect and likely would still get paid even if they missed a day or two of their task (if they let it slip for a day or two you can still pay them as long as they make it up).

Investing

The Investing method of earning, similar to the other two ways also has plusses and minuses. On the plus side, it can free up your time and the skill of learning how to make money with your money can unlock the power of compound interest (check out our college savings calculator here as an example of compound interest). On the downside investing is risky and if you make the wrong decision you can lose hard earned money.

That said, should you want to start teaching investing at home, here are some suggestions:

Collectables As Investing — If your child likes baseball cards, stamps, coins, or some sort of collectable, this can be a good way to start a discussion around investing. Explain that the baseball cards that they are collecting may be worth more in the future (maybe the player turns out to be great or maybe it is a unique card). Point out that this is similar to how people look at investing their money so it can grow over time. Parents can also connect this to how adults invest in things like art which is similar (just age adjusted).

Teaching How You Do It — To the level you feel comfortable, start to introduce ways you invest to your child. If you are starting to save for their college tuition, for example, bring this up when the opportunity arises and explain what you are doing. If you invest money yourself in some way, explain to your kid what you are doing (it is okay if they do not understand everything right away).

The Parent Bank — Periodically, you can add dimes and quarters to your child's self-earned savings while they are sleeping. Explain to them how this is similar to the concept of investing as money saved and invested will earn more money over time (if invested properly, of course!).

The Option To Invest — Every once in a while, with the money your kid has earned for the week, offer them the opportunity to “invest” money with you as a parent for a day/ week/period of time. Explain that if they give you some amount, then you will give them more later for their “investment."

The interest rate you set does not need to be tied to reality, but it is designed to encourage and introduce the concept. For example, let's say your child invests $5 with you for a week, under the agreement that you will pay them $1 at the end of the week. They will have $6, which represents a 20% gain in a week -- not too bad!

The point is to start the conversation around investing and explain that they will receive more money at a later date if they allow you to hold on to it for a period of time.

We hope this guide on teaching you kids how to earn was helpful and feel free to shoot us a note or give some other ideas in the comments below!

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