The Opposite of Spoiled: The Right Way to Teach Kids About Money
What’s the best way to teach kids about money?
That question has haunted folks for decades — maybe centuries. There are dozens of financial literacy programs in the United States right now, but none of them seems to be effective. Why is that?
I’ve written before about why I think financial literacy education fails. Here’s the short version: Most financial literacy fails because it focuses too much on mechanics — how bonds work, the magic of compound interest — and not enough on behavior. While mechanics are key (they’re the foundation, after all), they’re not the most important aspect of financial success.
Here’s an analogy: My brothers know how to read and write. They’re smart guys, and they’re both literate. But just because they know how to read and write doesn’t mean they practice those skills. One of my brothers used to proudly declare, “I haven’t read a book since high school.” (Oh, how that hurt my book-loving heart!) Knowing how to read doesn’t make you a reader. And knowing how to save doesn’t make you a saver.
Financial literacy is not the answer. We’ve got to do something more if we want to teach our kids about money.
John Hancock
Recently, I’ve had two great conversations about this topic. The first was with John Hancock, the president of the Portland chapter of Junior Achievement, a non-profit group focused on helping kids learn about money and entrepreneurship. He and I met for coffee last week, and we chatted about his own efforts to improve financial literacy.
Tip: Teach children the importance of creating an emergency fund. You can even go so far as helping them open their own online savings account, or one with a local bank to get started.
Like me, Hancock thinks it’s important to focus less on the “how to” and more on the “why” when it comes to money. He wants to change behavior. His goal isn’t to just educate young people about money, but (as he puts it), “to change habits of the hands and habits of the heart”.
Hancock thinks it’s important to put people into active simulations, such as role-playing. To that end, his group puts on an annual event for kids called Biztown, which lets them experience a simulated city environment. The children take on the roles of various business and professional leaders in an interconnected community, and they learn how to manage their own personal finances. I know several kids who’ve done this program, and they love it. So do their parents. The experience seems to have a positive effect on their attitudes toward money.
The local chapter of Junior Achievement also produces The Money Jar, a weekly podcast about kids and money. (Last autumn, I appeared on an episode of this program to talk about how to build savings.)
I applaud Hancock’s efforts, and hope to work with him in the future to improve financial education in our area.
Ron Lieber
Earlier this week, I had a long phone call with Ron Lieber, who writes the “Your Money” column for the New York Times. He’s currently on sabbatical to write a book called The Opposite of Spoiled, in which he hopes to teach parents how to raise children with financial maturity.
Note: This was the first time Lieber and I have ever connected, though we’ve been aware of each other for years. After all, I write the “Your Money” column for Entrepreneur magazine, and my first book was called Your Money: The Missing Manual.
Lieber has some great insights about financial education. “Financial literacy works best when it’s delivered in the moment on an as-needed basis,” he told me.
As an example, he talked about how sixteen- and seventeen-year-old kids make six-figure decisions about education with very little guidance. “The fact that these kids are making major financial decisions in complete ignorance is a crisis,” Lieber said. “We need a financial Americorps to go into high schools and help kids address important questions. Why go to college? Why do different schools cost different amounts? How does financial aid work? What about delaying school for a year or two?”
Lieber agrees that financial literacy efforts have largely been ineffective. He says they should focus on “feelings, behavior, and emotion — all of the things we’ve realized over the past decade that are at the crux of getting money right.” We talked about his book, and about raising children to be financially mature.
Note: Lieber is midway through writing The Opposite of Spoiled, and he’s looking for more people to interview. If you have a great story about kids and money, he’d like to talk to you. Drop me a line, and I’ll connect you.
“How do children become spoiled?” I asked.
“They’re not born that way,” he said. “We do it to them. Nobody wants to raise a spoiled child, yet it happens all the time.”
One issue is what Lieber calls the “first-generation affluent”. When you were raised poor (or lower middle-class), there’s a real temptation to give your kids the things you never had. You remember what it was like to feel deprived, and you don’t want your children to experience that — even if a little deprivation might be good for them, might build character. (After all, it helped make you who you are, right?) “Kids should, at the very least, have to earn things,” Lieber says.
