In personal finance, it’s not what you make but what you keep that is important. In preparing the next generation to manage money, it’s not how much you know but what you model and share that matters most. Whether you have only lint in your pockets or are racing Jeff Bezos for wealthiest person on the planet, giving children the tools they need to successfully navigate their finances is an important part of parenting.
Helping your children or grandchildren foster a positive relationship with money is about communication and demonstrating your values through financial decisions. Kids are like sponges; they absorb more than they let on. And if you are not supplying the answers, someone else is. Kids are constantly watching our behavior to understand how to act and what to say, whether or not we really want them to mimic some of what we do. We all have a story where an unfortunate word we let slip got repeated back to us at the most inopportune time.
Trying to determine if our kids are primarily picking up on our good or bad financial habits is a bit more complex, and where the chips have fallen may not become apparent until they are on their own. That’s why leaving these habits unexplored can lead to disastrous results in adulthood. So where to start at home? It can seem like a daunting task, especially if your parents didn’t share insights about money management or financial independence with you, but begin by looking at your financial decisions. How do you make them? Are you modeling the behaviors you want to see in your children? Have no fear, this is not a lecture about giving up your morning coffee stop or an attempt to shame you for a bit of shopping therapy from time to time. If you love your morning coffee, order it and share with your kids why it is valuable to you! In that vein, here’s a short list of some good behaviors:
- Discuss financial decisions with your spouse and children. Avoid the phrase, “We cannot afford….” Instead say, “We choose to not spend our money on that.” Then explain.
- Share the difference between a want and a need. For instance, “You would like the Elsa dress because you think it is pretty. You need a new jacket to stay warm while playing outside.”
- Be a mostly open book. Share why you value some things over others. Bring children to the store to learn about the cost of everyday items. They will be amazed at how much daily life can cost.
- Rinse and repeat, as this reinforcement will help the message sink in.
Finally, start small. My favorite place to have money discussions with my daughters is at Target. As I’m sure is the case for many families, the Target run starts with a list of five things the household actually needs. In the blink of an eye, it’s been an hour, your cart is full, and you somehow have walked through each toy aisle twice. To maintain our sanity, my wife and I sat down as a couple and built out a plan for future store visits.
On regular trips, we make and stick to the shopping list. Given the vast number of choices for each type of product, we may spend a few minutes talking about the pros and cons of one product versus another and which one best suits our needs. We discuss the differences in price, the potential value of a higher-end brand, and economies of scale. Buying larger quantities reduces the per-unit cost, but will we use it enough before it expires to make it worth it? Then we share this thought process with our kids.
Shopping trips also give us the chance to discuss advertising and marketing. Based on my unscientific research of talking with other parents, kids are obsessed with Disney. Any product with a Disney character, especially a princess in our family’s case, automatically has more value than one without a Disney character. While it is great to have a Disney princess on your shampoo container, does it make the shampoo better? If there is an additional cost, we ask the girls to share why it is worth it. Of course, they win a fair amount of these discussions, as Elsa is awesome. But this approach helps get them to slow down and think about if they truly want something. These conversations have cut down on pouting in the aisles and made these Saturday trips much more enjoyable.
Another teaching moment comes when kids receive gift cards instead of toys. Children learn how to budget and weigh their options. (Spoiler alert: There is never enough on the gift card for everything they want, so they are forced to make values-based choices.) When they are excitedly grabbing items off the rack can be the perfect time to talk price and value. For instance, you might have to explain that if they buy the Elsa shirt for $12 they’ll have to put back the $16 Moana dress because the gift card is for $20. Choices are hard. The more we can help kids get used to making values-based choices, the easier time they’ll have when making bigger life decisions in the future. Good practice makes good habits!
When new items come into the house, what do you do with outgrown clothes, toys your kids no longer play with, and books they are too old for? In our family, they are given to friends with younger kids, donated to charity, or sold on Facebook Marketplace. While bringing up toys no one has touched in months or books for children half our kids’ age can get emotional, we want our daughters to know why we need to take stock from time to time and to allow them to have a say in what stays versus what goes and where.
First, this allows us to talk about charitable giving and being thankful for what we have. Second, we get to talk about possessions as something to enjoy rather than the source of what makes us happy. Letting go of stuff is hard for kids, but providing the why behind the importance of doing so gives them a framework for the decision process and an opportunity to object.
The more time you give children to understand these concepts, the better prepared they will be to make the optimal decision as adults. If you are nervous about starting the conversation, the good news is that you only need to stay one step ahead of them in the process (you probably didn’t have your child’s high school picked out the day you drove them home from the hospital). At the end of the day, you will know what is right for your kids.
This commentary originally appeared August 15 on thestreet.com.
By: KURT WUNDERLICH