Late this Spring I had the distinct pleasure of sitting down with best-selling author Ron Lieber, who has been the “Your Money” columnist for The New York Times since 2008. We had an enlightening conversation about kids, money, generosity -- and how parents can help kids of all ages navigate the world of finance. This conversation was presented by the Jewish United Fund of Metropolitan Chicago. I’m grateful for their willingness to let me share some of the discussion with my readers.
DANA: Ron, let’s start big picture: Why do parents need to talk to their kids about money?
RON: As parents, we can pretend we can shield our kids from “money stuff,” but money is essentially in the air that we breathe. So I look at every conversation about money as an opportunity to teach our kids about our family values as they relate to how we spend, save and give. Parents can use their kids’ questions [no matter what is asked] to steer the conversation towards the topics that are most important.
DANA: How early can this conversation start…and is it ever too late?
RON: It’s never too early or too late to start the discussion. Usually a good time to begin is when our kids start asking us for stuff. When that happens, it’s an opening to both demonstrate parental spending limits and also to give them some agency.
For example, don’t default to “We can’t afford it” when your kids ask you to buy them something. Kids are smart. If you say you can’t afford it but you can, they’ll know it. So, no little white lies. Rather, tell them that now is not the time for that kind of expenditure or that it doesn’t fall into the category of what you think they need. Conversely, suggest they check to see how much money they have in their “spend” jar in the event they want to buy it for themselves.
DANA: Following on that idea, can you share some of the most salient concepts for teaching kids how to balance spending, saving and giving?
RON: As grownups, most of us keep a mental accounting in our heads. We spend approximately 70% of what we earn [on regular expenses]; save about 15% for retirement; put another few percentage points of income away for college savings, and the rest we give to people and institutions in need. One way to help kids get ready for that adult way of thinking about money is to give them lots of opportunities to practice that themselves. So start by giving each of your children three labeled jars: One each to save, spend and give. And then offer them lots of occasions to make financial choices themselves.
DANA: So by putting an agreed-upon percentage of their allowance in each of their jars -- like adults do with their income -- kids come to understand that money has different uses. That’s terrific.
But what do parents do when kids make money mistakes? My guess is that if a kid buys something and regrets it, there’s value in that as well, right?
RON: Exactly. Money is a tool for living and earning. We want our kids to work with it and practice using it in exactly the sort of way we way we want them to practice reading, sports or a musical instrument.
DANA: Let’s turn to another topic many parents are curious about. How much is the right amount of allowance? And is it appropriate for allowance to be tied to chores around the house or performance in school?
RON: Since money is a tool for learning, that makes an allowance a way to teach our children to be responsible. They don’t have to “do” anything for it other than to practice using it well, just as they have to practice their instrument.
Regarding the amount of allowance, the answer is qualitative. The best philosophy is to give kids enough so they can have some funds for what they want, but not so much that they aren’t forced to make hard choices and tradeoffs. That’s what we grown-ups do -- no matter how much money we make. So kids need to practice that type of decision-making.
When it comes to the question of using an allowance as payment for chores, I believe it’s best to separate the two. Chores are something everyone in the family does for free with no expectation of compensation because we value a reasonably calm and ordered living experience. And because we love one another! Plus, when parents pay kids for household chores, we lose leverage. If your son decides he doesn’t want to do the dishes any more he can just say, “I don’t care about the money” and stop doing what you expect of him.
As to rewarding good grades, the vast majority of academic research says if you pay for grades then you reduce the intrinsic motivation, joy and love of learning. I tend to agree. Yet once teens apply to college, the vast majority of universities give merit aid precisely for academic performance. So even if parents don’t reward it, the outside world does.
DANA: Can you offer a suggestion for how to operationalize some of what you’ve talked about in terms of teaching our kids how to make financial decisions and tradeoffs?
RON: Here’s one idea. As kids get to be teens, you could give them complete control over their entire school clothing budget, letting them make all their own purchasing decisions. Start by sitting down with your teen and coming up with a number that will cover absolutely everything they’ll need to buy for the upcoming school year -- from underwear to outerwear. Then let them loose with it. Don’t judge their purchase decisions. But -- no bailouts. If they run out of money before they purchase everything they need, they’ll either have to work to earn more, shop at used clothing stores or do without.
DANA: I know a lot of parents who are curious about ritualizing “giving” in the family, with either weekly, monthly or yearly conversations to discuss the family’s philanthropic priorities. What are your thoughts about this?
RON: The best tactical approach to family giving, beyond talking about your values, is actually doing it. If your kids have save, spend and give jars, one good idea for school-aged kids is to have them empty the giving jar once a quarter. Make it a requirement for them to think about what they find most meaningful and decide how they want to disburse the contents of the jar. Maybe they take the jar to a charity and dump it on the desk of the development director. Actually this happens a lot, and most nonprofits know what to do at that point. The entire staff will come out and they’ll cheer, take your kid’s picture, put it on social media if the parents agree -- and the kid ends up feeling like a million bucks -- even if all they handed over was $12.63!
The other thing I’d mention is to include kids in the family’s allocation decisions. Personally, my wife and I stumbled onto this after struggling with how to handle it with our oldest child. At some point we realized we could take 100 beans and spread them out on a table -- 100 beans representing how much money we gave to charity. We divided the piles of beans up according to how much we gave to each organization, explaining our reasoning for why some piles of beans were bigger than the others. We went through all the charities and amounts, and we had one of the best conversations our family ever had.