In writing about spoiled children, Lieber tried to think of what it meant to be the opposite of spoiled. Because the word “spoiled” was originally used to describe food, the opposite is “fresh”, which isn’t a good choice in this case. “When we talk about spoiled children,” Lieber told me, “the opposite qualities are modesty, patience, thrift, generosity, perspective, perseverance, courage, grit, bravery, prudence, and so on.”
“That sounds like the boy scout law,” I said.
Lieber laughed. “Scouting imparts a core set of important values, it’s true.”
“The thing is,” he continued, “you can use money as a central tool to teach kids about every single one of these. Instead of shying away from the topic, what if we put money at the center of family conversations? What if we assumed not that money subverts values but contributes to them? Because it does. This is the path to financial literacy and financial education.”
Note: Lieber also loves the idea of opening a money store — some sort of business where folks can come in and get cheap, objective information about how to better manage their finances. He’s done more research into the practicalities than I have. Neither one of us is actually ready to move forward with such a business, but we like the idea of it…
The Bottom Line
As always happens with these discussion about financial literacy, I don’t have any answers — only complaints. Over the past few months, I’ve chatted with Flexo from Consumerism Commentary. He want to start a financial literacy non-profit, and I want to help him make that a reality. But neither one of us really knows what that organization will look like and how it will accomplish its objectives.
I’m not sure we need to have the answers right now, though. Maybe it’s enough to simply be asking the questions. I think that’s the first step in finding a way to children become masters of their financial futures.
Do you have experience with financial literacy programs? What methods have you found to be effective? What does not work? If you were to teach kids about money, where would you start?
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There are 61 comments to "The Opposite of Spoiled: The Right Way to Teach Kids About Money".
There’s a bunch of literature on this. No magic bullet yet. The best evidence so far is that financial literacy programs work when they’re voluntary and they don’t work when they’re mandatory. Which doesn’t help reach the kids who probably need them most. But people are still working on this question.
“Not read a book since high school?”
That breaks my heart too . . .
My brother reads maybe 5 books a year and usually a book that is based on a TV show that he is watching – currently GAME OF THRONES. 🙁
Excellent article as always, JD. Glad you are back writing here!
What’s wrong with watching a book based on a television show? Are you opposed to someone reading “Pride and Prejudice” because they watched the BBC Miniseries? Or what about classic Sherlock Holmes because they tuned into the show Sherlock? I hardly think your brother’s choices warrant a sad emoticon.
Aside from the fact that the “A Song of Ice and Fire” series is a fantastic and lively read, your premise is just silly and rather pretentious. Did you also bemoan the increase in reading among youth during the 2000s because of Harry Potter? I say whatever gets people reading is a good thing.
One of the great things about these movies and TV shows – Harry Potter, Game of Thrones, even Twilight – is that they get people reading. Who cares why they read, they’re reading! 🙂
I never understood snobbery when it comes to what people read. Some of my books from the library are classics, technical, non-fiction, history books, biographies, and some are just fun, mindless novels or how-to beauty or decor books. I don’t get the detain just because someone might read for fun.
Just an aside to this…”Game of Thrones” was a book long before it became an HBO series. I believe the first book in the series was released in 1996. All of the books that have been released thus far are between 700 and 1,100 pages.
And it’s quite a difficult read, in my opinion. Lots of characters to keep track of, a lot of plot, multiple settings. I think it qualifies as a fairly significant book to be reading…
Agreed, Lucille. It is not an easy read, by any means. I wished I could have bought an abridged version that left out all the laborious descriptions of food and clothing!
Courtesy of Wikipedia, the five books in the series are 4,273 pages total. I don’t think Laura needs to worry about her brother :).
To pick on her a bit more, why is five books in one year even that sad? I read more than that, but I don’t find that number problematic in the slightest. There have certainly been busy years in my life (esp. when my kids were newborns) when it took me months to finish one book.
I think you’re right about needing money to be at the center of the conversation. I wish my parents had talked to me more about debt (aka student loans). Other than that my parents did a great job at presenting me the concept of compound interest.
