Dear Mr. Dad: My parents never talked with me and my siblings about money, but I’m feeling the need to give my kids—ages 4 and 7—a better financial education than I got. When’s the right time to start?
A: What is it about money that no one wants to talk about it? Drugs, sex, and violence are perfectly acceptable dinnertime fare, but we’re almost embarrassed to discuss something that we use every single day of our life. How much we make and where that money goes after the government gets its share is nobody’s business but our own (and, perhaps, our accountant’s).
But that’s a mistake. Today’s kids feel more entitled than those of probably any previous generation. And too many of them don’t learn simple lessons about finances, such as how much work it takes to earn a dollar, how much goes for taxes, how much goes for rent and food, how much their violin lessons and daycare cost, and how much they should be putting aside for retirement.
The place to start is with income, and with kids as young as yours that’s probably going to be an allowance. But be sure that you don’t give them the impression that you’re paying them for doing routine household chores—cleaning their rooms and setting the table for dinner are things they should do because everyone in the family has to contribute. For older kids, they should start earning their own money.
Either way, once they start bringing in money on a regular basis, they need to know that there are only three things to do with it: spend it, save it, or give it away. For young kids, one way to reinforce that idea is to set up three jars, which they can decorate and label: charity, instant gratification, and savings. Have them take a small portion of their income and put it into the charity jar. Let the kids decide who (or what) should receive it. Equally divide what’s left over between the two remaining jars. (I recommend jars because the kids can actually see their money and how it grows over time.)
The instant-gratification fund is exactly that, and your kids should be allowed to spend it any way they’d like. Fight of the urge to direct this spending or to give them advice. They’ll learn more from an empty jar (or pocket) or a broken toy than from your pearls of wisdom. The savings jar is for more expensive items. Most kids will figure out pretty quickly that they can move their instant-gratification money into the savings jar.
For slightly older kids, add a fourth jar called, “For college,” with the understanding that they won’t see the contents again until they’re at least 18. For tweens and teens, you may want to throw in lessons about borrowing, interest, and taxes—but only if you feel confident discussing those more advanced topics.
When those jars start getting close to overflowing, take them—and your children—to your bank. Most have free savings and checking accounts for children of regular customers (they’re betting that over time, those early relationships will grow to include retirement accounts, credit cards, and mortgages).
Teaching the basics of money management today, with small numbers, will prepare your children for the future, when the numbers—and the stakes—will both much bigger. By encouraging them to set and prioritize financial goals, and guiding them in the early days as they mange their money, you could be heading off big headaches for them—and possibly for yourself—when they eventually strike out on their own.
Photo credit: pexels.com