Talking about money is not dirty.
Have you ever been asked by your kids if you are rich or poor? Talking to your children about money matters facing the family can sometimes be challenging. In some cases, you don’t want to share too much in case they accidentally share it with the neighborhood. But keeping them informed about what is happening with the family is important because one of our jobs as parents is to help them prepare for the future.
But keeping them informed about what is happening with the family is important because one of our jobs as parents is to help them prepare for the future and engaging them in the conversation can also help them understand why you are making some of the financial decisions you are.
In this episode, we talk about what prevents parents from talking to their children about money, why we should talk to them about money, how allowances fit in, and then we list some strategies we can use when talking to our children about finances.
A couple quotes we wanted to share in the show, but couldn’t fit in
“Our children will not be shaped by the things we GAVE them, but rather by the things we ASKED of them.”
“When your kids come to you and ask you question about money the first thing you want to do is ask them why they’re asking about it so you can better understand where the questions coming some from see you can then better give them proper response to that question.”
- Why don’t adults like to talk about it?
- Why should they talk about it?
- The allowance debate
- What do you teach about money?
Why adults don’t like to talk about it?
Parents don’t know where to start.
Maybe parents are embarrassed with where they stand financially.
Some don’t want their kids to worry about money.
Maybe they don’t realize kids are mature enough to understand it.
Some old-fashioned notions believe money is a private matter.
If a child comes up to you with a challenging question about money (or any subject for that matter like sex, drugs, etc.), respond with “Why do you ask?” That helps you understand where they are coming from that sparked the question, helps know what direction to take your answer, and stalls giving you a few more precious seconds to come up with a great answer.
Why talk with your kids?
To help them avoid some of the same financial mistakes you made along the way.
To help guide them as they are learning and start good financial habits while they are young.
To give them an opportunity to see how money works as they follow your example and learn from your conversations with them while they are still under your roof.
If you want a child to learn how to write, you give them a pencil. If you want a child to learn how to read, you give them a book. If you want a child to learn how to handle money, you need to give him some money.
One idea that goes down the middle of the debate is that you pay children money according to their age and how much they contribute, but you don’t attach it to every little chore they do. Some chores children should just do because they are contributing members of the family. Other chores can have a price on them if they want to earn some extra money. But give them some money that they have full control over to practice money spending and saving habits with.
Many finance specialists suggest paying children $1/age/week for each child. So if your child is twelve-years-old, they could earn $48 in a given 4 week-month. Mitchells don’t quite follow that rule with their five kids, but they have an allowance system that works for their family and circumstances.
There are many factors to take into account though when settling on the amount you pay your kids:
how many kids you have
what their allowance pays for, what you pay for
If you start low, that can allow for raises. It’s easier to add to the starting amount than to cut back without making the child feel like they are being punished with the new changes.
Lessons to teach your kids
Spending is all about choices. Wealth is more about how you choose to spend your money than about the amount of money you earn.
Never tell your child you can’t afford that. A better response would be, “I choose not to spend my money on that.”
Model choices when shopping with kids. Choosing between name brand or generic prices.
Make it Last Teach children not to spend all their money at the beginning, in case something unexpected comes along later.
Savings is a lesson on delayed gratification. Learn young so it’s a habit.
Maybe put money in a see-through container so kids can see it growing, rather than a piggy bank you can’t see into.
Also, talk to children about how they have to wait their turn to go down the slide at the park or a ride at Disneyland. The thrill of the upcoming fun is worth the wait and anticipation.
Contributing to charity is a lesson that everyone can benefit from. Teach children the why of sharing what we earn with others.
It helps to pay the charity and savings first, then the spending is done with what’s left.
You can also teach children about lending money to friends. That’s a tricky lesson to learn. Dave Ramsey suggests anytime you lend money to a friend, you do it as a gift, with no real intention of having it repaid. Then if it isn’t repaid, your friendship isn’t ruined, but if it is repaid, what a pleasant surprise! Borrowing and lending money is not a great idea for strong friendships.
Needs vs. Wants Teach kids the difference between needs and wants. Mitchells pay the needs for their kids and their kids pay for their wants. If it’s a name brand clothing item, Mitchells will pay the going rate for a normal item of clothing, and the child pays the difference for the name brand upgrade price.
If you start having kids pay for the things they want, it’s interesting to see how they change their minds when they have to pay for it with their own money, rather than with yours.
You can be a YES parent by telling your kids “Yes, you can have that if you have the money and want to buy it with your own money.” That’s better than always having to tell your child no because you don’t want to buy those things.
Work Teach your kids how to work a little harder if they need more money than their little allowance can cover. Teach them to figure out their talents and what they enjoy doing, and then find ways to earn money doing those things.
Parents should not just hand kids money when they ask but they should earn it.
Budget and Manage Money Teach children how to budget and manage their money, so they can plan for the future. Do some exercises with your kids like asking them what they want to save for, how much it will take each week to save up for that item, and have a visual of that goal in sight so they can see it often.
Mitchells have never bought their kids pricey electronics. Their kids do own game stations like the Wii, a Playstation, iPods, and cellphones, but the kids have purchased them all on their own by saving up their own money for them.
There are many more lessons that need to be learned as kids get even older and closer to adulthood like compound interest, college loans, car loans, no loans, saving ahead and making big purchases with cash.
But always keep the conversation of money open and casual so kids can gain confidence with their money choices and develop good spending habits while they are young.
“Our children will not be shaped by what we GAVE them, but by what we ASKED of them.”
Image: Money Wallet by “401(K) 2012”. https://www.flickr.com/photos/68751915
Get the Organized Family Tool Box
Our tool box includes templates for chore charts, dinner table conversation starters and much more. We don't sell it, but you can get it for free if you sign up for our newsletter.