Passing On Your Money Skills
May 05, 2015Working as a financial planner gave me the opportunity to meet so many people and to hear their amazing stories as to how they became wealthy. Most came from humble means, from former refugees who did not speak English, to former teenage moms, to those that grew up in foster care. Their stories are an inspiration.
At some point, I had an opportunity to meet their children. I was shocked at how the children had no concept of how hard their parents had to work or of the sacrifice their parents made, and I found many of them blew their inheritances within 18 months. You worked so hard to build your net worth so take the time to talk to your kids about money.
Instilling Good Money Habits
The first thing to do is to teach kids to work for their money. Consider paying your kids for certain chores they do in the house vs. giving them an allowance. Explain to your kids that getting money requires work. This helps them connect to money with working.
In addition, help them plan what they do with the money. Get clear savings jars (younger kids are visuals) and when they get paid, have them place their money in the different jars in a certain order. They could be labeled “give,” “save,” and “spend.” They will place the money in the jars in that order.
By teaching them where to place money, you are teaching them the habit of what to do with money so they are learning to live on less. Once they start to save over $100, open a savings account for them and have them make deposits. With online services, they can see their money grow.
Teaching Kids about Investing
Kids like things. Kids want things. Use their love of things to teach them about the difference of putting money into things that pay them dividends as oppose to buying things on credit and then having to pay others interest.
Find out what your kids love. For instance, my youngest daughter loves anything Disney. When we talked about what a company is, being part owner, and how being part of a company can make you money, she was excited. We bought a few shares of Disney, we track it online and she’s now asking about what else she can buy.
My oldest is interested in Nike, which is amazing since she does not like to sweat. I explained to her that by owning Nike, she can get some of the money she uses on the shoes through appreciation of the stock and dividends. We then bought a few shares. Now she looks at what she and her friends like and started asking about buying more stock in those companies.
Providing a Reality Check
Give kids a “reality check.” Help them to understand how much it will actually take to live on a certain income. A few years ago, I volunteered for a reality check program at a local junior high school. In this program, a group of teens are given a card.
The concept was to deal with the cards you were handed, in this program as well as life. Each card was a profile. For instance, some cards had a profile of being 40 years old with two kids, age 10 and 12, and making $80,000 total household income.
They then had to go into a room with different booths. Each booth had a smiling adult volunteer with all of our hands out to represent different purchases: food, shelter, gas, daycare, clothing for kids, transportation, etc. (By the way, the sweet older women representing taxes blocked the door to the other booths until taxes were paid.) The looks on the kid’s faces as their $4,000 a month paycheck turned into $2,800 a month was priceless. They had to account for all of the money received and looked shell-shocked.
When all of the students were done, we asked them about their experience. Quite a few said that they will give their parents a hug when they see them. They had no idea how much it cost to maintain their household. Others said they felt bad about how much their parents spent on them. This is a link to an article about the program.
Saving Their Future
Work with your high school kids to understand the true cost of their college costs. A few months ago, I was talking to my niece who was accepted to a college that was going to cost her $50,000 a year out-of-pocket. Her future career path had a starting salary of $60,000 so she assumed she could afford to pay back the loan with ease.
I took her to a student loan repayment estimator to calculate what her potential payments would be. She almost fainted when she saw that her payments for 10 years at 5% interest would be about $2100 a month. She then realized the cost was not worth it and started looking at cheaper options. Take the time to show your kids what their choices regarding schools and debts will cost and encourage them to make better choices.
Sharing Your Values
For your adult children, share your values about how you got to the financial position you find yourself in. Many parents I talk to are amazed that their children, with less money, are living a lifestyle that took them 20 years to get to. Teach the value of delayed gratification, not using debt to upgrade their lifestyle and the value of work.
You may think this should be obvious, but it is not. I know this is a touchy subject but when your kids come to you with a financial need, use discernment to judge if this truly is a situation out of their control (job loss, medical bills, etc) or is their financial need due to irresponsibility. If the need is due to irresponsibility, the best gift you can give your children can be to let them learn from their mistakes by resolving their problems themselves or dealing with the real life consequences of bad money choices. No decision hurts them forever. Their lives and credit will bounce back, but if they learn their lesson, it won’t be repeated.
No matter the age of your child, there is an opportunity to pass on your values to them. If you do not, you are leaving the media and financial institutions to teach your kids about money. Who do you think will better look after your kids best interest?