BY MARY ELLEN CHRISTY
In January when the calendar rolls over to a new year, our hearts and minds focus on renewal and we make numerous resolutions to reimagine a new and better version of ourselves. Coincidentally this is the time when the Christmas bills begin to arrive, and we as well as the statements, are required for preparation for that annual day of dread, April 15. No one can put our financial health under a microscope quite like the Internal Revenue Service. As parents we all find many aspects of parenting a bit of a challenge. Never have we been more excited and enthusiastic to begin a job; one for which we have received little formal training. For the most part we parent with the tool box given us by our own parents, consequently raising children can be both frustrating and thrilling at the same time. One area in which we can all be effective and successful and responsible parents is helping them to develop a healthy relationship with money. In doing so we are not only caring for this generation, but helping to leaf out the family tree of future generations. With the advice of Dave Ramsey and Rachel Cruze, father and daughter and co-authors of Smart Money and Smart Kids, and Ron Lieber, author of The Opposite of Spoiled, you can follow a few basic principles to teach your children how to ‘win with money’.
Dave Ramsey and Rachel Cruze’s Smart Money and Smart Kids.
The first principle is: There is a direct correlation between money and work. When a child asks, “Where does money come from?”. The definitive answer should be -–“Money comes from work.” Even inherited wealth can be traced directly back to the hard work of someone, even though that hard work may have been done many years ago. If that is the case, the hard work of this generation is proper steamship of that money. Create age-appropriate opportunities for your children to work. Work is very satisfying at any age but particularly so to children. It engenders in them a sense of purpose, satisfaction and accomplishment. An excellent starting point for introducing work to your child is assigning responsibility for some household tasks. Since we want to reinforce the connection between money and work, establish a rate of commission to be paid weekly for satisfactory completion of household chores. The choice of commission over allowance to describe this payment is intentional. An allowance implies that it will paid in any event; a commission is more like a bonus of satisfactory performance.
Children are both concrete and visual learners.
The second principle is: “Debt” is a four-letter word. Work brings a sense of joy, purpose and accomplishment; Debt is spending future income and fosters uncertainty and anxiety. Additionally, when money is spent, it is spent. There is a war going on for the minds, hearts and assets of our children. Money, in its physical form, has all but disappeared from our world and has been replaced by credit cards, debit cards, Venmo payments and electronic checks. Children are both concrete and visual learners. Whenever possible pay with cash to set a good example and to help control your own spending. If the person in line in front of you pays with an app on their phone, it appears to a child that the coffee is free. From a personal point of view, I also think it would be much more difficult to track your spending even for an adult.
The third principle is: Make a budget. Budgeting can be a family affair and should aim for a zero-end balance. Budgeting is telling our money what to do for us. Your budget should include: income, expenses, saving and giving. Income will be the most concrete of your figures, the other three will be more fluid. Introduce the concept of fixed expenses versus discretionary ones. Saving and giving are discretionary and present an excellent opportunity to make a constructive and organized plan together and begin an important conversation about delayed gratification and social responsibility. When we teach children to delay gratification, we support not only the concept of saving but more importantly the need to be intentional in making spending decisions. When we encourage our children to plan for giving, we introduce the concept that generosity will allow us to accept the fact that the money isn’t really ours anyway.
The fourth principle is: Teach your children to accept their position in the world relative to the rest of the universe. Put the fun back in family dysfunction by letting them know that much as you cherish them and want to protect them, your real concern and loyalty lies with your spouse. Let them know that after they have grown up, you will still be living with and loving your co-parent. This will be enormously beneficial in presenting a consistent response and a united front. Never argue with your spouse about money in front of your children when your child decides to whine and “wheedle” you into spending money on something that is outside the family budget and for which your spouse has already said “no” by saying “but I need it”. I can still here my father saying, “my dear, you have confused need and want”. “What is it you don’t understand about the word ‘No'”. Make contentment a practice and a value within your family. Make a point of expressing your own contentment. Popular culture and social media engender envy and dissatisfaction and are at war with parents for the hearts and minds of children.
In order to effectively implement these principles, you must understand the level of comprehension and cognition at the various ages and stages of a child’s development. What is appropriate to teach in preschools about money is vastly different from what you can teach much older children.
A father reviewing the job chart with his daughters.
Here are some things you can do with preschoolers and kindergarteners to teach them money management:
- Assign them simple household tasks such as keeping their room neat, helping with the care of pets, unloading the dishwasher, setting the table and clearing the table.
- Create a simple jobs chart using pictographs to illustrate various tasks and check off each task as it is completed. They will be familiar with this because every preschool and kindergarten teacher uses some time of job chart in the classroom.
- Post the job chart on the refrigerator. Check off completed tasks daily and review it together at the end of the week.
- Pay the agreed upon commission.
- Encourage your child to save their commissions and provide them with a clear jar or a box with a lid so they can see their money as it grows. Avoid opaque piggy banks because they do not provide as good of a visual.
- Show them that things cost money. If they want to buy a toy truck, have them bring the jar, count out the bills and hand them to the merchant.
Ron Lieber’s The Opposite of Spoiled.
Here are some things you can do with elementary and middle school students to teach them money management:
- Continue to assign household chores but expand them to include laundry, taking out the trash and some simple outside work.
- Set guidelines for payment of commissions. Evaluate based on performance and attitude as well as completion. “Everyone loves a cheerful worker.”
- Teach them the process of making choices: “If you buy this video game today, you probably won’t be able to buy those sneakers you have been wanting.”
- Teach them to avoid impulse buys. This is the age that marketers target for impulse buys. Introduce the idea of delayed gratification by encouraging them to go home and think about it for a day before making a purchase. If it still seems like a good idea them come back the next day and buy it.
- As they begin to accumulate more money introduce the topic of giving. You can suggest that they sort their money into jars or envelopes marked save, spend and give. This is an excellent opportunity to engage them in conversation on a much deeper level to include their hopes and dreams and expectations of becoming a kind and caring person.
- This is the perfect time to open a savings account.
Here are some things you can and should teach your teenagers about money management:
- Continue to require that they do chores in exchange for their weekly commission.
- Teach them contentment and limit their time on social media, which is working overtime, to teach them exactly the opposite: “Hey dad, I just saw on Facebook that Charlie got a brand-new car for his birthday. I only got this sweater.”
- Give them the responsibility of a bank account and encourage them to balance it at the end of each month. This brings money management to the next level and is excellent preparation for going away to school.
- Before they even apply for college, sit them down and have the “how we are going to pay for college talk.” Teach them to steer clear of student loans. You don’t want the most prominent letters on their diploma to be I.O.U.
- Teach them the danger of credit cards. It is unfortunate that the removable strip of instructions for activating the card does not also contain a warning that “the use of credit cards is spending future income.”
- Help them to find that first job. Teenagers have plenty of downtime during summers and vacations. Better yet encourage them to be entrepreneurs. Babysitting, walking dogs and doing yardwork for neighbors are excellent startup businesses for teenagers.
- Once they begin to earn money outside the home, help them prepare a target budget to plan how much they will save, spend and give.
- Teach them the fundamentals of investing and the magic of compound interest. Familiarize them with financial markets and the “vocabulary” of building wealth such as principle, interest, dividends and reinvestment.
A dad with a chart illustrating the virtue of compound interest.
Always keep in mind that children are like sponges and will absorb whatever is around them. If you chose to be intentional about teaching your children money management, you will have given them excellent preparation for a lifetime of financial health and contentment. Children like the rest of us – learn what we live.