<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->
  1. Teaching Financial Literacy to Tweens: Introduction
  2. Teaching Financial Literacy to Tweens: Income and Expenses
  3. Teaching Financial Literacy to Tweens: Spend, Save and Share
  4. Teaching Financial Literacy to Tweens: Saving For Short- and Long-Term Goals
  5. Teaching Financial Literacy to Tweens: Earning and Paying Interest
  6. Teaching Financial Literacy to Tweens: The Stock Market
  7. Teaching Financial Literacy to Tweens: Entrepreneurship
  8. Teaching Financial Literacy to Tweens: Protecting Your Child's Identity
  9. Teaching Financial Literacy to Tweens: Conclusion

An important concept for kids to understand is that, throughout their lives, they’ll have money coming in and money going out. Income is any money that comes in; money that goes out is used to pay for expenses – the goods and services we need and want.

 

Income = money comes in (allowance, gifts, jobs, etc.)

Expenses = money goes out (goods and services you buy)

Income

When children are young, their primary sources of income include gifts (e.g., birthday money from grandparents) and an allowance. As kids get older (but are still too young for a traditional job), they can add to their income by completing simple tasks for your family (you, grandparents, uncles and aunts, etc.) and your neighbors. For your child’s safety, be sure to provide adequate instruction and supervision, and don’t allow them to solicit jobs by going door-to-door. Also, make sure that any job is age appropriate – a 16-year-old may be able to earn money by mowing the neighbor’s lawn, but your eight-year-old should stick to raking the leaves or pulling weeds. (See also: How an Allowance Helps Kids Get Money-Smart.)
 
If kids want to earn a little extra money (income), help them brainstorm for ideas. Here are a few ideas (appropriate for most tweens) to get you started:

  • Yard and garden work. Rake, weed, spread mulch, plant flowers, harvest vegetables, etc. Make sure your child has the right tools for the job, such as gloves for weeding – plus sunscreen, a hat and a water bottle for a hot day in the sun.
     
  • Pet sitter. Take care of pets while owners are out of town – feed, water, clean the litter box, walk the dog, play with the animals, etc. If your child will be taking care of a dog (or anything else that may bite), make sure the critter is friendly, and plan on going with younger children to supervise.
     
  • Dog walker. Take dog(s) out for walks after school or on weekends. All dogs need daily exercise year-round, and often owners don’t have time between work, family and other obligations. It’s very possible to earn a steady income by walking several dogs each week. Again, make sure each dog is friendly before letting your child walk it, and if more than one dog will be with your child at a time, see how the dogs act together (and be prepared for The Talk). Younger children should always be supervised around dogs.
     
  • Lemonade stands. As American as apple pie, the lemonade stand is the proverbial introduction to entrepreneurship for many kids. Help your child develop a plan so the stand can be successful – for example, help with pricing, supplies and “advertising” (signs, Facebook posts, etc.). 
     
  • Parent’s helper. In general, tweens aren’t yet old enough to babysit, but they can help while an adult is at home. For example, a mom might need some time to work from home, and would be present in an emergency or if your child needed any help. 

Your child will probably be very interested in learning how much money he or she can earn for a job. In general, this depends on where you live and the going rate (the local "job market"), the difficultly of the job and the amount of time it takes. Some jobs, such as a parent’s helper, will likely fetch an hourly rate. Others may be paid by the project – such as $10 to rake the lawn, or $5 a day to check on pets. (For related reading, see: 15 Great Summer Jobs for Teens.)

Talk to other parents in the neighborhood to find out the going rate and determine what’s fair for each job. Encourage your child to set a price ahead of time and make sure their "customer" agrees to the price. It’s a harsh lesson for kids to think they’re getting paid $25 to weed an entire flower bed, only to find out the neighbor assumed they were working for free.
 
The money kids earn can also be the result of sales, as would be the case with a lemonade stand. Explain to kids ahead of time that there’s no guaranteed income when they are trying to sell something. The better they plan, the more likely they are to make money. Now is an excellent time to introduce the concept of profit and loss. Their lemonade stand can make a profit if their earnings (how much money they make through sales) exceed their expenses (how much money they spent on inventory and supplies – the lemonade, cups, signs, display). Their enterprise will operate at a loss if their expenses are greater than their earnings. Point out that while there is always the risk that their business could lose money, there’s also the opportunity to earn a nice profit.
 

Profit = earnings are greater than expenses

Loss= expenses are greater than earnings

 

Expenses

Expenses are the goods and services that we need and want. While adults have a long list of expenses, most kids will have a relatively small number, and most of them will be wants, rather than needs (reassure your child that grown-ups are responsible for paying for children’s needs). The concept of needs versus wants is introduced in our Teaching Financial Literacy to Kids guide. When explaining expenses to your tweens, it’s helpful to review this important idea: The more they grasp the distinction, the better they will be able to make sound spending choices in the future.

Needs are things we must have in order to survive – clothing, medical care, nutritious food, shelter, transportation and basic utilities. Wants are everything else – the things we don’t need to survive, but that we would like. While most people generally have the same needs, wants vary depending on age, personality, interests and environment (e.g., what the other kids have). (See also: To Save More, Focus on Your Needs, Not Your Wants.)

