Helping Your Children Become Financially Responsible Grown-Ups
Thursday, 20 September 2018
We want the best for our children. As the recent father of a newborn Madelyn, I can only imagine the stuff I will do in the short- and long-term so that she (and sister Shelby) can enjoy the best in life.
We want the best for our children. As the recent father of a newborn Madelyn, I can only imagine the stuff I will do in the short- and long-term so that she (and sister Shelby) can enjoy the best in life. We invest our time and love, and we also impart our knowledge. Through us, they learn about the world, values, and how to handle their money. In fact, studies show children’s money habits can be set by the tender age of 7.1 And that knowledge was gleaned not only by allowances and piggy banks but by watching how we live, spend, save and treat money overall. How parents talk to their children or don't, about money has a huge impact down the line. Children absorb lessons about frugality and savings from observing their parents, they also tend to repeat the same money mistakes.
By the age of 3, children can understand the basic concepts of money: of saving and spending, and of delaying gratification. As a child ages incorporating chores and allowances helps a child understand the value of money.2 These lessons are important, but we as parents, and how we run our household, become the ultimate lesson. Parents who model solid financial habits can pass that lesson on to their children. Financial restraint, budgeting and ‘practicing what you preach’ can impart those values. On the flipside, those who tend to be reckless spenders and free with money, are also teaching a lesson. Careless spending can teach a child that money is a never-ending commodity.
Find Lessons Everywhere
As money is something we use daily, the teaching opportunities abound. Every shopping trip or cash register exchange can be an educational moment. Helping your child understand the value of a dollar is an invaluable tool. Incorporating chores and allowances in elementary school is a great way to illustrate the work for pay principles. A child will value the money they earned and if they save up for something they want, they will learn delayed gratification and confidence when they get it. Learning these lessons young, like taking out a loan from the bank, aka borrowing money from parents, and then having to pay it back, will carry on when they encounter school loans and credit cards.
By the time children are tweens/teens they are able to understand many aspects of finances, from investing and savings accounts to stock markets, inflation etc. While there is some economic education offered in school, it is often lacking in the daily minutiae of managing money on an individual level. The role of the teacher in that will fall more so with the parents. Studies have shown that children wish their parents had talked to them more about money growing up.3 Children are naturally curious and while parents may feel uncomfortable having the hard talks about money, it’s better to have them, share past financial mistakes, debt talk etc. This can be a learning and teaching moment for parents as well. You don’t have to have a degree in economics to talk about finances with your children.
The Car as Tool
The car hungry teenager is the perfect pupil for understanding a microcosm of adult financial responsibility. A car is a large investment, its maintenance, and upkeep, combined with registration and insurance, and its daily gas consumption, can we a wonderful lesson in the larger costs of adult life. A car can be a great tool to teach a teen about money from how much they can afford, to how quickly expenses can become difficult to maintain. These lessons can transfer to looking for colleges and exploring options for loans and overall living expenses while at school and beyond. As the average college graduate owes $37,172 in student loans, it’s important to talk about the financial realities early and often.
Currently, 32% of recent graduates have moved back home with their parents.4 Three out of four millennials are in some form of debt and of those, 56% are college degree holding millennials with credit card debt. These numbers show a generation that is starting out adult life in debt. The debt will cause them to delay buying homes, starting businesses or advancing education. So, it is important that talks about saving and financials start when they are young and continue through all the various life stages. Understanding borrowing, household expenses and investing will be invaluable tools to pass along to your children and ultimately, to their children. Peace of mind that your child is prepared and able to take care of themselves into adulthood is worth the time. Invest in them. Very few people “go to the bank” these days. In the past, it was a common occurrence for other generations. One of my clients takes their children to the bank on a monthly basis. He is amazed how a simple trip can quickly go from his son begging for lollipops to conversations about work, life, budgeting, and saving. While I have yet to employ this practice for my own children, it is on my to-do list. Finding different ways to educate children about finances is just one aspect of parenting, but an important one.
About the Author
I am an avid gardener, a trait I inherited from my Sicilian grandfather. Herb, cucumber, spinach, lettuce, and tomato varietals fill my backyard each Summer. Get me talking about growing tomatoes and the conversation might never end. The garden is a special place for my daughter Shelby (3) and me. I chase her around the eggplants, teach her when to pluck a tomato off the vine, and help her separate the basil from the stem.