I think one key is to keep kids knowledgeable but not obsessed with money—to give them tools to manage their money but not be overconscious about it. I teach my kids that money is the means to an end, not the end. Money is the tool to achieve the goal, not the goal.
–Susan Keating, Parent, Banking on Our Future Participant
Some parents say it’s easier to talk about drugs or sex with their kids than to talk about money. In this [article], we’ll explore how to open up a dialogue with our kids about personal finances.
“The only lecture we listen to is the lecture we give ourselves.” So says my mentor and spiritual advisor, the Rev. Dr. Cecil Murray of the First A.M.E. Church of Los Angeles, and I agree.
Nobody likes lectures. Your kids don’t like you admonishing them about their grades, their rooms, or their questionable “taste” in clothing. But if you look back far enough, you’ll recall that you didn’t enjoy being lectured either. The way to inspire your kids is with the inspiration of enlightened self-interest.
Instead of lecturing, bring them into the discussion and allow their suggestions to be heard. Give them a voice in the family’s finances. By making family finances a group effort, you will be giving your kids a hands-on opportunity to learn from experience—both theirs and yours.
BE OPEN ABOUT FAMILY FINANCES
Most children, rich or poor, have absolutely no concept of what it costs to live. They don’t know how large a rent or mortgage payment is, or even the cost of putting groceries on the table. They can’t yet comprehend the effort you put into bringing home the bacon, or even what a pound of bacon might cost. Their knowledge of the cost of clothing consists mainly of that “phat” $100 pair of shoes they covet at the mall.
I advocate financial transparency. This means that your kids should be able to look in and see exactly where your money goes. OK, maybe you don’t want to let them know absolutely everything. But by and large, why shouldn’t your kids know what life costs? It can be quite a sobering realization for kids to see just how expensive life is. If anything, your kids will respect you even more when they see how hard you work and how quickly money disappears on basic necessities—food, clothing, and shelter. They’ll also see that because you are spending wisely, you are able to pay off any credit card debt you may have incurred.
No parental lecture has the power inherent in parental example. If your kids regularly see bounced checks coming back from the bank, they’ll have a hard time taking anything you say seriously. If you are financially responsible, your kids will look to you as a role model. And if you are less than financially responsible, they will only be too delighted to follow your example! Let’s provide great examples for our kids, because one great example is worth a thousand nagging words.
NOW IT’S THEIR TURN
My [next] suggestion is to give each of your kids, elementary age and up, accountant ledgers and have them come up with their own categories and items. These might include clothing, entertainment, music, and whatever else your kids [enjoy]. Ask them to keep track of their own spending, and maybe give them some kind of reward, financial or otherwise, for every week when they have kept track of their numbers. Give them something that will motivate them to keep on track, even [something] as simple as a day off from chores. Make it into a game or competition if you have more than one child, especially when they’re young. Give them the idea that keeping track of their money can be fun.
My friend Jennie introduced me to the Star Chart. Her Aunt Marilyn drew up a list of chores that Jennie and her cousin Brietta routinely neglected to perform around the house. Next to each chore, she put a value—one star, two stars, three stars—with the most despised chores (vacuuming, cleaning the litter box, and so on) receiving the highest star value. After completing a task, Jennie and Brietta would receive the appropriate amount of stars. They would then anxiously look at the bottom of the Star Chart—which acted as a scoreboard of the cousins’ participation—to the “star exchange rate,” the amount of actual money each earned star was worth. Let’s say that five stars equaled one dollar. Once a month, the cousins were allowed to cash in their “stars,” so if they had earned 20 up to that point, they had $4 to spend.
While this may sound like outright bribery (or, at the very least, a legal system of child labor), Jennie told me that the Star Chart taught her much more than the simple math involved in converting tinfoil stars to cash (which may be the root of her interest in foreign currencies and exchange rates). Not only did the system encourage her to help around the house with less complaining but also it taught her how to save up for that once-a-month spending spree. Jennie quickly learned that if she used all the stars she had accumulated in a given month (about 35), there was no way she’d be able to buy the coveted dome tent (worth roughly the equivalent of 85 stars!) she’d been eyeing. Instead of spending all her stars, Jennie would buy one or two five-star items, letting the rest of her stars ride until the next month. In three months, she had her tent and a newfound respect for saving and patience.
