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14 Rules for Talking to Your Kids About Money
The fact that youâre reading this means you know you should talk money with your kid. Whether the subject terrifies you or intrigues you, or youâre simply looking for ways to broach the topic, the good news is that youâre plunging in. Go, you!
A few quick words about this chapter. Though its title might make it sound like Iâm expecting you to be a financial drill sergeant (âNow drop and give me twenty compound-interest calculations!â), Iâm not. This chapter is the gentle one, meant to ease you into some overall conceptsâand contextâthatâll help you engage with your child about money. Some points will apply, others might not, depending on your kidâs age, interest level, and even gender. So donât think that you need to commit everything to memory or take furious notes. The idea here is to put down your highlighter and just read.
One final thought before we begin: Money conversations donât happen in a vacuum. Instead, they pop up at various times throughout the messy business of living. Though itâs become a clichĂŠ, most learning happens during these everyday âteachable moments.â The tips below and throughout this book are meant to help you take advantage of these opportunities.
So here we go.
1 Start even earlier than you think you should. By the ripe old age of three, researchers at the University of WisconsinâMadison report, many children are able to grasp economic ideas such as value and exchange, albeit in a very rudimentary way. They can also delay gratification and make choices. Though basic, all these concepts are important in understanding the role of money in our daily lives. Although thereâs no economic equivalent of Baby Mozart videos, no stuffed dolls that look like Warren Buffett to tell your kid to âbuy low and sell highâ when you squeeze them, that doesnât mean you shouldnât pay attention to this stuff when your child is small.
Your toddler is eager, and able, to understand a lot. When you notice your little one âswipingâ a pretend credit card, asking to push the buttons at the ATM, or looking through your wallet, instead of chuckling indulgently in a âkids say the darndest thingsâ way, start teaching him some of the basic lessons in this book about where money comes from and how to pay for things. Even if your preschooler doesnât absorb it all, he will still notice that youâre talking to him about something that mattersâsomething grown-ups care about. And odds are, heâs already soaking up more than you think.
2 Keep it age appropriate. Sticking to the truth is good when it comes to money, but so is adapting your message to your kidâs level. If you lose your job, itâs fine to say to your elementary schooler, âWeâre going to cook at home more, since that costs less than eating out.â Skip the part about being in such dire straits that youâre dipping into your 401(k) to make ends meet. Given the same scenario but with a kid in high school, talking about how the loss of an income will affect college financing would be not only acceptable but also wise. You can discuss the reality that your family might not be able to put as much toward college expenses, but at the same time explain that she might qualify for more financial aid. In general, when it comes to having any hard money talk with your kid, itâs good to tell it like it is, but also offer reassurance that sheâand youâwill be okay.
3 Use anecdotes. More often than not, when we launch into lecture mode, our kids tune out. Or, worse, our pontificate-y good intentions backfire and push our children to do the opposite of what weâre trying to get them to do. Instead, use stories to illustrate a point. When my friend couldnât get a decent rate on a car loan because sheâd run up too much debt on her credit card on a monthlong, over-the-top European trip the year before, I told my kids the details (without mentioning her name). Anecdotes such as these, which highlight how financial blunders lead to consequences, tend to stick in kidsâ minds. Same is true of positive lessons, like an example of the neighbor who saved religiously for ten years, putting aside 1% of every paycheck, so that he could finally buy his dream fishing boat. You get the idea.
4 Use numbers, even if youâre mathphobic. People understand money concepts better when a point is made with specific numbers. Saying to your kid, âItâs so important to put money into your 401(k) even when youâre young,â is much less effective than offering an example. âIf you put $315 every month into a 401(k) starting at age twenty-two, by the time you reach age sixty-five, you could have more than a million dollars.â (The very words million dollars invariably make kids take notice.) If you have no idea where to get the numbers to show your kid, use some of the examples from this book or, if youâre feeling ambitious, check out the simple online financial calculators on a website such as Moneychimp.com. (I used a compound-interest calculator to crunch the numbers for the example above, and I promise itâs easy. Really.)