Then we gave our daughter the opportunity to reallocate some of the money herself. We said to her, “This year a couple of these beans are yours. The catch is, it’s up to you to decide from which of the existing piles, i.e., charitable organizations, you want to take your beans to give to your charitable priority or priorities.
Again, a lot of the time, money is about tradeoffs. Parents are in the trade-off-making business, so kids should learn how to make them too.
DANA: I love that exercise. You’re tethering your giving to your values, and you’re sharing those values with your children. While we’re on this topic, should parents set some constraints for kids about where their charitable contributions go?
RON: The first “giving” challenge is getting kids to understand why they should give. This happened in our house. We started giving an allowance reasonably early, but our daughter had trouble getting her head around why we valued giving. Adults talk in airy language around it: We would say, “We give in order to give back,” which was just meaningless jargon to her.
Then we realized we had a golden opportunity to tell her about her family’s own history; how we’d been helped and the impact that it made. For example, I explain how when I was in private grade school, my family hit the skids financially and my parents split up. The school essentially passed the hat among the other families and made it possible for my siblings and me to remain in school, regardless of our parents’ ability to pay tuition. That was incredible. Some of those families from grade school are still in my life today. It was the same in college. Because of those people and institutions, I am who I am today.
They also know the history of my wife’s grandmother, a Holocaust survivor, who is still alive today. So when my kids see pictures of refugees in the newspaper or on TV, they know what that means. They know they, themselves, come from refugee stock. They see the relationship between what is happening now and the needs that exist -- and what happened to their family not too long ago.
Each family has a history of how they’ve been helped. Share it. Help your kids get in touch with it. Another thing I’ve found helpful is that some parents set one simple rule about their kids giving decisions: no animals, just people. You can’t give money to zoos or animal rights organization; the money must go to help people who have less than you do.
DANA: Another worry I hear a lot from parents is how to counteract the materialism that our children see all around them. What are you thoughts about that?
RON: It begins at home. Kids are watching our every move. They’re learning how to live and how to behave as consumers -- and as human beings -- by the products we buy, the way we live, the services we indulge in, the way we interact with the people we work with or who work for us, and how we treat the people who work at the places where we go. So our behavior in all these areas is grist for their mill -- whether parents want it to be or not. So we must be hyper conscious about our behavior.
At one of the very first talks I gave on this topic, a parent raised their hand and said his kid wanted to know why she couldn't show her horse in Florida if he [her dad] got to drive around in a Mercedes? I thought it was a very perfectly appropriate question for a kid to ask. If you’re going to buy a product or service that is obviously expensive, more power to you. But you should be prepared to explain why it’s appropriate and how it fits into your own value set when your kids ask you about it.
Kids aren’t being bratty when they ask; they’re actually being the opposite of bratty. They’re trying to square their own emerging values with the values they “think” you’re displaying. If it’s defensible to you and it’s something you’re proud of and it fits within a larger values framework that you believe in, then explain it. Our kids deserve an explanation. They need to understand for themselves how the world works, how your family works and how your family values work within it.
DANA: Exactly. It’s one more chance to tether our values to our behavior. Speaking of family, how do we navigate well-meaning relatives (read: grandparents) who shower our kids with gifts?
RON: Where to start?!
If you believe it’s becoming a challenge, first put yourself in the grandparent’s shoes. Grandparents want to be loved…and they want to be remembered. They know they’re not going to be around forever. If the point of giving is to inscribe themselves in their grandchildren’s brain, they need to know that most of the “stuff” they give is either forgettable or will be forgotten.
The best way to be remembered is with some set of unique experiences that will create memories that will have a much better chance of lasting a lifetime. I think the “experience” approach and the spending-time approach yield far more benefits than the “stuff” approach. Convince elders of that -- and I think everyone will be happier with the result.
DANA: This has been such an illuminating conversation, Ron. Thank you for your time and expertise. To close, would you give us with your top three takeaways regarding kids, money, generosity and the role of parents?
RON: Here they are:
1. Money is not shameful, and I don’t ever want my kids to feel ashamed about the choices they’re making as consumers. Our children’s curiosity about money should be valued and honored. Every time our kids ask a question that may feel, reflexively, like an impertinent one, parents need to stop, take a deep breath and think about how good it is that they’re curious. Also, before you answer their question, ask them why they’re asking it. We may be wrongly assuming their motive or miss what they’re really interested in finding out.
2. Help them practice. Give them as many opportunities as you can to use money to make tradeoffs and decisions.
3. Don’t let the money issue slide. You get a system in place when they’re school age and it works fine, so you think it doesn’t need to change. But as they get older, there are bigger questions. What about phones and cars and college? As our kids age the financial stakes get higher, so cement what you stand for and how you make decisions early on. By the time they’re out of your home they have the framework for how to make ever-larger and more impactful decisions.
All parents want our children to need us forever of course, but what we want more than anything is for them to be able to fend for themselves in a way that makes them feel good about the decisions they’re making.
Rob Lieber has been the “Your Money” columnist for The New York Times since 2008. He is the author of several books including The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money, which was a NYT best-seller when it was released in 2015. In January, HarperCollins publishes his most recent book, The Price You Pay for College. He began his career at The Wall Street Journal. Ron lives with his wife and two daughters in Brooklyn, NY.