Another thing, when I wanted big ticket items such as a car, my parents didn’t buy it for me. This forced me to go out and make money on my own. As a teenager I was able to foot my own bills and afford my own things and develop the concept of savings. It worked out great and instilled some pretty good work ethic. It’s definitely one thing I plan on doing the same with for my children.
I agree that by wanting to give your kids everything you may spoil them. My parents had the complete opposite approach, which as a kid I found pretty hard. But since I wanted more I had to work for it. From my early teens I was baby sitting, tutoring, left home at 17 to move to a college dorm and paid my 5 years of college without incurring any debt so I can only be thankful now. I’d like to help my kids more if I have some, but providing for them may ruin their financial future. I hope they are grateful and aware of their luck if I do, not taking it for granted.
Really nice article, and thought provoking. I agree that financial literacy in our country is dismal. I graduated college in 2008, and never once in my 12 years of public school and then 3 years of college did I ever take a class about financial literacy. The most was a seventh grade social studies project about balancing a checkbook.
Unfortunately, I feel that financial literacy is ingrained by the parents. It’s a fact that children often emulate Mom and Dad. I think about my cousins in this regard. Their father is wealthy–he works incredibly hard and makes six figures to show for it. As a result, the kids are very spoiled; several times a year they take big trips (to Italy, Disney World, all sorts of cruises) and their massive six-bedroom house is always filled with the latest gadgets and toys. Recently my 20-year-old cousin showed up with a GoPro camera including all the accessories and features. That’s hundreds of dollars! I’m not even willing to spend $20 on jeans! His parents have taught him instant gratification. You want that camera? Here’s my debit card, just go get it. I wonder what kind of future he will have.
I don’t know how much a financial literacy program, no matter how wonderful it is, will be effective when kids see their parents’ bad spending and saving habits every day, since birth. That’s a tough fight. I think educating parents is more of a key, but unfortunately, most don’t seem willing to learn financial responsibility and pass it on to their kids (see the consumer debt for proof!). I’m always very touched to read about bloggers, like Trent at the Simple Dollar, who make such a good effort to help their children learn good financial habits from a very early age. That’s what this country needs. How we get it, I don’t know.
I agree wholeheartedly, Karen, and I’m a grandparent. As with most things, financial attitudes start at home, and parents exert enormous influence on children (even teenagers) beyond what they might think.
I think families should sit down together with appropriately aged children and go over the family finances–see where does the money come from and where does it go. Just that alone would be revelatory to most parents, let alone the kids. But that’s where it all starts.
In our country we are in denial about finances, not just brought about by ignorance, although that’s part of it, but by a culture and economy dependent upon consumption. Which is fine as long as being a consumer doesn’t rob you or your children of your futures.
YES! As a former teacher, I cringe every time someone says “we need to teach financial literacy in schools!” as if that’s going to solve the problem. Yes, it’s part of the solution — but only one part. We have to address what goes on in the home and the values people are learning from other sources (like the entertainment industry).
It’s a minor point, but I disagree with the belief that children are not born spoiled. They’ve had everything they needed instantly for 9 months. As infants, they scream (impatiently) for food or other attention that’s usually given to them quickly. The twos are “terrible” because they have mobility and no impulse control. Children are naturally completely self-centered. It’s up to the parents to train this out of them.
I agree with you, but I object to the concept of “train[ing] this out of them.” It sounds so punitive.
Perhaps the better way is to teach empathy. If you instill that, it will be much harder for them to remain self-centered.
For their financial success and their overall success later in life, it is also essential to teach them delayed gratification.
As a parent myself, I believe I have said many times to my kids in frustration, “You are not the center of the universe!!!!!” 😉
Instilling empathy is great, but empathy can’t be instilled until some of the natural self-centeredness is gone. When children are small, you need to teach them to behave properly, regardless of their emotions. To children, saying “please” and “thank you”, politely waiting their turn in line, gracefully accepting gifts they didn’t want, and myriad other things must be “trained” into them. “Training” doesn’t have to be punitive; it simply means teaching over and over again until the child habitually does it.
