A question I commonly see and field from parents is “how can I help my kids understand the value of money?”
There’s no easy answer to this question and all answers will start with “it depends”. It’s such a common default answer, but in personal finance, everything is personal, so it’s a fitting start to a response about parenting and money!
When you think about the true message we want kids to get about money, what is it? Is it “there’s nothing free in life”, “money doesn’t grow on trees”, “money is something we exchange for other goods or services of equal value”, or maybe “money is a direct exchange for your time and/or energy”?
At The Simple StartUp I guide groups of young entrepreneurs (10-18 years old) through starting their first businesses. For many parents, the reason they are signing their kids up is to help them learn the value of money at a young age. Allowances and part-time jobs are great methods of introducing money management to your children, but I believe every child should start a business at some point to obtain the unique experiences and lessons that come from creating a solution to people’s problems and then seeing if they will part with their hard-earned money to buy it.
What can starting a business teach my kid about money?
Time is money
This saying is attributed to Benjamin Franklin and refers to a person wasting their time as not being free, but instead costing them the money that they would have otherwise been making. While, I’m not on board with the “work, hustle, grind” mentality so prevalent in entrepreneurship social media, I am a big fan of the work of Vicki Robin, who in her book Your Money or Your Life, pointed out that your spending is a direct exchange of your time/life energy for whatever you are buying. You should think of your purchases, not in dollars, but in terms of the amount of time you need to work to be able to afford that item.
When kids start their own businesses, they are putting a lot of work in, to make their first few sales. Every bit of money that comes in is precious and to be coveted because we know exactly what it took to earn it! As a result, some parents report to me that their kids have become naturally more frugal and thoughtful with their money.
I’m in control
It’s not easy to create your own money. Nor is it easy to accumulate and build wealth, but until you have experienced the journey of doing it yourself, you can’t appreciate how empowering it is to know that you can create money for yourself when needed, and you are not solely reliant on a job for income.
You also begin to realize why everyone is not wealthy. There are so many people out there with circumstances beyond their control, which impact their ability to build wealth, but there are just as many, if not more, who could be earning more and building wealth, but who choose to prioritize other areas of their lives. It’s not right or wrong. The pursuit of wealth is not right or wrong. The lesson is that it is not an easy decision since building a business requires you to devote a slice of your time and energy to building your money-making machine, at the expense of something else.
A big lesson we all need to learn about money at some point is that if you choose to spend your money (or time) on one thing, you are also saying “no” to being able to buy something else with that money. Paula Pant has a wonderful saying in her Afford Anything Podcast, “You can afford anything, but not everything”, which highlights the fact that most resources in our life are not limitless and you, therefore, have to choose and prioritize.
By starting a business, each young entrepreneur will have to learn to prioritize their time and how they utilize their money. Once money is earned, they will have to choose between saving, spending, giving, or investing it back into their own business for growth. Choosing any of the options rules out the ability to choose to do the others with that same money.
Value is unique to each person
One thing most entrepreneurs struggle with is pricing their products or services. You have to try and determine what other people would be willing to pay which is very different to what you might be willing to pay. It’s the same thing when you wander into a store and start looking at price tags. You see things that look like good value to you, and others that don’t.
Value is something intrinsic and unique to each of us. By starting a business, we get to experience that firsthand. Some people will want what you are selling and will see the value in it, whilst others will not. There will be some people who say “yes” and lots more who will say “no”.
The ROI of entrepreneurship
While the idea of “the value of a dollar” may not be clear and slightly different for each of us, the return on investment for starting a business is certainly going to give kids a big step towards understanding money more. What it takes to make it, and different ways to utilize it.
Encourage your kids to think about what they might want to do for a business. Refer back to some of my earlier articles like Ways to Find Business Ideas for Your Kids and 5 Great and Simple Business Ideas for Kids Under 10.
Read our latest Youth Economy report on how kids are earning money in innovative ways.
About the author:
Rob Phelan, CFEI, is a full-time high school personal finance teacher living in Frederick, Maryland with his wife and son. He is the founder of The Simple StartUp, where he guides 10 to 18-year-old entrepreneurs through starting their first businesses, and he most recently published a children’s book, M is for Money, that introduces 3-8-year-olds to age-appropriate money words and normalizes conversations about money. You can connect with Rob on Facebook, Instagram, Twitter, or LinkedIn.
Rob Phelan is a participant in the Bookshop Affiliate Program. An affiliate advertising program is designed to provide a means for individuals to earn advertising fees by advertising and linking to existing products. Rob may earn commissions for purchases made through this article at no extra cost to you.