8 Money Lessons for Parents & Kids By Karey Edwards, NCA Financial Planners
by Karey Edwards on Feb 10, 2020
A few months ago, I took my eight-year-old daughter to buy a new pair of earrings. Being a bit of a nervous nelly, I was proud of her for surviving the shock of the piercing gun and twice daily cleanings. I thought, as a treat, I would take her to finally replace those dreadful starter earrings with something a little nicer and unique to her personality. She picked a pair of 18K gold musical notes and promptly told me in front of the cashier, “Pay for them.” Wait, what did she just say? Did she just give me an order, seemingly with no gratitude or understanding of the value of the purchase? Or the hard work my husband and I put in everyday to be able to provide for her? It was then I realized I had many issues to tackle, one of which was teaching her the proverbial “money doesn’t grow on trees.”
Being in the profession of personal financial planning for the last twenty years, this should have been an easy task, right? The problem was I was so used to helping clients build their personal wealth plans that I was out of touch with the basics. So, I tapped my memory bank and tried to remember how my parents taught me. Their lessons, along with my own, are below.
Lesson 1 – Start Early
While the concept of money is introduced in classrooms in first and second grades, I would argue that education can begin in preschool. At this stage, incorporate it by way of games and toys. My daughter and I used to play a pretend game called, “Restaurant.” I came into her establishment and ordered a salad and iced tea. She charged me $1,000 on her play cash register and then the negotiating began!
Lesson 2 – Treat an Allowance Like a Paycheck
In my opinion, daily chores should be done as part of contributing to the family unit. Kids shouldn’t be incentivized to make their bed, unload the dishwasher or set the table. These activities build responsibility and a sense of accomplishment if kids understand their efforts are integral to running the household. Those that go above and beyond, like yard work or washing the car, deserve payment.
When you pay them, start teaching them in terms of what they’ll encounter with their paychecks. A portion will go to taxes (i.e. dad & mom), part should be saved (think 401K), consider an amount for charity or doing something good, and the rest is for discretionary spending.
Lesson 3 - Include Your Kids in the Budgeting and Bill Paying Process
Allow your kids to sit with you when you pay bills and explain what you’re paying and why it’s important. This shows them you have to pay for the water they use in the bath, the electricity they use to watch TV or charge their iPad, and the car you drive them around in to their activities.
Also let them see you putting all the numbers together, whether you are old school like me with an Excel spreadsheet or use a budgeting app. Explain to them only so much comes in every month and you can’t spend more than that.
Lesson 4 – Teach Delayed Gratification
This comes in two forms - impulse buying and saving over borrowing.
Every time my daughter goes into the tween clothing store Justice, she wants to buy something. I talk her
into waiting until next week. If she still really wants the sequence pillow with a big “C” on it, then she can
get it. She always forgets about it. Impulse purchase averted!
Start instilling that if there is a large purchase they want to make, they’ll have to save for it. Borrowing
from the “Bank of Mom and Dad” is not an option.
Lesson 5 – Use Credit Cards Wisely
Personally, I pay cash for items $20 and under. If it’s over $20, then I use a credit card. Be careful of
letting your children watch you swipe for anything and everything. It can give them a false sense that
money isn’t real. One day they actually have to pay for those items.
Lesson 6 – Open an Account of Their Own
Ever since our daughter was born, my husband and I have made a habit of taking our change (the coin
portion) from those $20 and under purchases and letting our daughter put it into the good old Tootsie
Roll canister. Our hope is to introduce the habit of paying yourself first and the concept that even a little
at a time does add up.
Periodically, we roll it and have finally reached a point where it’s time for her to open an account of her
own. We talked to her about using a savings account for stability of principal versus investing in stocks
for potential growth. Relatable stocks, such as Disney or Hershey, were ideas we discussed. We also
talked about risk and how her stock investment could go down, but that she had the potential to earn
more than just being at the bank. She’s still mulling it over, but at least the foundation of saving and
letting money work for her has been introduced.
Lesson 7 – Introduce the Time Value of Money
Speaking of letting money work for you, my dad wins the prize for this lesson. He once made me read a
book that had a story about a tortoise and a hare. It was basically an illustration of compound interest
and the benefit of saving early and often. I was mesmerized by the idea that small amounts set aside now
could turn into big dollars later. Show your kids the power of compounding and see if it captures their
attention as it did mine.
Lesson 8 - Be a Good Role Model
This is the most important lesson! Children intently watch all we do. Make sure you’re modeling healthy
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