Good point, Marsha. The term training brought up this image in my head of animal training with a whip, but you are certainly correct that we have to teach our kids proper behavior.
I guess I was getting at the potential disconnect between outward behavior and inner understanding. You can teach someone to be polite and appear less self-centered, but I think the task of making them really understand that they are not the center of the universe is much more difficult.
My parents did a good job of modeling personal finance, they were frugal, maintained a budget, saved for my college costs, saved enough for retirement (I hope they are not done with their retirement years yet), etc. But, while they modeled good behavior I can’t say they really taught me specific skills. They did start a savings pass book account for me, and I can recall heading to the bank now and again.
I like some of the tools that my brother and best friend have used with their kids, teaching kids how to save, but also to give, how money is taxed, how to save for long term vs. short term, etc.
And I miss Ron at the NYT, the suspended the Bucks blog (don’t know if that had to do with his sabbatical) but I miss that blog too.
Like several other people I agree that one of the main ways to learn financial literacy is through your parents. I am very thankful that they taught me from an early age how do deal with money. As a matter of fact, my first allowance of 10 cents (dating myself here!) was actually given to me in 10 pennies. 1 went to church, 1 went to savings and with the rest I could buy candy.
This was continued through out my growing up years so by the time I was actually making thousands of dollars it wasn’t as hard for 1/10 to go to church and another 1/10 to go savings.
My dad especially encouraged this by not only talking about it but living it.
Maybe to get our kids to be financially literate we need to focus on the parents first.
Boy, do I get tired of hearing it all put on the parents.
We were frugal and careful and are living a wonderful retirement because of it.
However, one kid is good with money and the other is terrible. Same home, one just decided to learn something and the other one didn’t. You can look in any family and see the kids modeling different types of behavior.
Anne,
I experienced the same thing in my family. Saving came naturally to me, although my behavior around money can still be wonky. I natter on to my soon-to-be-college son about personal finance and I sense he listens occasionally. For him, the biggest lessons are self-taught. Recently, he damaged someone’s car door and paid $450.00 to repair it. That was his grad money and he experienced a painful lesson. Tough for me to just watch but a teachable moment for him.
But Martha wasn’t saying that a child’s success or failure in financial matters was the result of what the parents did. She said, “Maybe to get our kids to be financially literate we need to focus on the parents first.” I agree wholeheartedly with that statement because parents are the first teachers of a child and they need the right tools to be able to work with their kids.
But is it all a matter of nurture? No, I wouldn’t say that. Inborn traits come into play; if a person has an addictive personality type, compulsive spending could become a problem, regardless of what his/her parents did to teach financial literacy.
I have two children, ages 6 and almost 8, and we are taking an approach that is similar to Martha’s parents when they get their allowances or birthday money: 10% to church, 50% to savings, and 40% to spend on whatever they want. It’s interesting to see what they do with the 40% and the lessons learned (though some come slower than others).
My experience with financial literacy programs (outside of traditional micro/macro economics and math classes) was primarily a classroom simulation I participated in during the 6th grade.
It lasted all year, but basically we started off earning fake money (room bucks) for doing our jobs as students – being good citizens and earning A’s and B’s. Every week we had to each pull a chance card (much like the monopoly versions, but more realistic) and deal with the possibile fall-out of life’s chances.
Once we started accumulating stockpiles (and we had to be careful not to lose them), our teacher opened a storefront. But we wanted more opportunities to earn and buy using room bucks, so we openend student store fronts as well… there were restrictions on what we could have in the store fronts, but you get the idea.
It got pretty advanced (especially when you consider that 11-year-olds were running it) – I attempted to sell insurance to help people mitigate the risk of the chance cards. And tried to save up for the entire year to buy a walkman…
There’s more about it here:
http://www.plantingourpennies.com/what-room-bucks-taught-me-about-economics/
I am trying so hard to raise a child who is the opposite of spoiled! We live in a wonderful community, but it is the type of neighborhood where kids get a lot of stuff and opportunities and there are a lot of kids with attitudes of entitlement. Gimme, gimme, gimme.
