Talking to your Kids About Money Management
Do you openly talk about money to your children, parents, or friends? I do, but it’s a very recent development for us. Many families don’t. Why is that? From my experience, it’s due to one of three things: our first family taught us that it’s too personal, we are embarrassed about our financial choices or status, or we don’t feel like we have the answers and are afraid to share the wrong information with our children. Talking to your Kids About Money Management is crucial and we will share how and what to discuss below.
Does any of this ring true for you? Based on a survey conducted of over 200 of our closest friends and family, the number one reason adults don’t openly talk about money is that we were taught it’s too personal.
Some believe it’s socially taboo and inappropriate to discuss beliefs, status, and strategy since they differ so much from family-to-family. While I agree, your current salary increase is not the most appropriate topic for dinner conversation, I believe when done with some thought and planning, talking to your kids about Money Management is as important as teaching your children to brush their teeth.
Talking about money openly and honestly can help children to develop a healthy relationship with money and comfort discussing it.
Many studies have concluded that “money issues” are a leading, if not the most significant cause, for divorce in the US. If the two adults in the house are not able to talk openly and honestly about money, they will not only head down a path of marriage turmoil but will struggle to teach their children and prevent them from the same mistakes.
Being embarrassed or feeling that your spouse or child will judge you for financial missteps is the second reason adults don’t talk about money with family. After interviewing hundreds of people on the subject, I’m confident that all humans on the planet have made at least 3-5 substantial financial mistakes that they are embarrassed about.
I would encourage you to find one person you trust and agree to share one embarrassing financial error (does not have to be your biggest one). Ask them to share one with you. They will definitely have one, and you can start to see we all make mistakes and learn as we go – but maybe, your child won’t make the same one you did if you share it with them.
The final reason adults surveyed say they don’t talk to their children about money is they either feel it’s not age-appropriate or that their child will ask a questions they do not know the answer to. This excuse follows the ashamed reason, but I think it is more closely linked than many want to admit. Children do not expect their parents to answer everything, but they do hope that you teach them how to find the answer. If your child asks a question that you don’t know, respond with “that’s a fantastic question, let’s go look it up.”
For the record, no finance topic is “too adult” for a child to hear.
The child will omit the information they do not understand and retain the information they can (like they do when watching a Pixar movie with an adult joke in it). Talking to your Kids About Money Management is crucial and well within their capacity, however slight.
I firmly believe that our children have a great chance at a prosperous and peaceful financial future. However, only we have the power to make it happen. We must discuss our victories and failures with finances. Take it slow. Talk to your best friend about it first. Or, if you prefer, call us and talk to us about your most significant financial shame – I promise we won’t judge you. Practice a little. Then go for it. You have nothing to lose, and your child has everything to gain.
Here are a few suggestions in guidelines for your discussion:
- Your current salary does not need to be discussed. You can talk about past ones and how you got a raise.
- The total amount of debt you have. You can talk about ways you got into debt and things your wish you could change.
- The amount of money in your bank/savings accounts. But you can also discuss smart saving strategies to ensure you have enough money for retirement, college, fun, and day-to-day life.
Your children need to understand the credit card or consumer debt you have been in and how you got out or are trying to get it. They need to know from the people who influence them the most, what making mistakes and climbing out looks like. They can read a book or learn in school (although tragically, it’s not a topic in US schools). Still, they will learn better, retain it longer, and understand it more when they hear a person and possibly emotional story from you.
Your children need to understand the credit card or consumer debt.
My kids are ages five, seven, and nine. We started by only talking about credit cards. They get commission (Dave Ramsey word for “allowance”) for chores that they do. Each chore has a value from $0.25 to $2.00 depending on how hard it is and how important it is to us. They are responsible for tracking their chore lists and marking them off. If they do 100% of the chores, which they never do, they would get $10.00 per week.
The concepts that we have applied are as follows:
Payroll Friday – they get paid once a week, just like in the real world. We chose weekly payroll so that too much time didn’t pass between the action and the reward. But, you could do every two weeks or once a month if you have older kids who need to learn delayed gratification.
Give, Save, Spend – this is right out of Dave Ramsey’s mouth. These are the fundamental principles of living happily with money. He teaches explicitly to consider money in this exact order. So that Give and Save are the primary focus on your mind. Spend is whatever is left. In our family, we ask the kids to give 20%. They get to choose the charity that they want to donate to. Then, we make that contribution online or in-person together – I do not do it for them. They all love this part and admittedly, it makes my Mommy heart happy.
The Save Part is a little harder for them. Like many adults, they have a tough time saving money and not knowing precisely what it’s for. They want to either donate it or spend it right away. We have curbed this a bit (and I say a bit) by helping them find an item that they want. So, my son decided he wanted Super Mario Brothers toys. We looked up a set online that he liked, figured out the total price with sales tax (a cool side lesson), and wrote it down. A little picture next to his “save bank” really helped him keep the focus. Since this part takes longer, the first two times we did it were hard. Now, at five years old, he’s a saving pro! We ask the kids to save 50% of the commission they earn that week.
Side note: The percentage that we set for our kids is simply because of how young they are. If they were older and had said a cell phone bill to pay, we may modify the percentages. The key is to work within the appropriate ages of your children and come up with the percentage with them.
So as of today their weekly commission, IF they do all their chores would look like:
Give – $2.00 + Save $4.00 + Spend $4.00 = $10 in commission.
On payday, we provide cash, in either dollar bills or quarters, and have them split up the money into the appropriate piggy banks (or three envelopes if you want to follow the Dave Ramsey kid saving system). This is important.
Teach your children to handle their own money.
We don’t do the splitting for them. They need to understand from a very young age that their employer, mom, or cousin is not responsible for their money management. THEY are responsible for doing it. When we first started, my kids thought it was fun to play with the money and do the sorting. Sadly, the novelty eventually wore off and they didn’t want to do it anymore. We still make them.
Even though you can set up 401k, savings direct deposit and charity pulls in adult life, you still have to go in and set this up yourself. Teach your children to handle their own money. To put it into the appropriate categories which also doubles as a math lesson!
Another note here – make sure your children do the spending part on their own too. They need to feel the cash leave their hand. If you have the time (and energy), make their purchases separate from yours. They need to experience a $5.00 purchase with tax. They need to see the dollar bills leave their hands and receive smaller bills and coins. These lessons in the “trade” are often missed in early childhood. But, they have a profound impact on the way people grow up to experience the use of cards.
For more tips and tricks for talking to your kids About money management or having a review of your financial position, call us a service category called “It’s Personal” waiting for you.