My seven-year-old grandson surprised me when he asked. “I was wondering about something. You don’t work, so where do you get money?”
His question came out of nowhere but made perfect sense. He knew that parents work to earn money, but he couldn’t figure out how his grandparents got money if they didn’t have jobs.
Explaining grandparents money
I decided to explain to him how while his grandfather and I worked we were not spending everything we earned. We were saving some money in a retirement account so we would spend it later.
That made sense to him because when he knew that when he didn’t spend his allowance one week he had more the following week. So he understood the concept that saving money is making a decision to not spend now.
This explanation shows kids that not spending money is, in fact, a way of saving money. By not spending money now one has money to spend in the future, be it in the short term or for a long-range goal like retirement.
Then I added one more thought for him to consider, “When you start working you will want to not spend all your money, just like you do know when you wait to use your allowance later. If you let that money grow during the years you work you will have money to spend when you retire.”
Here’s where his mom and dad can then take the conversation further by showing him the power of compound interest and how much his money can grow over his working years. When he sees those numbers his eyes will light up. A big lesson for a little boy.
Lynne Finch helps parents teach their kids about money from piggy banks to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school.