My strategy with my daughter, now six, has been to address money often but in subtle ways. I started an allowance when she was five, transferring $5 month into her bank account. But I have only mentioned it casually, as she does not really get the connection between money and buying stuff quite yet. When she asks for something I say she can wait until her birthday or she can buy it with her own money. She usually forgets about it.
We have a sponsor child in a third-world country, and I always talk about “Pontso” and how little her family has and how little most children around the world have compared to U.S. kids, yet they still are happy and get to have fun playing with friends etc.
I want her to respect money and know how to manage it, but I don’t want to fill her with anxiety about it or push my money issues onto her.
In hindsight the best thing we did for our daughter was to have her sit down and write out the checks for the monthly bills and do the check register. She was about 13 at the time.
We get paid once a month and so we pay all the bills around the first. She saw the drastic drop in the bank account in about a half an hour! That made an impression.
As far as spoiled goes. To me there is a difference in spoiled and spoiled brat! My daughter is spoiled. But she never through a fit if we told her we couldn’t afford it. Mostly because of what I discussed earlier. But I am not one to say “no” for no reason either.
The nuts and bolts should be taught in conjunction with general values about money. My eldest kid is only three so there’s no point in teaching him about IRAs or savings.
But I do try to inoculate him from media and television in the hopes that he isn’t so easily persuaded to buy the latest gadget.
I also promote delayed gratification so that in time, the concept of compound interest doesn’t seem so foreign.
And I would like to encourage simple entertainment like walks to the park and lively dinners around the table, leaving vacations and expensive toys for once in a while occasions instead of the norm. In this way, my kids will hopefully learn how to derive pleasure from simple moments and experiences, even if they do grow up to be wealthy enough to afford more than that.
The concept of a “money store” already exists, in a way. Check out NAPFA, an association of fee-only financial planners, who dispense objective financial advice for a set fee (as opposed to a sales commission).
I want to echo how great Junior Achievement is, my wife and I taught a few sessions and it was a blast.
They’re always looking for help, I recommend everyone sign up.
Good post as always JD. Going through money “training” with our seven year old daughter right now. Stay tuned!
I grew up in a two parent household (which is a big deal where I came from) and though my mother’s frugal, saving, perfect credit lifestyle should have rubbed off on me, my father’s free spending (mostly on drugs and alcohol and the consequences) is the one I picked up. Not the addiction issues but the careless and the attitude of indifference is what rubbed off on me.
Neither of my parents actually deliberately taught me anything about finance – I was expected to pick it up on my own. Fortunately I did eventually, but not without a lot of costly mistakes along the way.
I was never one to consume but it was my lack of management that got me into trouble.
As the parent of 2 young adult children (25 and 19) let me just say how difficult it can be to stress fiscal responsibility in what often feels like a “world gone mad” financially:)
My son lived at home and took the bus to the local university (i.e.. we did NOT buy him a car, like most of his friend’s parents or send him to a far away school “for the experience” when the one 15 minutes away was as good or better); my college aged daughter is the ONLY one in her peer group who worked full-time during the summer break. And I admit, I often felt guilty about my ‘poor kids’ having to work so hard. (Note: we are mortgage free with substantial retirement savings and neither of my kids took any student loans.)
It can be incredibly difficult to watch your kids trudging off to pump gas when their friends are all heading to the beach–again. Our hope is that they both enjoy their leisure time more (as it is hard earned and more precious) and that the work ethic and financial lessons learned will be appreciated eventually!
I agree with previous posters that this can be taught most effectively by parents. However, for more formal school settings, I have heard great things about Dave Ramsey’s curriculum called Foundations.
I think financial literacy education fails for the same reason as a whole bunch of other things fail. Our school systems are set up to impart knowledge, not change behavior. We can tell kids about interest rates and credit cards and whatever all day, and they may even remember the things we say, but that doesn’t seem to change their behavior any better than when we talk to them about sex or drugs or driving too fast or any of the other things that require a behavioral change. If we could solve any of these problems, we could probably solve all of them. I think the biggest problem here, too, is that kids learn behavior by example more than instruction. If their parents did it, and their neighbors did it, and their friends did it, they probably will too, regardless of what someone tells them in school.