5 Donât lie about your money pastâbut donât overshare, either. Most of us have had a flirtation with bad money management at some point, whether we ran up too much on a credit card or bounced a check or two (or ten). But resist the urge to come clean about your money mistakes to purge your own feelings of guilt or irresponsibility: Your kid isnât your financial advisorâor your priest. Take a page from the latest research on talking to kids about drugs, which shows that parents who have themselves indulged in the past should not go into details with their kids. If youâre answering a direct question, definitely pick and choose which financial sins you disclose; tales of emptying your bank account for a road trip with an old boyfriend or blowing through your 401(k) savings to fund a wacky business scheme may glamorize what were actually regrettable decisions that took you many years to overcome.
6 Never fib about how much money you have on you. This is something that nearly all harried parents do at some point. Whether our wallets are full or empty, in the heat of the parenting moment, it is natural to want to lie a little to avoid tantrums when passing our kidâs favorite stores or during difficult checkout-line discussions. Try not to. Although it might seem harmless to tell a young child, âI donât have any money with me, so I canât buy you that bag of gummy bears,â itâs better to say something like, âNo, I donât think we need to spend money on that now. Besides, the dentist told us to avoid chewy sweets.â Straight talk is a good example to set, and if there are real reasons behind your decisions, itâs actually helpful to share them with your child. If what your kid wants simply isnât in your budget, say so and explain why. Or if you oppose the purchase for some other reason (say, you donât want your kid toting a bazooka water gun around the neighborhood), then explain that, too. Remember that children are smart and wonât just settle for âWe canât afford it,â which, surveys show, kids mostly donât believe anyway. No matter what your reasons, saying that you donât have cash wonât work, since kids know there are lots of ways to pay for things. If you swipe your credit card a few minutes after pleading poverty, youâll be busted. Once you get caught in a lie, your child will always wonder if you can be trusted. Itâs just not worth it. Bite the bullet at the point of purchase now, and it wonât bite you in the backside later.
7 Identify your financial baggageâthen leave it behind. Nina, now in her midthirties, used to tell anyone whoâd listen, including her kids, that her âinability to do money,â as she put it, is due to her parentsâ financial ineptitude. âThey knew nothing about budgeting, never saved, and lived life in a completely irresponsible way,â sheâd say. I also know people who tell me the opposite: Theyâre bad with money because their parents were so controlling and frugal, and they promised themselves that they wouldnât live that way when they were parents. Hereâs the point: Itâs good to be aware of how your parents handled money and the ways that has affected your behavior, but donât use it as an excuse to explain away your money foibles or, worse, to avoid teaching your kids about the subject. Approach money in a positive wayâyou might need to fake it, at least at firstâinstead of passing on that negativity.
8 Keep the money fights behind closed doorsâand donât let your kids get caught in the middle. Researchers have found that college kids whose parents regularly fought about money when they were younger were nearly three times more likely to owe $500 or more on their credit cards than kids whose parents kept the financial peace. You and your spouse arenât always going to see eye to eye on family finances, but itâs important to shield your children from your big money disagreements whenever possible. Try your best to present a united front to your children. Itâs perfectly fine to call a money âtime-outâ for parents only and tell your teenager, âWeâre not sure what we think about paying for you to go to that music festival with your friends, so weâll discuss it and get back to you.â
If you and your spouse or ex are often at odds over money, you will need to figure out in private how you are going to work out a compromise. One study found that children of divorced parents who are drawn into the details of child support and parental salaries, for instance, tend to equate financial support with love, and make one of their parents the bad guy. Telling your son he canât play in the local soccer league because your ex is late on child support and you canât afford the uniform fees yourself can mess him up about money. Even though parents who are no longer together might find it hard, speaking with âone voiceâ on financial matters is usually the best thing for your child. And when kids try to play the two of youâdivorced or notâagainst each other, as they invariably do, resist the temptation to act the hero. Try your hardest to reach an agreement, and present the decision as coming from both of you.
