For those busy parents out there who couldn’t attend the “10 Ways to Raise Money Smart Kids” webinar, presented by Melissa Joy, CFP ®, here is a quick recap on the different methods parents can use to teach their kids about financial responsibility.
First of all, we have to mention how important it is to start talking to children about money early. Lynsey Romo, an assistant professor of communication at North Carolina State University says, “Even now, parents talk more about sex with their children than they do about money.” Money can seem like a taboo or troublesome topic to broach with children of all ages, but your kids will observe money behavior and patterns from somewhere, and it’s better to teach your child what they should know before they get different information elsewhere. Be intentional and consistent with your teachings to reinforce desired habits.
Now let’s get to the tips!
1. Talk about money earlier than you might assume.
Research shows that preschoolers can understand basic money concepts like spending and saving, and by the age of 7 children can understand what it means to earn an income. By waiting, parents can miss out on opportunities to teach their children valuable money lessons during formative years. A quick tip is to bring money out of the theoretical and into the physical and practical world to elicit better comprehension through examples with physical money.
2. Start with the basics and then be specific.
Kids are a blank slate, whatever they know is through observation and your specific instruction. Don’t forget to teach the little things, like protecting your money, because to a child, it’s not an innate habit quite yet.
*You are your child’s money role model.* This isn’t a tip so much as a reminder. Modeling smart money behavior can help your child reflect that same behavior.
3. Get your children comfortable with numbers.
Shawn Cole of Harvard Business School says it best: “a lot of decisions in finance are just easier if you’re more comfortable with numbers and making numeric comparisons.”
4. Use the Bucket approach.
Physically separate whatever money your child earns into three different buckets labeled: Spend, Save, and Share. Not only will this help your child understand the principles of saving money and using money for charity, but the visual will give practical context to their learning.
5. Disconnect allowance and chores.
There are a couple schools of thought here. Ron Lieber, author of the book The Opposite of Spoiled, suggests that parents disconnect allowance and chores all together. The allowance has the purpose of teaching kids the value of money and the chores are family work that needs to be done regardless of a monetary reward.
6. Try a family 401(k).
Leverage a matching dollar-to-dollar system, or act like the “Family Bank” and give interest to every dollar you child has saved in order to teach and encourage money lessons about the importance of saving and long term planning.
7. Understand that education really pays off.
It’s always good to remind your children how the higher the education an employee has the higher their salary is. The data is astounding at how much of a difference a college degree can make.
8. Encourage mini-entrepreneurs.
Encouraging your kids to be mini-entrepreneurs can not only teach lessons of innovation or the correlation between hard work and money, but it can also encourage charitable giving, like using “start-up money” to create a business where the profits go to a local nonprofit. It’s never too early for your kids to learn good business practices or the power of giving.
9. Have up-front communication re: financial commitment.
Hold your children responsible and accountable…give them ideas of what you expect and how they should plan to take on financial responsibilities so there’s no guessing game.
10. Share your family stories.
Your story, the story of your parents, and the story of their parents are important. They hold valuable lessons and are the history that impacts your child’s future. Share with them past success as well as struggles.
Wondering how you and your parenting partner(s) can implement these strategies? Discuss and develop your parenting philosophy with your partner and anyone who helps raise your children and come to a consensus for how you’ll teach your children how to be smart with money, then write it down and sign it. This will help create a consistent plan with intention. Write down specific action items you would like to cover within the year, and/or goals you and your partner(s) would like to reach, then review and amend the “money contract” annually to track your progress and to revaluate your strategies.
Lastly, we understand that parents can spend more of their time worrying about their children and their relationship with money, and less time worrying about their own financial future. It’s important to keep a balance between your kids’ needs and planning for your own life. Here at Center for Financial Planning, we are available to discuss the hard topics involving money and want to plan for your financial future, as well as your children’s.
If you were intrigued by any of the tips and want to hear more, below is the full 30-minute webinar.
