A friend of mine recently lamented, “My girls think I am an ATM”. We might be tempted to snicker about Daddy’s little girls, but the truth is we want to give our kids whatever they need, regardless of gender. The key here is what they need, as opposed to what they want. One of the things they need to learn about is how to manage money and build wealth. That may seem obvious, but what tends to escape us is that their teacher is going to be you, their parents, intentional or not. Our kids pick up all sorts of direction on how to live life from us. Our attitudes and practices have a much greater impact than our words. Think about where you learned many of your money habits, good and bad. A lot of those habits come right from Mom and Dad. So it is with your children.
Right about now a few of you are thinking, “oh my, I hope my kids are not paying too much attention; my financial life is a mess!” Your kids are not messed up for life, and you would be surprised how well they learn from your mistakes. However, if you want to teach them good habits you may need to develop a few of your own. Consider getting some help. Many fee-only Certified Financial Planners will be willing to help you develop a budget and work on habits, and they might give you a few pointers on teaching the kids, too. Either way, passing to your children a good understanding of money and wealth may turn out to be one the best investments you can make for them.
One great truth that never seems to change is that it will be easier if you start now. If your child is an infant they may not be ready to learn about money, but you can certainly work on putting your own house straight. It is never too early to plan or save, so get started now.
Before we jump into the four principles remember that no one plan will work just as well with every child. Kids bring their own personality, temperament, and learning style to everything they do. It is OK to tweak your approach to match the kids; use their uniqueness to help you teach.
Now that you are working on setting a good example, here are the four general principles for training financially wise kids.
1. Work is not a bad word. If the first thing you do when you get home is complain about your job you may want to work on that attitude. Children will pick up on the bad vibes quickly. Be ready to give them jobs to do around the house. Make the chores age-appropriate. Younger kids can help set the table (no glass for the really little ones), with cleaning and gardening coming as they grow older. An allowance can be a great teaching tool, particularly for teaching about budgeting. Actually, we will have a whole column on the subject soon, so stay tuned. Not everything they do around the house is about money, so things you just do because it is proper (like cleaning your room). The sooner they learn the connection between work and money the better they will be equipped for life. Oh, mom and dad, please be patient with their work. You are going to need to praise a genuine but ineffective job more than a few times. Your kids are not the only ones learning patience and grace.
2. Giving, when to give and as appropriate, is a principle that needs to be part of raising your kids. Some kids are naturally generous, easily sharing their toys, food, and even money with friends and strangers. For these kids the job is to learn to discern between those in need and deserving of generosity, and those who want to take advantage of it. Other children are naturally conservative. For these kids saving money comes easy, but learning proper generosity will take some intentional teaching on your part.
3. Budgeting is simply planning how to spend what money we have. The skill of managing and monitoring cash flow will pay huge rewards in adulthood. During the booming parts of the nineties nearly 2/3s of Americans lived with a negative cash flow. Less than half of those were aware they had a problem. (Golly, I wonder why we developed a credit bubble.) Helping your kids develop sound spending habits will steer than through good times and bad.
4. Savings and the value of delayed gratification is our forth principle. Your sweet, generous, open-handed child will benefit from learning the value of savings and patience. The careful, cautious, or even a little stingy kids will reap great benefit from learning that, in the end, money is for spending. Savings should have a purpose and a plan; it should not be viewed as a way to contentment. The overly generous or spendthrift is always broke, but the miser is never happy. Helping your kids to find the right balance is a powerful life skill.
Over the next few weeks I will break down each of these principles in more detail, bringing tips and anecdotes I have picked up in my 23 years of helping people make better financial and investment decisions. So keep checking back and I will update soon.