Interesting point, Tyler. I’d like to believe I’m reflective but I know that I can be as myopic as anyone about my behaviors (attitudes, really). Clarity appears really slowly for me and I’m not always inclined to change my patterns. Maybe I’m stubborn or perhaps the “ruts in my mind” run that deep. Thanks for giving me lots to consider.
I thought this blogger had a great article about teaching her daughter to ration “juice” http://www.lilblueboo.com/tag/make-your-own-play-money
When I was growing up(I have 7 other siblings) and we turned 16 we got a bigger allowance I want to say $100 a month. This had to cover our clothes, gas(to and from school & Church), and then a little bit as fun money. My parents had food in the house to make lunches so we had no excuse there, and it was a great way to teach. We could spend it all on clothing but then could ride the bus to school which added 2 hours to each day since we didn’t have gas money anymore. Or if we didn’t use it on winter boots then tough luck, It was a safer way to realize how to budget your money. My parents did pay for a car for most of us to use to get to school and insurance for the said car, but that was their choice since they wanted us to attend a private school that was pretty far away,etc. There was also a cell phone in the car for emergencies only,etc. If we wanted more money to spend than the $15ish left over after gas and clothing, then we could get a job, babysit, or find other things that my parents wanted done enough to pay us for. I plan on using this method when I have kids. Just don’t give in when the money is gone, if the parents then loan money it defeats the whole purpose.
As a dad to a 6 month old, I struggle with how I’m going to teach my son finances. Here’s why:
As mentioned above, I came from a lower middle class family so I have always wanted to give my kid(s) everything i never have. However, I am stronger for having to learn the responsibilities i did being lower middle class. My wife got everything she needed (not wanted) and grew up comfortably. She wants to give our children even more than she had. So, it’s an internal family struggle as to what to and not to provide without earning. There definitely will be some aspect of earning presented as well.
For us, we are going to try and provide opportunities rather than stuff. The wife and I have come to that conclusion. As experiences and education are priceless, we want to provide those. When it comes to consumer aspects, we will do our best to teach the lessons of owning “stuff”.
Great article here.
The Warrior
NetWorthWarrior.com
JD – I would love to follow-up with you about this (my email is obviously in my post). Being someone who had great parents at teaching a child (me, and my two siblings) about money has helped me on my way. Being a third generational “middle class” parent (mine is a freshman in college), I have gone through a lot of the same steps. There are a few keys which are simple to cover. 1) Start early by saying NO. 2) Teach them what money is (ie. it pays for stuff, no money = no xyz, do this every so often even if you can afford it, with like McDonald’s). 3) Give them their own money – allowance 4) Show them what money you have, and how it is spent (budgeting). 5) Get them involved with “their” money (college savings, taxes, etc.) 6) Make them responsible for their own purchases (ie. when not on a family event, you want to go to ice skating w/ friends, you pay) 7) Make them responsible for more things over time (car insurance, car repairs) and make them borrow money if necessary.
Those are the basics, but cover all forms of things. Individual topics like debit/credit cards, checking accounts, savings, are had along the way, when the child appears ready to understand.
I’m at this stage now. I have a 6 year old and 7 year old and they start asking for little snacks and treats that they sell at school. I gave them both $5.00 and their own wallets to put their money. Both lost them on different occasions. I told them if they lose the money again that’s it no more! LOL they have kept track of it so far. I have a piggy bank that i keep extra coins and i tell them to be on the lookout or if extended family members give them money to put in our jar to save up for something bigger.
Since i’m a single mom i tell them often we can’t afford that. My ex wanted me not to use those particular words but it’s the truth and i want them to apperciate the things that they do have. You won’t be able to get everything you want but you will be able to get some of those things so take care of it and apperciate it.
Also for this in person money store i would totally love to work there!! LOL i can imagine it now.
