teach children about moneyFrom Marvin Schulz, staff writer, Palm Beach Research Group: I just got off the phone with my bank. I was trying to get an unknown transaction removed from my credit card statement.

I was on hold for 15 minutes, shuffling from one incompetent representative to the next, each asking for my name and 16-digit account number.

During the waiting game, an advertisement caught my attention:

“Want to learn what to teach your children about money? Call us today to sign up for a free training course covering our great investment products, savings accounts, and credit cards.”

Right, I thought. I have to talk to five people to get one false transaction removed, but I’ll trust them to educate my kids about money…

My thoughts were interrupted: “Hello, sir,” echoed a representative through the line. “Your name and 16-digit account number, please.”

The phone call was pointless, but the advertisement got me thinking. If I had children today, what would I teach them about money?

Here’s what I came up with…

What to teach your children about money

It’s all about value

If I had children, I’d tell them money is an exchange medium. In exchange for money, we can buy goods and services we value.

There’s never a shortage of money. If there is a perceived lack of cash, the solution is not to be found on the level of the money itself. The solution is to be found in our own actions. 

We have to open up our intrinsic-value valve and start exchanging with the world. We must find a calling, get good at it, and exchange our goods or services on the market. Money will come as a byproduct.

Here’s how I’d explain this to my child:

“Son, look: You’re born with the potential to make as much money as you can dream of. What you need to do is think about what other people find valuable, and give it to them. This can be a product, like your toy cars right there… a service, like the one your piano teachers offers you… or something more abstract, like the beautiful painting Mommy bought the other week.”

I’d pause for him to process, then continue…

“You see, whenever you want something—like a new bike, a box of Legos, or a trip to the movies—ask yourself what you can do right now that other people will find valuable enough to exchange it for money. If you keep finding ways to be of service and value to others, you’ll always have the money you want.”

Take responsibility for your money

Next, I’d say:

“Honey, your money is your responsibility. Daddy has been taking care of you, but one day, you’ll have to take care of yourself.”

I’d take a sip of coffee here.

“It’s easy to be attracted by government handouts,” I’ll continue. “Don’t fall for this. Always remember no one is entitled to anything. If you want money, figure out what you’re willing to give in exchange—and do it.”

Create multiple streams of income

Once my children learn money is always rooted in value—and that they, by design, can create an infinite amount value—I’ll have them read this article by Mark Ford: “This simple strategy made me $6 million last year.”

Then I’ll add this, just to be sure the message sinks in:

“Though many people will try to tell you the opposite, money is not connected to having a job or a single career. Jobs are fine, but don’t ever get stuck in the employee trap. Always remember to ask yourself how to be of value to the world, and don’t let a single job cloud your vision.”

Keep your finances clean

This lesson will go something like this:

“Hey, son. There’s another important thing to know about money. No matter what happens, make sure to keep your finances clean. It’s quite easy in theory, though some people have a hard time doing it. The trick is to always pay back what you owe. And do so as soon as possible.”

Then, I’d use an analogy:

“See that pond out there? Right now, it’s clean. But remember when it was covered in moss? Though the moss started out in just one spot, it soon covered the entire surface. It grew fast… and soon, it controlled the whole pond.

“The same is true of your finances. Keep your ‘money pond’ clean. Pay back what you owe. Otherwise, your pond will soon be out of your control.”

Use the magic of compound interest

Once my kids hit their early teens, I’ll teach them about compound interest. I’ll have them read about the law of uninterrupted compounding, written by my friend and PBRG founder, Tom Dyson.

Then, I’ll have them do some exercises I found on Forbes:

Have your child set a longer-term goal for something more expensive than the toys she may have been saving for. For example, if your child has a habit of buying a snack after school every day, she may decide she’d rather put that money toward an iPod.

More exercises from Forbes can be found here.

P.S. There are many more items of value to teach your children about money. To help you keep up with the most important ones, we created The Palm Beach Daily—the only newsletter dedicated to helping you and your loved ones grow richer every single day. Simply claim your $147 Palm Beach Wealth-Building Starter Kit, which includes a subscription to The Palm Beach Daily, by clicking the banner at the top right of this page.