Written by: Corey Janoff
This post was originally published on our previous blog website on May 2, 2018 and has since not been revised and/or updated.
For those of you with children, I imagine you hope they are fiscally responsible when they grow up so they can support themselves. You don’t want to be supporting them financially well into adulthood (although you may be willing to). So how can we raise our children to be financially aware?
You will notice I chose to use the word “aware” instead of other choices, such as: savvy, intelligent, wise, etc. We don’t need our children to be financial savants. Finances aren’t very complicated. You can learn the basics pretty quickly. They key to financial success isn’t knowledge, it is behavior. Behaving appropriately and consistently over time when it comes to dealing with money, however, is extremely difficult. Simply being aware that money exists and how it can be utilized is an excellent starting point. So having some financial awareness at a young age can go a long way.
Many of our behavioral traits are ingrained in us at a young age from you know who. Our parents! I would venture to guess that 40-50% of our character comes from observing our parents. 40-50% comes from friends, co-workers, and other centers of influence. The remaining 10-20% might come from random experiences throughout life. So as parents, we have a major influence over how our children will handle themselves for the rest of their lives.
Your Child is a Sponge
Children are like sponges. They absorb everything. Babies mimic facial expressions. You stick your tongue out, they stick their tongue out. Motions. You bob your head to music, they try to do the same. Sounds. Have you ever said a bad word in front of your toddler and to your dismay he starts repeating it? Well, believe it or not, they also mimic your financial habits.
If you tend to spend money carelessly, your children will likely grow up to do the same. If you clip coupons and only shop for items on sale, there is a good chance your children will carry that tradition with them and pass it on to the next generation.
How Can I Influence My Children Positively?
I’m not here to tell you how to parent your kids and whether or not you should give them an allowance (I’ll touch on the allowance though in a minute). My goal is to drop some ideas in front of you and let you decide if you want to incorporate them into your life.
The biggest thing you can do is behave the way you want your children to behave. Again, children are sponges. This might require you to change your behavior when it comes to money matters.
Talk to Your Children
It is also important that you talk to your children about money. You don’t need to have weekly lectures and home school the kids. But explain why you are making certain decisions.
“We turn off the lights when we leave the room. We do this because it requires electricity to keep lights on and electricity costs money. We get a bill every month to pay for the amount of electricity we use. So the less we have the lights on, the less we have to pay! It’s also good for the planet to use less electricity.”
If you have your kids with you at the grocery store and you see Cheerios are on sale, point it out. “Hey kids, look, Cheerios are on sale! Normally they cost $4.00 per box. Today they are discounted to $2.50. Usually we eat one box of Cheerios per week, so let’s buy four boxes this week instead of one. That will give us a month supply of Cheerios. When we go to the store next week, Cheerios will likely be back to their normal $4 price. We won’t need to buy Cheerios at the higher price next week, because we will still have 3 boxes remaining.” Here you are teaching your kids to be on the lookout for sales and some basic math (4-1=3).
If you are out shopping for new clothes, you can have a similar conversation. “I like both of these shirts. This one is less expensive than that one. So let’s buy the less expensive one and save some money.” You are teaching your kids to be price sensitive.
Or, “I really like this pair pants, but I don’t really need it right now. I can wait. Maybe I will put it on my birthday wish list.” You are teaching your kids resistance, avoiding impulse buys, and delayed gratification.
You can teach budget setting with your children too when you are out with them. “Hey kids, look, here’s a candy store. Let’s get some candy. Each of you can get up to $5 of candy. Pick whatever you want, but the total has to be $5 or less.” Now they aren’t just looking for the candy they like, they are also looking at the price tag.
Little things like this will do more than you think to strengthen their financial awareness and form their financial habits well into the future.
Allowance
Should you give kids an allowance? If so, should it be tied to chores? How much should you give? I’m sure there are entire books written on the topic and podcasts dedicated to it. If you choose to give your kids an allowance, or pay them for household chores, here are some things you can have them do with the money to help develop strong financial awareness.
Set Some Rules
Let’s say you give your six-year-old $5 per week. Set some rules for how they can use that money. For example, you could have them save $1 for the future and give $1 to charity. That will leave them with $3 to buy whatever they want now. Again, have conversations with them each time so they understand why they are saving money for the future and why they are giving money to charity. You can even have them pick out the charity to give to.
And the future doesn’t have to be retirement. Kids have short attention spans. They can’t comprehend the idea of retirement at a young age. They probably won’t be able to focus on something more than a couple of months away either. The future savings could be for a toy they want that you didn’t buy for them (side note – probably not a good idea to buy your kids anything and everything they want. Say no once in a while. At some point, people have to learn they can’t always have what they want right away. The sooner they learn that the better. This will also help them develop valuable negotiating skills as they try to convince you to give them things you don’t want to give them. Annoying to you now, but beneficial for them later in life).
Goals
“Remember that Lego kit you wanted at Target today? It was $10, so if you save $1 each week for ten weeks, you will be able to buy it! Or, instead of spending the $3 of your allowance today, you could save that along with the $1 for the future and you will be able to buy the Lego kit in 3 weeks.”
You’re teaching your kid delayed gratification, the importance of setting goals and saving to achieve those goals.
Your kid will be so stoked when he walks into Target in a few weeks with his $10 that he saved to buy those Legos with his money. Hopefully it is still in stock. Maybe buy one ahead of time just in case and save the receipt so you can return it.
For more expensive items, you could even offer your kids opportunities to earn extra money so they can reach their goals faster. “Hey Junior, if you pick weeds in the backyard, I’ll give you $0.10 per weed.” Your yard will be weed-free in no time and your kid will learn how he can get ahead by putting in extra work.
“Then if you clean all of the toilets in the house I’ll give you $5.” Funny story, my brother had a phase when he was about seven years old where he liked to clean toilets in our house. The neighbors would even pay him to clean their toilets.
You have to be careful though with paying your kids to do chores. Make some chores a requirement to live in the house (make your bed, pick up your room, take out the trash, empty the dishwasher, etc). You don’t want your kids to only help around the house if they get paid.
As kids get older, you can help them set their sights on things farther out. If your kid is in high school and working on the weekends, have him set aside some of the money in a saving account to use in college. Or even open a Roth IRA to invest for retirement.
There’s Plenty More…
I could go on, but I don’t want this post to be too long. Maybe I’ll write a follow-up sequel in the future.
To reiterate, the most important thing you can do is behave the way you want your kids to behave when it comes to money matters. Lead by example. Also make sure you talk with your children to help them understand money and why you are making certain decisions and taking certain actions.
It sounds easy here, but difficult in practice. Don’t let that deter you. Nobody is perfect. Keep working at it and keep trying to improve and you’ll do great.
