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Today is a guest post from Brian at the personal finance blog, Financial Zen.
For those not familiar with his story, the author of Financial Zen was well on his way to financial independence when a series of “life happens” moments took his journey off-course. Now that he and his wife have gotten back on track, he has decided to both document their journey to financial independence and help others on their journey as well.
Financial Zen believes that people shouldn’t stress out about finances and shouldn’t let personal obstacles stand in the way of their financial dreams.
Every parent wants their child to be successful…….
As a parent, you start thinking about all the things you need to teach your child for them to be a responsible, independent member of society. Here are just a few things I was thinking about as I was writing this article:
They need to learn how to work and hold a job, they need to learn to be empathetic and respectful of others, they need to learn how to both set and respect boundaries, they need to learn how to work with others who may have different opinions, they need to learn proper ways to resolve conflicts…and they need to learn how to manage their finances.
If there is one thing that parents must do to make sure their children have a successful life it is to teach them about money and finances. By teaching them financial literacy, you will be setting them up for economic success.
Why is this important?
According to insider.com, 36% of marriages that end in divorce are due to money problems. In fact, financial problems are a Top 5 reason that people divorce.
Want more proof?
According to thestreet.com, only 22% of people think they will not have enough money saved up to retire…22%!
Pretty powerful stuff isn’t it? Feeling a little overwhelmed and trepidatious? Not sure where to start teaching your kids about money and finances?
You’re not alone.
In fact, this is where I started.
My Upbringing
As I talked about here, I grew up with parents who were farmers that lived through The Great Depression (Now I’m NOT as old as you might think! My dad was in his 50’s when I was born….. true story😊).
My parent knew nothing about financial literacy. They did not understand the stock market, never knew how to invest in real estate, did not know how to vet a business opportunity, and definitely were lost when reading a financial statement.
Finances were never discussed in our family…ever.
In fact, it was literally taboo to bring it up at all.
I remember one time my parents were picked for a random IRS audit. My parents went over their books every night for a week. I still remember seeing them in the kitchen arguing over transactions and what they were for. It was heated. It was intense. It was not good to watch, that’s for sure.
What they were good at financially were being savers and living with a scarcity mentality. As I mentioned before, we never threw ANYTHING out. Food, equipment parts, clothes, scrap wood, etc. were kept and stored for “a rainy day”.
My dad was a factory line worker for several years after WWII and saved every penny he possibly could in order to buy his farm IN CASH! Who does that?
This is what they knew, and this is what they were good at.
I’m not mentioning this to bash my parents for not teaching me financial literacy. Quite the contrary, I’m using this to prove a point.
I never learned any of this stuff growing up because they didn’t learn it from their parents.
From what I researched, many of you are in the same boat as me (probably why you are reading this article, right? 😊)
I taught myself how to balance a checkbook. I read dozens of personal finance books and blogs to educate myself. I learned how to read a financial statement in my MBA accounting classes.
The point is if I can learn this so can you and so can your kids.
It’s our job right now to break this cycle and teach our kids how to take the reins of their financial lives.
The question you may be asking yourself is: Where to start and what can I do today to teach my kids financial literacy?
How To Start Teaching Your Kids About Money And Finances
Below are some tips you can use to guide your kids toward financial literacy no matter the age starting out (although sooner is better 😊).
Make Regular Deposits In A Savings Account
I don’t care if your child is currently 3 years old or 16 years old, the easiest and one of the most productive things you can teach them is to save money.
It’s an invaluable teaching tool that allows you to show them how to practice things like budgeting, managing expenses, and delayed gratification.
Saving money alone will not help them achieve their financial dreams, but it does provide the ammunition for investing that will pay financial benefits for years to come.
If your children are too young to find a job outside the home, this would be a great opportunity to pay them an allowance.
For how the allowance is earned, there are 2 things to think about. The most typical way to issue an allowance is when certain chores are completed. If the chores are not completed, then no allowance.
This strategy backfired on us with our son. He found that it was worth it to him to NOT earn an allowance and therefore not do his chores. To him, the value of the allowance was not worth the amount of work required.
For us, it led to some disciplinary issues and struggles with him.
When it came time to give our girls an allowance, we took the advice from a book we read called, “Make Your Kid A Money Genius (Even If You’re Not)” from New York Times best-selling author, Beth Kobliner.
