When it comes to teaching kids about money, I don't have a lot of experience, but I try to help out when and where I can. When I was growing up, my parents and grandparents set good examples, and I learned from them. I don't ever remember us having money trouble. I do remember my parents carefully managing their money, but they never had trouble with it.
Like it or not, family members influence the pattern of behavior of other family members, so it's up to us to make sure the examples we set are positive in nature.
My parents were children during The Great Depression and young adults during the poor economic times surrounding World War II. My grandfather refused to eat corn because he said, "That's cow's food." The truth is that his family was so poor that much of what they had to eat was stolen corn from neighboring corn fields. He was absolutely sick of corn.
So, hard times were good teachers for my family, and my elders set good examples for me to follow. They never sat me down to explain how all of this worked, but I knew enough of their financial success to pattern my behavior after what I had seen them do. It was also useful to know the kinds of things they avoided.
So, if you're teaching kids about money, it pays to have a good teacher yourself, and it's essential to set a good example because no matter how much your children might behave contrary to your wishes, they'll likely pattern their adult behavior after yours.
Let's get busy teaching kids about money. Here's what I think helps.
Establish a Savings Account
I started my first savings account when I was 4 years old. That's quite young, but once your children start handling money, that's the right time to start a savings account for them. Whether it's a weekly allowance, money from odd jobs, money provided as a gift, or some other source, a safe place to put it is a good starting point to teach kids about savings. My parents always encouraged savings, and it's a habit that has stuck with me even today.
I put myself through college using my savings, and when I finally got out on my own, I used quite a bit to put a down payment on my first piece of real estate. I knew that I was saving the money for some important purpose, but it wasn't yet defined. Both college and housing seemed like they were good investments, so I dipped into my savings to make them happen.
One of the best things about having a savings account is you'll have money available when you need it, even if it pains you to spend it, it's a great feeling knowing that you have it to spend.
It may seem a bit odd, but regular employment is a great way to go about teaching kids about money. You're either a producer of wealth or you're a consumer of it, and regular employment keeps you on the side of productivity...right where it's best to be. Notice I said "regular" employment and not "full-time" employment.
The idea is simple, being employed regularly means your children should have full-time work when they're not in school and part-time work when they are. "All work and no play makes Jack a dull boy," but it's clear to me that the most financially successful are those who have established a pattern of being regularly employed.
Remember, patterns of achievement and hard work
will carry over into the lives of your children as adults, and that's a
great way to get them off to a good start with respect to their own personal financial success.
Set Clear, Reasonable, Meaningful and Achievable Goals
When teaching kids about money, it's essential to help your kids set goals and achieve them. One of the general characteristics of troubled youth is a lack of meaningful goals. When trying to teach the value of savings and investment, it's best to have some objective on the horizon like saving to buy a bicycle or a game. Even for young children, I can't think of a better goal than education, whether it's at a university or a trade school, getting an edge on getting ahead requires being knowledgeable and skilled. Education is as good a reason to earn and save as I can think of.
An expression that an associate of mine is found of using is, "If you don't know where you're going, any road will get you there." I like to add, "And when you arrive, you'll never know it." I think teaching kids about money has to involve clear goal setting because it gives us direction. Money is a measure of value and it's a medium of exchange...at some point you're going to exchange it for something else. It's nice to at least have an idea of what that might be.
If you teach a pattern of setting and achieving goals, it will help your children be more focused, self-directed and achievement oriented, three qualities that strongly support success, no matter what endeavor one might choose.
Fund Only the Basics
It seems to me that the job of parents is to provide food, clothing, shelter and other basic needs, but it's the child's responsibility to provide much of the rest. Whether it's special clothes, a cell phone, a car or car insurance, these are the things that the child ought to be prepared to pay for. They say that those who pay are those who pay attention. There isn't a better way of teaching your kids about money than to have them be an active provider for themselves as early as possible.
Set Examples Worth Following
Kids pick up on your habits, both good and bad. As an associate of mine once told me, “I have become my father.” If one of your goals as a parent is to have children be financially successful, then you have to get out in front and lead. One of the best ways to lead is by example.
Just like a mother duck, your ducklings will follow in your footsteps until they're ready to make their own path. If your kids see you making careful financial decisions, they'll likely do much the same. What we do and say around our kids rubs off on them. Keep this in mind because every day examples of how you handle money are teaching kids about money...your kids and others too.
Use Credit Wisely
Perhaps the most difficult thing to do is handle credit wisely. The example I grew up with was paying for things with a check, which is tantamount to cash. I don't ever recall my parents using a credit card. Today, it's so woven into our economy that it's difficult to operate conveniently without a credit card. Try renting a car without one. It can be done, but it's tough.
Again, teaching kids about money starts with good examples, and the best example I can think of is to make only necessary purchases with a credit card, and then show your children that the bill must be paid for when it comes due. There isn't any such thing as simply "using plastic" to pay for something.
Also, be sure to emphasize to
your kids that credit cards are a way to pay for a transaction, they're
not for issuing personal loans like cash advances. Teaching kids about money means strong warnings about the pitfalls of credit.
Your Children are Your Future
Your kids will likely become one of the following, based on how well or poorly they've been coached:
Think about the lessons your children are learning. Are they sufficient for them to be able to help you when you need it? Ask yourself what kind of adult you’d prefer to have helping you, and that ought to guide you well when teaching kids about money. If you’re like me, you’ll want a smart kid who has grown up to be a responsible adult who can handle his or her own personal financial matters and assist you with yours.
Teaching kids about money is only one aspect of raising children, but it's an important one. Think of it as an investment in your future too.
Reveal the Financial Connection
If kids learn that their comfort and security are a result of good financial decisions and prudent management, they’ll likely see the value in building such skills. Be deliberate about showing how your home, transportation, groceries and such come from being an income earner and taking good care of financial matters. Help them make the connection between their standard of living, and how well they manage money. Show them the cause and effect relationship between being a good steward of financial resources and living a comfortable life.
Learning in the school of hard knocks is what you'd like them to avoid. Help them piece together the relationship between being good with money and living a good life. Get things out in the open so they can learn what's necessary to be a good provider for themselves and their own family.
Keep Them Exposed to Reality
We might naturally want to shield children from problems in our lives, but that isn't necessarily the best approach when it comes to them learning. Sometimes teaching kids about money needs to involve a healthy dose of reality, such that they'll have knowledge, skill and real life experiences as valuable references. That means we need to get things out into the light of day.
Whether it's a bet they lost, money they wasted on an inferior product, or perhaps some misplaced cash, if we shield them from the lessons, how can we expect them to learn anything? When things go wrong, even at your end, it might be best to make good use of the occasion to share lessons learned with them.
When you think about it, life's hard realities are going to come knocking on their door one day, so having some exposure to them early on can be a valuable reference. It can help them be better decision-makers and avoid unnecessary trouble in their personal financial affairs.
It's always been my belief that raising children is our opportunity to make them the best person we possibly can. That seems to me to be an excellent reason to deliberately focus on honing their skills in the area of personal finance. Teaching kids about money is an essential part of preparing them for a life of success, one with a minimal number of regrets.