As a dad of three under the age of 14, I have started the talk about finances with my children. I make sure I include them on discussion about our family budget, but try and talk to them about money items they are interested in. For example they also like to get ice cream from the ice cream truck during the summer. Each night it would cost $6 for all 3 kids to get ice cream. I explained for the same $6 we could go to the store and get 2 half gallons of ice cream and they could have it every night. They agreed this was a better deal and off to the store we went.
When kids just willy nilly go to college without the consequences of the debt they face, it bothers me. I hope that we can accept kids who don’t go to college more readily so they can enjoy their debt-free existence and perhaps find a career they truly enjoy without the expense of college.
Hi. This was a great article. I don’t know how to drop you a line other than make a comment, but I do have a story about our daughter and money decisions she has made over the years. I would enjoy talking to Ron Lieber.
I remember reading this article on GRS years ago, it stuck with me. Dad bought his son a soda machine and had him run it as a business. Would love do to something similar with my child someday:
http://thestartuptoolkit.com/blog/2011/10/my-dad-taught-me-cashflow-with-a-soda-machine/
Great article J.D.! Teaching kids good financial habits is hard. We are solidly middle class and I struggle with wanting to build in hardships that don’t (really) exist, just so they get it and are not spoiled. “Nope, we can’t afford it” is said often around here. Does that make sense? Does anyone else do that?
My kids deliver a once a week paper. They get $5 a week for it, so we give them no allowance. (Ages 9, 7 & 5) My mother in-law advised me to never pay the kids for chores. As soon as you start asking them to do something *extra* they say “how much will you pay me.” You are part of this family & everybody helps out at home. I don’t get paid for chores either. They get paid $20 a month. $5 goes in savings, the rest they can spend.
They are slowly learning how to save up. My 9 year old has a debit card that he can only use at the ATM. Now he pays attention to the balance! The account is interest bearing, so he sees compound interest in real life. We are working at it. Slowly. I’d LOVE any other advice. 🙂
I grew up thinking my parents were poor because they often said, “We can’t afford it.” It turns out we weren’t poor, but I think I had a large amount of unnecessary shame and anxiety on account of that terminology. For this reason, I think you should reconsider your approach.
Perhaps you can phrase it differently? “That is not in our budget for [insert category].”
That’s what my parents used to say — “that’s not in the budget this month/season/year” or “we already spent our entertainment/clothing/food budget on this instead, so we will have to wait to for that.” It was more of a lesson in setting priorities and planning for things you want.
We did have a few “other families can afford things we can’t” conversations, but they were usually framed by “but we have everything we need”. I don’t think you get that sense of security or dialogue when you simply say “we can’t afford it.”
A financial Americorps should be sent into the schools. I love it.
College students, and kids that are even younger than that, could learn about paying off debt by viewing these slides that are very helpful. Pass this around to the community because it can really make a difference.
Paying off debt can be boring and most kids are just not into learning about it.
That is why this Superhero guide was created. This will teach kids to pay off debt like no other lesson could teach them.
Here is the Superhero pay off debt guide. nomorecreditcards.com/how-to-pay-off-credit-card-debt-fast/
(I recommend enlarging the slides by clicking on the little box at the bottom left of the slides, while flipping though the slides)
Whenever my dad would buy me something as a kid he would tell me how many hours he had to work in order to afford the item. I never really gave it a second thought as a kid but when I got to be 16 and had a job myself I realized just what he was talking about. I’m 27 now and before I buy anything I still think about how many hours I have to put in at work to afford it. Of course this works a lot easier if you work for an hourly wage instead of a yearly salary. Making me aware that somebody had to earn the money to buy me the item was something I didn’t even realize he was teaching me back then but it has definitely stuck with me.
I think kids have to experience life completely on their own before they can really learn financial literacy. For some (most?), that’s going to mean screw ups to varying degrees.
My guess is people who say their parents taught them well are just responsible people anyway. My oldest reminds me a lot of Kristen Wong who writes here. By nature, she’s a very responsible person. We’ve taught her about money and any financial screw ups she makes will likely be small and she’ll learn quickly from them.