In her book, Beth explains that while chores are good for kids because it teaches them responsibility, follow through, and the importance of chipping in to help the family, it’s not a good measurement for earning an allowance. The reason is that it can backfire and lead to it being used as leverage to complete tasks and the kids end up rebelling (sound familiar? hhmmm lol 😊)
This was a radical shift in mindset for both of us and we decided to try it. Guess what? IT WORKED!
Here Is What We Did
We explained to the girls that they are a member of this family. Everyone in the family has responsibilities to do and everyone chips in so the family operates smoothly. These responsibilities were not negotiable and must be done to support the needs of the family.
We then explained to them that we were going to give them an allowance so they learn how to manage money.
We took this one step further. We made them put aside money each payday to both donate to a charity of their choosing and to start their college fund.
Here is an example:
Twice a month when I am paid, they are each paid an allowance of $8.
Of the $8, $5 is for their personal use however they want to use it. They can save it for something they really want (i.e., my one daughter wants a Nintendo Switch) or spend however they choose (i.e., buy something at the farmer’s market, dollar store, etc.).
$2 is put towards college and stored in Piggybank#1. Every 2 months we would go to the bank, and they would deposit the money into their account.
$1 is donated to a charity of their choice and stored in Piggybank#2. Every 4 months we would go and donate it to their chosen charity.
If they want to earn extra money, they can perform extra jobs around the house or go outside the house to start a business (i.e., lemonade stand, rake neighbor’s leaves, etc.). This would be considered “work” and their normal chores are considered “family responsibilities”.
So far everything has gone great!
My one daughter who wanted the Nintendo Switch actually started another savings account to save up for it. I store her money in an envelope and dad becomes “the bank”. If she needs the money for something else, she asks me for it (out of sight, out of mind). It’s her money to do with what she wishes. She even keeps a small amount in her wallet for “fun” buying.
What My Girls Learned
I must say I have been very impressed with this strategy. They are turning into very good savers and have learned 2 important habits from this….. delayed gratification (we’ll discuss more later in the article) and paying themselves 1st!
Paying yourself first is one habit that Robert Kiyosaki preaches. You need to ensure what is most important to you is taken cared of first THEN pay your expenses with what is left over. The reason for this is that if this was reversed and expenses were paid first, odds on most people would not have any money left to pay themselves with…. food for thought! 😊.
Teach Them The Value Of Hard Work
There are a lot of lessons to be learned from the value of hard work that are indirectly related to money and finances.
Learning how to work hard teaches perseverance, commitment, and responsibility.
How does this relate to managing money?
It takes mental toughness to persevere through work you may not like or that you find difficult. When managing money, there are choices that will have to be made for your long-term benefit and skills to be learned that you may not be initially good at. There will be ups and downs that a person will need to persevere through on their financial journey.
When creating a money management plan, you’ll need to commit to it and see it through. A lot of people fail not due to how the plan was set up but the lack of commitment to follow through on it.
Lastly, hard work teaches responsibility since a person learns to be counted on and the consequences that happen when they fail at fulfilling a responsibility. Proper money management is about owning the responsibility of being the steward of your finances and doing what it takes to make it happen.
How To Teach Your Kids How To Work Hard
There are several ways to teach kids the value of hard work. If you own a business, have them come to the store a couple of days a week to help out. Have them push a broom, take out the trash, organize the tools, wait on customers, etc.
You can also assign them additional odd jobs around the house and pay them extra money based on the quality of the work done (NOT quantity). If the quality of the work is not to your satisfaction, it’s ok to ask them to re-do it.
Another way is to encourage them is to start a business such as raking leaves, shoveling snow, cleaning pools, etc. We’ll discuss this in more detail later in the article.
If all else fails, invent jobs for your kids to do. Here is an example.
My brother-in-law wanted to teach his youngest son how to work hard. He lives on 10 acres with woods where they also raise a few cattle.
He had a pile of stones in the corner of his property. It was a large pile of various stone sizes. He gave his son a 5-gallon bucket and told him he wanted all the stones that would fit in the bucket moved from the original pile to a new pile 100 feet away. He told him he would pay him $1 for every bucket of stones he could move that day and gave him a pencil and paper for tracking how many buckets he moved.
Now, he didn’t need the stones moved. He just wanted his son to learn how to work hard. 😊
Guess what? It worked like a charm.