But the kids weren’t the only ones to reap benefits. Her Aunt Marilyn was pleased when she realized that with her system the cousins were fighting over who was going to vacuum—except now they both wanted to! And, rather than having a set allowance, the girls were learning how they could control their income by the level of effort they put [forth].
MORE ABOUT THE FAMILY FINANCIAL SUMMITS
On a regular basis hold family financial summits. Whether you decide to do th
Most important, let them know how you are doing in terms of saving. For most families, sharing this information will constitute an absolute revolution. Most parents, rich or poor, never tell their kids a thing about money, let alone the money they save for rainy days. Explain short- and long-term savings [goals]. Maybe one savings plan is for short-term objectives, such as a trip to the zoo or for a college fund. Your kids will see the importance of long-term goals as each short-term goal is reached. After finally having the funds for a trip to the amusement park, they’ll see that the long-term goals will also be realized one day.
In any event, make your family financial summits fun and upbeat. Ensure that everyone takes part in the summits by setting an attendance rule. Schedule the meetings at a time when all the kids are home. If conflicting schedules make that impossible, meet with each child individually on a regular basis. Your kids need to know that nothing comes ahead of taking care of their finances—not sports, after-school jobs, or girlfriends or boyfriends. A solid financial future is something no one can afford to miss!
When you do have your family financial summits, make sure to eliminate all distractions. Turn off the TV and stereo, and turn on the answering machine so that a phone call won’t interrupt you. Sit around the table with your family, and work through the numbers. Financial literacy is one of the most important gifts you could possibly give your children. They may not understand exactly how valuable it is now, but when they [enter] the real world and have to be financially self-sufficient, they will have a huge advantage over their
peers.
SET GOALS
Teach your children to have financial goals. When kids know what they want, they are often willing to work hard to achieve it—as evidenced by Jennie’s patience in saving up stars for her prized tent. You might want to suggest to your elementary school-age children that they save a certain percentage of their allowance, cash gifts from relatives, or any other money they receive (say, when a savings bond comes due). Half to toys? Sure. As long as half gets put away for the future.
How can young children set financial goals? The same way adults do. Have your kids make lists of the toys, games, or articles of clothing they want. Ask them to find out what those items cost, either in stores or (with your guidance) on the Internet. Teach them to prioritize. Then help them create a special fund, which you can keep for them in an envelope, out of their reach.
You could also offer to match what they save with a contribution of your own, just as corporations sometimes match employees’ donations to retirement accounts. Your kids will be encouraged to save money instead of immediately spending it, and they will learn how saving money can help them achieve their goals.
If you instill these habits early, the dividends will pay off later. Start off [as] early as kindergarten by buying your child a piggy bank. Today such banks come in all shapes, sizes, and colors. Make the process of saving even more fun by purchasing a bank that appeals to your child’s particular interests. Ask your older kids what sort of financial goals, both short- and long-term, they would like to set for themselves. Have them write down where they see themselves in six months, a year, after college, and five years after that. Then analyze with them exactly how they can achieve these goals. Chances are, their goals will not be achievable by earning $8 an hour in an after-school job.
Kids need to be shown that immediate gratification, if left unchecked, can stall their hopes of long-term financial success. Show your kids that it’s not just about working harder—it’s about working smarter.
Show them how to set up small goals to help them obtain a larger goal. Explain how to do this on a daily basis. For example, a small (relatively), short-term goal may be to ace an upcoming math exam. The grade your daughter receives helps her achieve the larger goal of an overall “A” in math for the quarter. That overall math grade, in turn, affects her GPA (grade point average), which is one of the application factors colleges consider. While that one math test won’t determine whether your daughter gets into Yale, it is a step—however small—in the process.
A PENNY SAVED
We can treat money like a burden, or we can wear our financial lives in hop-hop style—loose and free—and have fun. I believe in hard work, but I also believe in fun! Make it fun for your child to be a smart, happy saver.
Reprinted from Banking on Our Future by John Bryant and Michael Levin. Copyright © 2002 by John Bryant and Michael Levin by permission of Beacon Press, www.beacon.org.