You know, Jill and I have worked pretty hard over the years to teach our kids the real the meaning of Christmas, it has not been easy . . . but we try. But we also have commited some time to teach them about being smart with their money – including the need to budget for important occasions. Yet, somehow, Phoebe and Sophie in particular have been dropping hints about how expensive everything is, and how they just don’t know how they can possibly afford to buy Jill and me something nice this year.
Hmmm . . . sounds like I have to self-fund my Christmas present.
Now, I’m no grinch. I love Christmas too. But it reinforced for me the importance of talking to kids regularly about being money-savvy. In this case, it includes having a thoughtful plan for buying Christmas gifts well before the Season arrives, so they’re not in a panic – or having to beg and borrow from their parents at the last minute. And as parents, we’re in the best position to influence their spending and savings habits and help set them up for financial success later in life.
Why is this so crucial?
Well, according to says Dan Kadlec, contributor to TIME Magazine and Rightaboutmoney.com, “Young people still need to be taught the basics. Live within your means, pay yourself first, save 15% of what you earn. These are timeless values that technology can help with – but only once you understand the need and set a plan into motion.”
In addition, a 2017 Parents, Kids, & Money Survey conducted by T. Rowe Price found that parents who discussed financial topics with their kids were more likely (61% vs 41%) to have kids who say they are smart about money. So this week, with the New Year around the corner, and so much media trying to shape and control our kids financial decisions, let’s look at a few ways where we can impart our financial wisdom, and inject some control over how our kids learn money management skills.
Demonstrate the Value of Money. Think about using a clear jar to save, especially with younger kids. The piggy bank is a great idea, but it doesn’t give kids a visual. When you use a clear jar, they see the money growing. Yesterday, they had a dollar bill and five dimes. Today, they have a dollar bill, five dimes, and a quarter! And if you are like my kid Phoebe, any loose change around the house somehow finds its way into her piggy bank!
Talk to Your Kids About Money. Even at a young age, kids must understand how we get the services and products we get. Kids see their parents paying for things in a variety of ways, and it isn’t always obvious to them what’s going on. They see us use plastic cards to pay for some things, and coins and green paper for others. We buy lattes with our phones and pay for gas through some invisible encounter between our wallet and the pump. How do we expect our kids to understand money and how much goods and services cost in the year 2019 unless we explain to them how we are paying for them?
Stress the Importance of Curbing Impulse Purchases. How many times, as parents, have we heard something to the tune of, “Mom, look at this coat – it’s so pretty, I just love it! Can we buy it please?” Kids, today, really know how to capitalize on the impulse buy—especially when it involves someone else’s money.
Instead of giving in, let the kids know they can use their hard-earned savings to pay for it. But encourage your child to wait at least a day before they purchase anything over a certain dollar amount, say $25. Despite what they may say, it likely will still be there tomorrow, and they’ll be able to make that money decision with a level head the next day. The idea here is to help children grow in mindfulness about their spending decisions.
Discuss Big Purchases With Your Kids. Kids hear everything, whether you think they’re listening or not. So why not talk about money in an inclusive and logical way?
A suggestion that has worked in our house has been inclusion. Any significant purchase like a new car or perhaps taking a big vacation, we include the kids when we talk about big financial decisions. For example, questions surface such as, did we save up for the purchase for a long time? Are we borrowing money to make the purchase, and why? What is the difference between “good” and “bad” debt, and when would we use either one? Talking about the why’ can teach our kids our values on saving.
Encourage Teens to Get Jobs and Earn Money. If you have a younger teenager, you may want to suggest he or she look for opportunities to babysit, dog walk or mow lawns for money. If you have an older teen, you might want to help them get a job at a restaurant or in retail. After all, if your teen starts working, he or she might just appreciate all of the work you do – and what it takes to fund your family’s lifestyle.
Help Kids Open a Bank Account. Even if your teenager doesn’t have a job yet, he or she is probably getting money from an allowance or as gifts through the year. You can help your teen learn how to set aside and monitor their money in a bank account.
Show Kids How to Map Out a Budget. This is a big one. Sit down together and create a budget that includes any “income” as well as their monthly expenses. We did this with Maeve the year before she left for college. We mapped out her income, inserted expenses including big ticket items such as college and began to review on a monthly basis. It teaches them accountability and also if they blow the budget, how to get back on track. Slowly but surely she is starting to get it. Next up, Phoebe and Sophie. I may have my hands full there.
Stress the importance of giving. Winston Churchill once said, “We make a living by what we get. We make a life by what we give.” Once they start making a little money, be sure you teach them about the importance of giving to others. Let them choose a church, charity or even someone they know who needs a little help. Eventually, they’ll see how giving not only benefits others, but the giver as well.
Many believe that the goal of financial education is to instill fiscal security for their children in the future. Wise practices and thoughtful choices can give your adult children the ability to weather difficult financial times on their own. But there’s another benefit: confidence.
Once someone has a comprehensive understanding of the way personal finance works, they’ll have the confidence to make bolder moves when they’re older.
Teaching our children about money at any stage is going to take a time commitment. It won’t always be easy. But our kids need it. To successfully manage their money when they get older, taking the time now is worth it. And it may just save you a few bucks come holiday shopping season!
Folks, be vigilant and stay alert, because you and our kids deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at jeff@cutterfinancialgroup.com.
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