My brother-in-law told me that 20 years after he did that job for him, his son thanked him for teaching him the value of hard work. This was after my nephew graduated as a starting point guard for his college basketball team and earned Academic All-American honors…. true story.
My nephew and I talk frequently. I sometimes coach him on finances and investing. He tells me he takes those lessons he learned from his dad and applies it when setting up his financial plan, tracking its progress, and adjusting when needed.
Not bad for learning how to move a pile of stones, huh? Lol 😊
Talk To Your Kids About Money Choices
Talking to your children about the money choices being made is one of the best ways to help them build financial literacy. Studies have shown that kids learn the most about finances from their parents and that discussing money matters is one of the most important financial lessons parents can teach their children. It doesn’t have to be a sit-down type of lecture at home because odds on they may tune you out.
The best way to talk to your kids about money is to take them shopping with you and expose them to situations where financial decisions need to be made. Explain to them the reason behind the choices being made. Explain to them how to look for a good deal, how brand names may or may not be the best value, why it is important to count change at the register, how to stack coupons and discounts, how priorities are set, and how tradeoffs are made.
For example, I took my kids shopping recently and they spotted patio furniture they overheard mom saying she would really like. I explained to them how mom and I made choices in the beginning of the year when creating the budget for house updates.
Even though it was a good deal, new patio furniture was not our priority this year. I also told them when it was time to create next year’s budget for house updates, we’ll discuss their idea at that time.
Another good way to teach kids about finances is to expose them to the language of business. Take them to the bank with you when transactions are made. Have them deposit and withdraw money from their accounts so they practice their financial skills. Show them how to negotiate prices at a flea market.
By involving your children in financial decisions, you help them develop basic financial literacy and the everyday skills they need to make good decisions.
Teach Them How To Start A Business
I firmly believe we all have an entrepreneurial side. Teaching your kids to be their own boss can open a lot of new doors for them and teach them financial skills they can use for the rest of their life.
Starting a business can teach your children:
- How to identify a need or demand
- How to create a product to fill a need
- Sales skills
- How to market and advertise
- How to set pricing
- What are expenses, revenue, and profit
- Accounting and borrowing (getting a loan)
- Upfront investing
Here is a recent example of what my kids did.
They wanted to earn extra money and decided to open a snack and drink stand. They made lemonade, iced tea, and brownies, We found some juice boxes, raisin snack boxes, and popsicles in the pantry that they wanted to sell also.
I explained to them about posting signs in the neighborhood to advertise what they were selling, how to draw in customers, and why this is important. We talked about being polite and friendly to people because no one wants to buy things from people who aren’t polite and friendly. We also talked about upselling and how to bundle things together to sell more goods.
We also talked about expenses, revenue, breakeven point, and profits. They didn’t understand these concepts yet and I received some very blanks stares. I decided to let it slide for now because to me it was more important they learned the other skills like upselling and advertising than profit and loss. We’ll work on that next time.
After 12 hours and 2 days of selling, they freaking killed it! Over 2 days, they made over $60 selling baked goods and drinks from our front lawn.
Here is what I learned about them that day.
They are both very hard workers. They made all their own signs, posted them in the neighborhood, and even wanted to work through dinner because they did not want to miss out on a customer. They decided to eat dinner and work at the same time despite my encouragement not to.
My one daughter has natural sales skills. She was really working the customers. Anytime a car went down our street or she saw people out walking she was yelling, “Come get your homemade lemonade and brownies here! $1 each!”. When she drew in customers, she was talking to them about the benefits of each and how they went so well together.
I didn’t teach her to do this, it came naturally to her.
My other daughter enjoyed the creative side of the business. She enjoyed creating the signs, setting up the displays, and running the stand. Maybe a future artist in our midst? 😊
What’s Next?
Take it from me, being a parent is a constant learning process especially when it comes to topics as sensitive and complex as money. Be sure to make these lessons and conversations as comfortable as possible.
If you want your children to develop a solid financial foundation, there is no time like the present. Today, we went over a few things you can start doing today to help your child develop a financial foundation, learn some new skills, and develop new habits for a achieving a lifetime of financial success.
Following these actions will have your child well on their way to becoming a money pro when they reach adulthood.
What do you think? Did you like today’s article? Anything I missed or anything you felt needs to be discussed in more detail? I’d love to hear from you.
Until next time…….
Live The Life You Love, Want, And Deserve! 😊
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