- Jonathan McCarty, CFP®
How to teach your kids about money.
Given the current state of American personal finance, its no surprise to learn that when it comes to teaching our children about money, we’re flunking now and we've been flunking for a while. We see this played out across our country as kids have grown into adults who buy too-big houses, expensive cars, the latest fashion, the latest tech, the latest whatever. They finance a lifestyle by borrowing from the future - forgoing savings to consume today.
There is hard evidence to validate what seems to be true: according to the Federal Reserve Bank of St. Louis, our nation’s Personal Savings Rate in Fall 2017 is approximately 3.2%, down from its 3.7% level in Summer 2008 (before our debt-driven “Great Recession”). Yep, we were actually saving slightly more and borrowing slightly less before the debt bubble blew up. Did we not learn anything?
I think we have a lot of American adults who, having matured into adults in so many other areas, remain "Money Toddlers". You know - "I want what I want and I want it now and I don't care what it costs and Jimmy has one why can't I and I deserve this I've been good and I don't care about your logic because I want it I want it I want it". Let's be honest with ourselves for a minute; we have all used adult versions of the preceding arguments in our heads as justification for doing something which, deep down, we knew was financially stupid.
What if we could put a stop to all this and catch the cancer before it spreads? I believe if we could effectively teach our children about good money behaviors from an early age, we'd help our kids stand apart from the rest of the crowd when it comes to their wealth & success. So, how do we make this happen?
The short answer is to just be intentional. That’s it. Make it a priority in your household that money behaviors, choices and decisions will be brought into the light and that mom & dad will set a good example. This is easy to say, but hard to put into practice consistently. So, to help, here are some good tips:
Where does money come from:
I’ll never forgot my daughter’s response when I told her we weren’t going to be buying a $399 Cinderella Castle Lego Set: “But dad, we’ll just go to the bank and they can give us more money”.
At an early age, I think children learn intuitively that money is important, but they have little concept about where it comes from. You can help your kids understand how and where we get money by talking about why you go to work and having them do work of their own. We used to call these chores (horrors upon horrors, I know). Show them how their work directly results in receiving money. Rinse & repeat.
Money doesn’t grow on trees:
We can teach our children that money is a finite resource with some simple, fun ideas:
Use a clear jar as a piggy bank – give them a visual of the pile growing and shrinking as they save and spend
Use separate jars for separate goals – you can have a “Spending”, “Sharing” and “Saving” jar and divide the money equally into each.
Help them set a goal (a toy, an event, clothes, etc) and help them save for that goal. When they have enough saved, let them pay when you head out shopping. Bring the jar!
If your kids do chores, pay them per chore. Don’t call it an allowance; call it a commission or a wage – this is a great idea from Dave Ramsey.
Play money-based board games with your kids like Monopoly, The Game of Life, Payday, etc.
Video games. Many kids' video games (such as Minecraft) incorporate a virtual economy as a core component of the game play. Budgeting, trading, supply and demand can all be taught and kids can be learning without even realizing it.
Make your family’s values clear:
Like anything else we want to teach our children, we’ll set the tone as parents and whether we “walk the walk” will largely determine the success of our message to our kids. What is it about money that is important to you (parents) as individuals? As a family? Is it being able to spend more time together with vacations or perhaps additional time away from work? Is it being able to live in the neighborhood or city you live in? Is it giving to others or to those in need?
If you can have clear, healthy conversations about money with your spouse in front of your kids and then live out those conversations faithfully, your message will be far more powerful. Don’t just talk about money when it’s a problem, let your kids see that mom & dad openly talk and make positive decisions about money on a regular basis. When possible, let your children have input on family money decisions.
Your own consistency as a parent in this area will help you root good money behaviors in your children. Kids are amazing mimics. They won’t fully grasp everything that’s happening when they’re young, but as they grow they will realize they've been witness to a consistent pattern of money values throughout their childhood.