Explain to your kids that their wants will likely be different from yours. List a few of your wants (e.g., a new car, better storage for the garage and new appliances for the kitchen) and ask your kids to list theirs (a skateboard, smartphone, designer sneakers). Ask your kids to think about how their wants might change in the future; for instance, when they get old enough to drive, they might want to buy a car. Discuss that while people have a limited ability to reduce the amount of money they spend on needs, each person (and family) has control over the amount of money they spend on wants: It comes down to spending choices. (For more, see 3 Ways to Slow Down Your Personal Spending.)

Relationship Between Income and Expenses

A very basic and extremely significant financial concept is that your income must exceed your expenses to avoid debt (owing money). If your income is greater than your expenses, that’s great – you’ll have money left over to save, spend and share (more on that later). If your expenses are greater than your income, however, you’ll have to make some changes to avoid getting into debt.
 
If your kid seems interested in learning more, you might briefly touch on the concept of good debt versus bad debt. Good debt includes things that you need but can’t afford to pay for all at once – things like a home mortgage and student loans. Even here we can still get into trouble by taking on more debt than we can comfortably handle. You must be able to afford your monthly payments – and if you can’t, take on less debt. To do this, buy a less expensive house, or take classes at your local community college instead of at a four-year school (many four-year colleges and universities accept credit from community colleges, and you still graduate with a degree from the four-year institution). (See also: Good Debt Vs. Bad Debt.)
 
Bad debt, on the other hand, includes loans that you’ve taken out to pay for things you don’t need and can’t afford – such as pricey electronics, luxury cars and expensive vacations. Because kids don’t have access to loans (except from you), they can’t really get into debt – but they can run out of money for things they really want. So even though the outcome may be different (adults can go into debt; kids simply run out of money), the relationship between income and expenses is an important concept to discuss.

Income > Expenses = Good (savings)

Expenses > Income = Bad (debt)

 

In general, you have three choices if your expenses exceed your income:

  • Make more money.
  • Spend less money.
  • A combination of the two.

Discuss with your child ways that he or she could earn more money. For example, they could take on an extra odd job each week, negotiate a better rate with an existing customer (such as an extra $2 a day for pet sitting) or get an allowance raise based on extra responsibilities and/or age (many people recommend a weekly allowance of $1.00 per year of age, so kids get an automatic "raise" each birthday).
 
It’s equally important to help your child figure out ways to reduce spending. Most kids (and adults) can tell you exactly how much money they have coming in from various sources, but few can account for all the money going out. Help your kids keep track of expenses by using a spending journal (a small notebook or an index card for each day or week will do), or a budgeting app like Mint.com (depending on how tech-savvy your tween is, you might have to take the lead on this one).

Once your child sees – in black and white – what he or she is spending money on, it may become easier to cut back on certain things (of course, adults benefit from budgeting as well). Even if your child is managing to save a little money, it’s important to discuss ways to reduce spending and to make smart spending choices. When making a purchase, remind your child to ask:

  • Do I really need/want this now?
  • Is this more important than my other wants?
  • Can I borrow it instead, or can something I already have work in its place?
  • Can I wait two weeks and see if it’s still important to me? (This can screen out a lot of those unnecessary purchases.)

This one habit (asking these questions before every purchase) can help your child avoid impulse buys and unnecessary purchases, now and in the future. Imagine if you had asked yourself these questions before every purchase you ever made. Would your financial situation be different now?
 

Assets and Debts

While teaching your child about income and expenses, you can touch on the topic of assets and debts (also called liabilities). Assets are everything that you own, and debts include everything that you owe.
 

Assets = what you own

Debts = what you owe

Your child may have heard that some people are financially rich. Explain that your net worth is the difference between what you own and what you owe, and everybody – whether they’re "rich" or in a lower income bracket – has a net worth figure that changes over time, and that it can be a positive or negative number. Point out that some people seem rich – they might live in an expensive house, drive a fancy car, go on extravagant vacations and have all the cool "toys" – but they may not be wealthy at all if they owe a lot of money for these things. (For related reading, see: The Importance of Knowing Your Net Worth


Teaching Financial Literacy to Tweens: Spend, Save and Share
Related Articles
  1. Personal Finance

    5 Steps Toward Raising Financially Savvy Kids

    Talking to your kids about money isn't enough. These five steps will help them apply the knowledge.
  2. Personal Finance

    10 Tips to Teach Your Children to Save Money

    These are ten tips to help your children to save money. These tips can help your children develop positive money habits that can last for a lifetime.
  3. Personal Finance

    3 Ways to Give Your Kids a Strong Financial Start

    By taking these actions, you can help your kids start off on the right foot financially.
  4. Personal Finance

    How Much You Should Pay Your Kids For Allowance

    The real purpose of an allowance should be to teach your child how to manage money effectively.
  5. Managing Wealth

    Hire Your Kids at Your Small Business – Here's Why

    And how to make sure you do it the right way, following IRS guidelines.
  6. Personal Finance

    Teaching Your Kids About Money in a Digital Age

    When teaching your kids about money, be sure to include the digital aspect as well.
Trading Center