I thought Thanksgiving week was the perfect time to update this article on teaching kids and grandkids about money. There are few topics where your insights will be more valuable.
All parents pray that their children and grandchildren will never have to worry about where their next meals will come from, or work in a job they dislike or one that damages their bodies or their self-esteem. Money has the potential to protect your loved ones from the harsh realities of life. Yet good financial habits are not acquired by chance. They have to be taught, practiced, and reinforced. Seventy-five percent of parents think that imparting financial wisdom and money tips to their children is imperative, but only 36% say they have any clarity on how to do that. Television will teach your children to be impulsive consumers, driven by instant gratification. As they grow up, the credit industry will encourage them to load up on debt. You need to teach your children how to be thoughtful, frugal, and responsible consumers.
Teaching kids about money takes time and a little effort. Nevertheless, teachable moments abound and the lessons do not need to be complicated.
Here are a few money tips that are easy to remember and implement:
- Financial lessons should be age appropriate. You can start around age five with simple concepts such as counting coins and letting your child give the money to the cashier. I am pretty sure you will be disappointed if you try to dazzle your 5-year-old with the wonders of compound interest.
- You can start an allowance program between the ages of 5 and 8. An allowance gives your child the chance to make spending and savings decisions, which will build independence and self-esteem. You may not agree with your child’s spending decisions. They may also regret them. This is part of the learning; let them make mistakes and do not bail them out.
- Try this to discourage impulse purchases: If you really feel your children are about to make spending/financial decisions they will regret, tell them you want them to sleep on this decision for one night, and if they still want to make the purchase the next day, you will bring them back to the store. In my experience, 80% of the time they decide against the purchase by the next day.
- Teach your kids they need to save for something they want to buy. Never advance them their allowance, even if it’s just a few dollars. One of the keys to building wealth is learning not to borrow money for anything that depreciates. You need to teach your kids that debt is bad because thousands of marketing messages will offer them “easy financing.”
- Never say “We can’t afford it….” Those words teach kids that if you had the money, you would spend it. Instead, say, “We choose to use our money for other things.”
- Personal stories are significantly more effective than lectures. Share your own story of working, saving, and gaining financial independence.
- Demonstrate that you spend money to fill real needs—as opposed to shopping to entertain, reward, or cheer yourself up. Children who learn patterns will repeat them on a larger scale when they are older.
- Children who work for money have greater self-confidence and self-esteem than those who have not been required to work until after high school or college. Even low-wage, menial jobs impart great insight and perspective later in life.
Children are sponges. They take in everything around them (hopefully, including these money tips!). They see how you spend, save, budget, donate, negotiate, etc. Regardless of what you tell your kids, they are more likely to do what they see. So be very careful about the behavior you model (e.g., impulse purchases). Don’t worry about not being a perfect financial role model. Some financial education is better than none, and even your financial mistakes are teachable moments. It is perfectly okay to admit when you regret certain financial decisions along with an explanation why.
Good luck, my fellow parents.