3 Basic Skills to Teach Kids About Money

Money Management Requires Basic Good Habits, Willpower, and Discipline

In the children's book, Not Your Parents' Money Book: Making, Saving, and Spending Your Own Moneyauthor Jean Chatzky explains money management to children. One of the most basic lessons in the book is that in order to be a financial success -- in order to be rich someday you have to do three basic things:

1. You have to earn money.
2. You have to spend less than you earn.
3. You have to save and invest the money that you don't spend so that it can grow into more money.

Think of these like directions on the bottle of shampoo: Wash. Rinse. Repeat. Do them over and over, again and again, and that's really all it takes.

The catch is that these steps may sound like easy things to do. But in practice? Doing them over and over, day in and day out, is not such a no-brainer. You need good habits, you need willpower, and you need discipline. Why? Because doing any one of these three things means choosing not to do something else that, at the time, you'd prefer to do.

The other way to think of these steps is like an equation. If you're going to be financially successful, the number one rule is that money in should equal money out. If you are bringing in less than you are spending, you are living beyond your means. and that's not sustainable.

Whenever you see a person or a family struggling financially, chances are it's because they didn't live by this principle. They spent more than they made -- sometimes by choice because they wanted things they couldn't afford and bought them anyway. Other times they lost a job and they had to rely on credit cards or stop saving because there was no other way to stay afloat. No matter the reason, the more you understand about these three steps -- and this one equation -- the better you will be able to manage them to your advantage and the better your financial life will be.