Kids and money: The bucks start here
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Washington – We fret about teaching our kids how to use the potty, why they should eat vegetables and why good manners matter.
All of those things are important, necessary and pretty consuming for parents who are trying to do the right thing. But money is one topic that slides by many of us parents (guilty), or we purposely put it away to discuss later, because it's hard and might seem insurmountable.
However, it's probably one of the most important things we can teach our kids if we want them to have a good life.
How many of us have suddenly realised that our school-aged kid doesn't understand that the XBox they're asking for will put a ding in the monthly budget? Or that the dollar you gave them to put into the basket at church isn't just to entertain them for 30 seconds, it's a commitment to trying to make the world a teeny bit better? Or that the hours you sit trying to figure out summer schedules also include time spent trying to decide whether the $400 camp is worth it, or whether that money would be better spent elsewhere?
So when do you start this talk? And perhaps more difficult, how?
“Your kids are going to start talking about money before you start talking to them about it,” says Ron Lieber, author of the book “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money” and a personal finance columnist for the New York Times. That talk started for Lieber and his family when his daughter noticed that some people have basements, often with lots of toys in them. She wanted one. They live in an apartment.
Now you try to explain to a small child why a house in the suburbs with a basement might cost a fraction of what you would pay for an apartment in Brooklyn. That can be mind-boggling even for us grown-ups.
“They cut right to our core,” he says. “It's highly emotionally charged. And you don't get to dictate when it starts.”
Don't wait for them to learn about money at school, Lieber says.
“It's essential enough that we want to own it in our household, and particularly important to seize the reins on money,” he says, because there are direct connections between talking about money and teaching values. “I don't think we should outsource that.”
A good time to start really teaching about money in earnest, he suggests, is right after the first tooth fairy visit. Children understand that the money is theirs but don't yet have a firm grasp on what they can do with it, or how to get more. This is your chance to discuss money, investing and financial responsibilities. And this is where you might introduce three jars: save, spend and donate. (More on that later.)
Deborah Gilboa, a family physician in Pittsburgh who focuses on parenting and youth development, says she started talking about money with her four boys when they started asking for stuff. (So, like, birth?)
The key, she says, is to show children what's actually happening. We all use debit cards now to buy everything from a pack of baseball cards to $300 worth of groceries. It's good to try to use cash sometimes and explain that “we trade this money stuff to get” something in return, she says. When children see you pay with hard cash, they may be able to better visualise the easy-come-easy-go truth we grown-ups talk about.
But the fact is, they won't really learn about money until they have some of their own and feel the disappointment when it's gone. Or when they experience the joy of working hard to save it so they can buy something they really, really, really wanted.
Gilboa and Lieber are both proponents of giving children an allowance from a young age - think tooth fairy - and having them divide the money into three jars: One each for spend, save and donate. This can also work for any monetary gifts they receive, unless you are depositing that directly into a college fund.
The jars are a stand-in for a grown-up budget, Lieber says. Most of us spend a good chunk of what we make, but “if we're behaving ourselves” and saving at least 10 percent (hopefully more) and have a little left over for charity, we are able to represent the values we want to imprint on our children. The donate jar shows generosity, the spend jar teaches modesty and prudence, and the save jar represents delayed gratification.
“Give them a little bit of money within your value system” for the allowance, Gilboa says. Her family's system is to put 10 percent of that amount into the donate jar, and divide the rest between a spend jar and a save/invest jar. You can talk about what to do with the money to donate, finding a charity or a cause your child cares about. Use this as a time to teach him about the greater good.
They can use the money from the spend jar as they desire, including, she says, for “something you wouldn't want them to buy.” But let them fail a little. Maybe there will be tears when they realise they spent that $5 on total junk.
“It's better they make money mistakes when they are small and there's a cushion than when they are older,” she says.
Finally, the save/invest jar is for the larger items on their wish list that they can't afford right away. This jar is a big step toward teaching a kid what it means to pinch pennies and spend wisely.
Should allowance be connected to chores?
This is a big question for my family and has been the discussion at more than one night out with friends. (We're exciting people.)
“Chores are really important, but they should be used to teach” kids how to help out, Gilboa says. If you connect chores and money, “then it's a job, and you can quit... Also, I don't get paid for my chores around the house. You have to do them because you're a member of the family and that's what we do.”
And, she points out, if her sons are punished and don't get an allowance, they still have to do their chores. Or if they are at summer camp and not doing chores, they still get an allowance.
Lieber agrees. “Grown-ups aren't paid for chores. That's not how the world works,” he says.
Use chores as a lesson about work ethic and allowance as a means to teach kids how to save themselves from financial ruin when they are older.
Think about teaching them about money from a much bigger view - not just in $2 allowance increments, advises Lieber. You don't want your children's first major decision about money to be choosing a college. Help them build up to that by figuring out where money comes from, where it goes and how to think about the best investment.
“All of a sudden, [college is] the most important decision and most important financial decision they will make in their lives... We have teenagers making this decision, and it's a six-figure decision.
“Because they are facing this down, albeit with a little bit of help from us, that can't be the first moment they are confronting financial decisions. We just have to be teaching them much earlier on what it's like to wrestle with big, grown-up money decisions.”