Think about how many times you have seen a child harangue a parent at the checkout line, begging and whining about “needing” some perfectly positioned treat or toy. Well-rested, unstressed parents simply smile and ignore the beggar at their knees, sticking to their family rule about eschewing impulse buys. The rest of us? We reflexively give in because we are just too tired to argue and/or leverage yet another teachable moment.
But when you add financial literacy to the family toolbox, you won’t need to argue nearly as much.
That’s why I sat down with a friend and expert in finance who has coached over 3,000 people through bankruptcy. He knows the value of financial literacy – and the downside of ignoring this crucial life skill first-hand – and he agrees that it is never too early to start teaching our children about money.
He shared his three-step approach with me, which I’ve filtered through a parenting lens. But first…let’s turn that lens on ourselves and explore what a good parental mindset about money looks like.
BE CONSCIOUS. Before we can teach our children about the value of money, it’s critical that parents are clear about our own relationship with it. Here’s how:
Know your values. Being clear about your parenting values is the first part of the consciousness-raising equation. Your values serve as a sort of built-in parenting guide, so extending those values as part of your decision-making around money will make every financial choice clearer and easier. For example, if your children’s education is an important family value, you know you will need a plan to save enough to pay for private school and/or college.
Be mindful of emotions. Be attentive to emotional spending, which gets many parents in trouble. Impulse buying, whether in the checkout line or online, can easily blow a budget – and you won’t even remember where the money went (or probably have anything to show for it).
Communication is central to being conscious about money. Have ongoing conversations about financial compatibility and financial decision-making with your partner. With financial infidelity on the rise, you also want to be sure that you and your partner are a money match. Don’t wait for a problem to arise to discuss financial issues because it can make the conversation unnecessarily dramatic.
BE DISCIPLINED. Start with an assessment of your needs – and be sure to separate your needs from your wants. An assessment can also help you identify short-term, intermediate and long-terms goals. A simple assessment begins with tracking all your expenses (fixed, variable and periodic) for several months so you get an understanding of where your money is going.
Make savings a family affair. Let’s say you need to save for retirement and you’d like to plan for a family vacation this summer. Set your goals and make them explicit. Agree on areas to pare back so that larger goals get met, and then create a spending and savings plan that makes the entire family accountable. Be sure to put it down on paper in black and white. Remember the Chinese proverb, “The palest ink is stronger than the sharpest memory.”
Another important tip: create an emergency fund. People get into trouble when they don’t account for unanticipated expenses like unforeseen home repairs or medical bills.
BEWARE. We are bombarded with seductive advertising everywhere we go: the gas pump, online, backs of buses, on the train. These retail tricks are designed to get us to open our wallets – and they work! Protect yourselves by being conscious of the ways in which you can be influenced by media and empower yourself to stay on track.
So how does this approach relate to how we talk to our children about money? Let’s take being conscious. What are you modeling for your children? Do you mindlessly toss items into the grocery cart? Does Amazon regularly drop off packages filled with your impulsive purchases? How does your metaphoric checkbook reflect your parenting and financial values?
BE A MODEL AND MENTOR. This is my addition to my finance pro’s advice.
Beyond what your kids observe you doing, begin having an active conversation with them even when they are young. Recent studies show that children as young as 3 and 4 can understand the basic financial concept that you need money to buy things. Believe it or not, they can also learn the difference between the things they want and things they need.
There are myriad opportunities to engage our kids in age-appropriate ways that teach them about the value of the dollar. Give them an allowance and have them allocate their money into three buckets: save; spend; donate. Get children involved in philanthropic endeavors big or small. This could mean having them donate an outgrown toy or coat, a family outing to serve food at a shelter or service agency or coming up with a proposal all their own to present to your family foundation.
Kids will respond to a financial education if it’s consistent. So take advantage of everyday opportunities to involve your kids in age-appropriate financial discussions. Ask them to tally the grocery tab while you’re going through the aisles. Task them with researching vacation destinations when provided with a budget. Make them calculate the tip when you are out for a meal.
When I was a teen, my currency was cash. And when my wallet was empty, I was done spending. I had to wait until the next allowance or baby-sitting job to fill my gas tank or head to the movies. Today’s kids rarely see or use cash. They live in a Venmo, CashApp, and ApplePay world. Most of their financial management is conducted on their phone, not in a bank. This makes financial literacy all the more crucial because money is often invisible to them – especially understanding the difference between debit and credit.
When it comes to kid-specific money strategies, I believe that once a child is old enough to be out and about without parents, they should have a debit card to use for emergencies as well as for expenses that everyone agrees on. With this privilege, of course, comes the responsibility of reviewing their spending with you regularly. If it aligns with your values and you are able to do so, provide teens and college-age kids with a low-limit credit card in both their name and a parent’s. When they are earning their own money, let them get their own credit card so they can start to build their credit rating.
NOTE: Experts suggest separating a joint card from your primary card and opening individual cards if you’re providing this for more than one child. That way if a card is lost or stolen, it only impacts one child – who also gets to experience the natural consequences of not being mindful.
Talking about money and finances with kids should not be taboo. Nor do you have to share the cost of your home or the balance in your savings account to start having real money conversations with your children. Remember, transparency and honesty are not synonymous. You can be honest with your children without disclosing private information that is not age appropriate.
The most important takeaway is to start teaching financial literacy to children as early as possible. It is never too late to start and the benefits are huge and relevant for their lifetime.