9 Donât expect your child to have money skills if all youâve given him is money. Daniel and Mindy were devoted parents. They checked over their three sonsâ homework each night when the boys were in elementary school, excused them from basic chores in middle school so that they could do homework instead, and, before the kids went away to college, handed each a credit card to cover all bills. When their oldest son graduated, he moved back home and proceeded to binge-watch every HBO series since The Sopranos. One day, after heâd asked his mom if sheâd mind throwing his T-shirt in the wash, Mindy snapped. âIâm done! Youâre a man, and you need to move out next month,â she yelled. Though Mindy felt awful for losing her cool, Daniel reassured her it was just the âtough loveâ approach that their son needed.
As a parent, you might sympathize with Mindy and Daniel, but hereâs the thing: They are just as much at fault as their son. Cutting a kid off financially after years of support without laying the groundwork is akin to abandoning him in a foreign country where he doesnât know the language, customs, or laws. With money, as with most other aspects of parenting, itâs important to introduce expectations gradually rather than go from zero to sixty.
10 Share the talking. Research shows that most of the time, kids ask their moms their financial questions. That said, Iâve personally observed supersmart women who are extremely successful in the business world pull the old âAsk your fatherâ routine when the subject of money comes up. Itâs possible theyâve just had a long day or are preoccupied with thoughts of work or sick pets or the malfunctioning range hood, but when this deferral to Dad becomes a pattern, it sends the message that money is a manâs turf. Um, I donât think so.
No matter your family configurationâmom and dad, single parent, two moms, two dads, or two parents plus two stepparentsâmake it everyoneâs business to participate actively in the money talk with your kid. Avoid phrases such as âMom is better with moneyâ or âDad is the financial brain around here.â Itâs completely fine to say, âYou know, Iâm not sure about that, but Iâll get back to you.â And then go find out the answer. Just make sure to actually follow up and relay it to your kid.
11 Avoid creating a money gap. Though the âmath gapâ between boys and girls has been well documented, thereâs also a definite âmoney gap.â And parents are part of the problem. In numerous studies and surveys, kids say that Mom and Dad talk to boys more than they talk to girls about moneyâparticularly subjects like investing. The result? Boys express more confidence about moneyâand parents think their sons understand the value of a dollar better than their daughters do. Given that your daughter will very likely be paddling upstream to keep pace with the boys financially anywayâwomen still earn less than men and have less money socked away in retirement accountsâthey really need to hear the facts early and often. Bottom line: Boys and girls alike should know this stuff.
12 Donât try to keep up with the Joneses (let alone the Kardashians), because you will teach your kids to do the same. Itâs natural to make comparisons with other people; itâs just something we do. Living in a consumerist, instant-gratification, media-driven culture doesnât help. Nevertheless, fight the urge to compare your familyâs money choices with anyone elseâs. Sounds easy, but there are times we all feel that annoying tug to judge others or second-guess our decisions when sizing up our friends and neighbors. You might feel that saving for a family trip to Nepal trumps renovating your old kitchenâyou can live for another year with a retro countertop and chipped floor tiles. Your neighbors might prefer to splurge on a basement game room and travel no farther than the town pool. Hey, different strokes.
Resist making assumptions or drawing conclusions about another familyâs spending habits or valuesâespecially within hearing range of your offspring. Not only are you setting a bad example, but also research shows that comparing various aspects of our finances with those of our friends makes us less happy overall. The ways that people choose to spend money are very personal. If you want to teach your kid to avoid the trap of keeping up withâor looking down onâtheir friends and neighbors, steer clear of that behavior yourself.
13 Choose your momentâand your place. Kids, especially teenagers, are hard to corral for anythingâespecially lectures. Thatâs why itâs important to weave the money lessons in this book into day-to-day life. Did your son get a check from Grandma? Itâs a great time to finally take him to the bank, open that savings account youâve been talking about, and help him deposit the money. That also leads to discussions of interest rates and choices between, say, certificates of deposit (CDs) and regular savings accounts. Are you about to buy a new family laptop? Have your kid help you shop around for it (and, if you can, allow him to keep a portion of the diff...