No-Regret Parenting: Raising Money-Smart Kids

Jun 9, 2021

What do you want of your children or your grandchildren when they are adults?  How do you want them to handle their money?   That’s what you have to systematically teach them now.  That’s right.  Start with the end in mind.  Just like Steven Covey said in his book, Seven Habits of Highly Effective People.

My children are grown, and I saw this firsthand.  When they got out of college, I was surprised at what they didn’t know about handling their money.  But then, when I think about it, I was surprised at what I didn’t know.  As a young adult, I myself was not averse to debt.  I didn’t have a clear number of how much I could spend each month.  I didn’t know exactly what it took to cover my basic necessities.  And I thought everything I wanted was a necessity.  Hmmm.  What exactly do our children need to know?  I guess you could say they need to know everything you needed to know.

Four Cornerstones of Financial Education

  1. Exercise Generosity. Giving and generosity develop a better view of life.  Every time a child drops money in the church collection or donates to a local soup kitchen, they are reminded that life is good for them.  It ramps up their awareness of what they have.  They realize not everyone has as much as they have and that compassion muscle grows strong.  It also makes them aware of their responsibility to do as well for themselves as they can, to attain higher goals so they can always help those in tougher circumstances.  Teach your children to give some of every dollar that comes their way.  Require it until it becomes part of them.  The earlier you start with this, the better.  Preschooler lessons are easy.  If you are dealing with older children, take them to a homeless shelter, or food bank on a regular basis.  Let them see how much of our population struggles.  Then encourage them to open their wallet.
  2. Develop the Saving Habit. After giving, the next most important money concept is to “Pay Yourself First.”  Every time money comes your way, put a portion of it in savings.  Preschoolers can learn this.  And if you have an older child who is earning his/her own money, help them develop this most important habit.  Show them by example and talk to them about the importance of “saving for a rainy day.” (But you may have to require it.)   The younger the child, the higher the percentage to savings.   If a 5-year-old gets $10 for birthday, maybe 50% is put in savings.  For an earning high schooler, 10-20% is more reasonable.  Once this concept is accepted as natural, it will never cross his mind to spend more than he makes!   Savings habits ensure spending remains less than the income!  And that is a foundational principle of managing money well.  Nothing will keep you safer than short term and  long-term savings accounts and spending less than you make.
  3. Understand the difference between want and need. We all want what we want.  But learning that most of what we want is luxury is essential to your future young adult!  Right? The BMW may be what he wants, the designer outfit may feel absolutely essential to impress, but necessities include basic food, transportation, housing, medical needs and insurance.  You want your 20 Somethings child to know that their earnings (once they have a job) will have to cover these expenses.  After these necessities have been paid for, they can choose how the rest (if there is more) can be spent.  Translated to a child’s experience, it takes conversations and discussions to get this idea across.  School supplies, extra tutors, music lessons and school clothes, school lunches are necessities for them.  The child should be aware of these categories even though they don’t pay for them.  They should see the difference between expending money for a musical instrument and money to spend at the mall.  Children should gradually become aware of the actual costs for these things. Opening a budget plan for necessities and for luxuries is a real gift to children because it teaches them the process of planning and looking ahead.  Not only that, you help them actually enjoy the luxuries as just that and not as a right to be expected.  We don’t want to overburden our children with responsibility but help them exercise that good choice muscle.    Back to the savings habit.   If the child has been saving money for short term luxuries, then you can let them choose: spend it all on sweets at the coffee shop?  Or buy the newest board game they’ve been wanting?  This is how they learn the value of money.    If they have separate savings accounts for necessities and for luxuries, they will see the difference.  That’s what you want for your child.
  4. Know that debt enslaves. And paying off debt takes twice as much effort as saving.   Core expenses will always be there.  Again: food, housing, transportation, medical and insurance are the basic necessities.  These don’t go away.  When you add a debt, then you are adding an extra payment to those necessary bills.  Now the thing you couldn’t afford in the first place has increased the load you have to carry.   Begin the conversation about debt when children are in grade school.  When the child is begging for something you can’t afford, explain that you COULD buy the item with a credit card.  Then what happens?  Next month, the bills are bigger.  And the next month, what if you want something else that you haven’t saved for?  Show them how debt snowballs.  And it becomes harder and harder to pay for it.  For older children, make the point regarding student debt.  Help them see when they graduate and have to start at the bottom of the pay scale, if they have student debt, they will have an even bigger bite out of their meager earnings.

Of course, there are lots of money lessons.  Life is full of them.  Once you begin these conversations with your children, more and more learning opportunities will present themselves.   I hope you will respond with an open heart to your children and boost them on their way to a solid financial education—with no regrets!