Most of the responsibility of teaching kids about money falls on their parents and family. This can be rather stressful, especially if you are uncomfortable talking about money and don’t want to be actively questioned by a kid. In order for kids to learn about money they’ll have to be allowed to interact with it and yes, even make mistakes with it. It’s better to make money mistakes as a kid when the amounts are much lower than to learn about money after you open up a credit card at 18.
As a parent, or even just as a person who interacts with children, we need to pay attention to our money talk around kids. Do you put money down and call it the root of all evil? Do you glorify it and act as if you’ll never have enough? How do you say no to buying something for your child or any kid you know? Do you ever say no?
There are many ways to teach children about money; you’ll get to decide what way works for you and the kids you interact with. The main thing is to keep in mind that kids clearly see your beliefs around money; make sure that you are as aware of them as they are.
Before you start get overwhelmed, keep in mind that you do not have to teach your child about every single money situation. Instead, teach them to think critically and care for themselves. We have no way of knowing what financial questions they will run into as adults because it will be a different world then. Most parents today are surprised to see their young adult children saddled with mortgage sized debt for their college degree because when they were young college was either not necessary for a good job or much more affordable for the academically gifted. Most grandparents are surprised to see their middle aged children scrambling to save for retirement because they had pensions to fall back on. I bet most great-grandparents would be surprised to see their retired children having to deal with long term care expenses because most people didn’t live through the same medical issues we have today.
We have no way of knowing what the future holds. It is better to focus on teaching ability rather than the “right” or “wrong” thing to do. The Center for Financial Inclusion calls this critical thinking ability around money Financial Capability.
What is Financially Capability?
Financial capability goes beyond financial literacy of being able to read a bank statement or fill out a credit card application. The Center for Financial Inclusion’s definition covers several topics: from feeling competent about one’s ability to make financial decisions to being disciplined when pursuing long-term goals. Someone who is financially capable is able to not only understand financial products, but is also able to decide what is in their own best interest. They can see beyond get rich quick schemes and other financial scams. They are able to balance their current and long term wants. Simply put, people who are financially capable are in charge of their money and not the other way around.
How do you teach financially capable decision making? By having your child practice making money decisions. Knowing about banks is not the same as feeling confident in front of a teller or saying no to high pressure insurance salespeople. Take a moment to think back to your earliest money decisions. How old where you? What did you decide? What was the outcome? Did you feel empowered around money or frightened by it?
Examples of Money Stories
I have two very vivid memories around money as a kid. At about eight years old I was given the opportunity to decide how to spend a whole $30 my dad had given me for a week long trip to visit family in Sonora, Mexico. My cousin wanted me to buy all the candy possible on my first day at the corner store, but I refused. For this I was called “coda” or stingy and felt put down.
My first major money decision was at the age of 12. I was getting my braces at the orthodontic school and one of the dental students offered me $200 to attend one of his exams. It turns out I had just the cavity he needed. I then spent the entire $200 on a piano keyboard I rarely used. From there I learned to think things through before big purchases. These two things: saving my money under peer pressure and regretting a major purchase were made possible by my parents’ willingness to let me own my money, the decisions I made, and the consequences.
A good friend of mine had the opposite experience. Every Lunar New Year gift or birthday gift given to her as a child was confiscated by her parents. Whenever she did have money she spent it quickly just in case it was taken away. Once she started to earn her own money it took a lot of work to retrain herself to save for long term purchases and pay off debt.
Although my friend’s parents were trying to teach her the value of saving, somehow it did not go as they had expected. In my case, my mom continues to remind me to go against my natural hoarding tendencies and spend money on myself. This goes to show that the extremes are never recommended. Also, kids are all different. What worked with one child may not work with another. Be willing to test things out and give kids enough space to learn about how to use money.
We all have different ways of relating around money. The more aware we are of our own natural tendencies, the easier it will be to change if anything is not working. I took a year to track all of my expenses to learn about my own money tendencies; you can check out the post entitled Beyond Hoarding.
Share, Save, Spend
Unless you are actively talking about money with kids they are going to learn from their peers, the media, and whatever snippets of information they overhear. Nathan Dungan, a thought leader in the financial education sector, points out that children are bombarded by as much as 3,000 marketing messages a day. All of this can teach a child that the goal of money is just to consume. Unless these messages are checked it can create an adult with compulsive buying habits and overwhelming debt. For so many Americans managing money is their main source of stress. We can teach children a different way.
Dungan advocates a Share-Save-Spend method to allow children the opportunity to learn about money. He also recommends that children be taught to track their expenses. I think it could be a very fun experience to have the entire family share what they spent money for a week, without guilt or blame. This includes parents! We all make poor money decisions at some point. It is much better to review the decision and learn from it, than to avoid it and sit in shame. Your child will learn so much from seeing you make a mistake and then get back up to try again.
Gabriel Brenner, a financial advisor at Abacus Wealth Partners, shared his experience using the Share-Save-Spend method with his children’s allowance.
The method goes like this:
50% Spend – The perfect place to learn about buyer’s remorse, just like I did with my $200 keyboard. Also, as Brenner points out: [A] lovely side effect of the Spend, Save and Share strategy is that it minimizes begging and whining. The answer is always, “Yes, you can have that. Use your allowance.”
25% Save – This is a great way to see how patience and discipline can pay off. I remember how overjoyed my brother was when he saved enough money to buy his Nintendo 64. He loved that game much more than anything else that was bought for him because saving for it allowed him to exercise his autonomy.
25% Share – By giving to others a child can know that there is enough for everyone. It also develops a sense of community. We all share this planet, we can also share our resources responsibly.
The beauty of teaching kids about money is that you’ll probably get to learn a ton about yourself and connect deeply with him or her. Like with many of life’s big questions, it is in the questioning that we learn. I mentor a little girl and when we first began to go on outings she seemed uncomfortable with having me pay for everything. At the time she was only 10 years old and already knew that money is limited.
We talked about it and I clearly told her our expenses were in my budget, as long as they were reasonable. We decided we could have big expensive outings every six months. Our first expensive outing was getting her doll’s hair done at the American Girl store. Our other outings would be more affordable things like flying a kite at the park or going for a hike. After this discussion she was more relaxed.
This was as much of a growth experience for her as it was for me. She asked me a lot of big questions, for example, “What is a reasonable expense? How do you budget? Why do you budget? Do you make more money than other people?” Yikes! I shared enough with her to answer without boring her with adult details like the stress I felt before creating a budget or the structural inequalities that have increased income gaps since the 70s.
The way we use time and money speaks loudly about our values. By spending time talking about money with a child you are letting him or her know that they are valuable and capable. What if you are terrified of having to look at any of this? Thankfully you do not have to figure it all out today. The first thing is to be aware of how you use money and start to consider talking with the kids you know about what money is for.
For a very lively look at this topic I recommend you check out Brunch & Budget’s podcast over at Bondfire Radio. Pamela Capalad is a pro at talking with kids about money. You’ll definitely benefit from her suggestions, especially since according to her website “Parents are more afraid to talk to their kids about money than they are to talk to them about sex or drugs.”
What money conversations have you had with kids? Do you remember having them with adults when you were a kid? Would you ever consider tracking your money as a family and discussing it openly?