My second child is a really good kid with a generous spirit, but not nearly as responsible at this point in his life and that’s ok. I can tell him all about the dangers of credit cards and debt until I’m blue in the face but my guess is until he has a couple of years of running up debt while living the high life he won’t really learn a thing. But if that happens, eventually his credit will get shut off. It is at that point he’ll become financially responsible. He’s a great person and very bright and he’ll get it eventually. I’m not worried – I just think he’s the type who needs to learn through experience.
Saving money and financial management are not moral imperatives, they are practical decisions. Kids are rarely spoiled by simply having material goods. They are spoiled by being the center of their parents lives.
You don’t teach financial management by telling kids about the magic of compound interest. They learn from role modeling and their own experience. Since, most people don’t include their kids in the details of family financial planning, the role modeling they actually see may very well be misleading. So you need to give them opportunities to have their own experiences.
Give your kids an allowance, but make sure there is some specific expenses that they will have to pay for. My parents made us put some of our own money in the collection plate at church every week. But we also had to buy our own candy bars, gum etc. They didn’t use this as a lesson plan, they simply let us live our lives constrained by the amounts we had to spend.
They also opened a savings account for us that money we got as gifts etc could be deposited in. We weren’t told we had to save and it never amounted to much. But it became a way for us to buy things like toys. We quickly learned the difference between money for daily expenses (aka candy) and money that was saved for bigger items (aka toys).
That really demonstrates the problem with making savings a moral imperative instead of a means to a practical end. You make the purpose of saving is to be “a saver” rather than a way to reward yourself with things you otherwise couldn’t afford. Once kids learn the rewards of having money in the bank to buy things they really want, you don’t have to teach them to save. They do it because they want to.
As we got older, it was second nature to want money in the bank. It was second nature to ask “do I really want to buy this?” The power of compound interest has nothing to do with it.
I worry all the time that our kids are spoiled. We are trying more and more to let them use their own money to buy things so that they can develop a better understanding or time/money/rewards.
My parents did this with me, and I think it really helped me to put things into perspective at a young age.
Every time I buy my 2 year old a present we stop by my job. I always tell her we have to stop by work first and get our money for a baby toy. I know this sounds ridiculous, but the idea is to relate work, to presents and toys. You have to work for what you want in life.
My baby crys every morning when I leave for work because she wants to play all day, but I am teaching her that work should be associated with being able to take care of your family, by presents, etc..
Exposing children at a young age to real financial lessons and teaching them is imperative. Sit your son who is in college down with you at the kitchen table and go over real examples of mistakes you made and educate him on best practice credit and debt. For example teach him or her that if they charge too much on their credit card in a month, that they cant afford to pay off at the end of the month, that they will start to carry debt and go over how much that interest can cost them over the year. Show them how much money they can save just by keeping their balance paid off every month, explain to them that with the extra money they can buy …….. (use examples based on stuff they like or can relate too).
These kids need exposure, to be taught lessons and to be financially trained starting at a young age. Their brains need to develop and grow over time. This stuff can not be taught over night.
This day and age most parents could not even teach their child these basics, and if this is the case with you, then it is time for you to take a financial education class.
By the way we love this site. The Golden Financial Services family and employees just starting following the blog posts on this site. We are very picky about the sites we follow. Great job guys!
Sometimes financial literacy with kids can backfire – my middle sister and I used to steal from my youngest sister by trading her “more” money for “less”. So we’d happily give her 10 pennies in exchange for her 1 quarter. I think this went on for a couple months before our parents caught us. She was pretty upset when my parents forced us to return the trade – they were stealing her monies!!
20 years later and she still holds this against me, sheesh! I was just doing what she wanted!
I have two children, a 10 year old and a 2 year old. My greatest fear is that they will be spoiled and grow up to have no money sense. The reason I fear this is because I feel my husband and I can offer them so much compared to what I had as a child. I grew up poor in a family who struggled with managing their money. I remember as a teenager I made myself a promise that my children would not grow up poor and would have better opportunities as they grew up.
Fast forward to today, my husband and I are solidly middle-class. We can afford to get them some things they want, but I struggle with the balance. In my view, since I grew up poor, I feel they are spoiled and have much more than what they need.
The way I’ve managed to balance things out is my oldest gets an allowance and if she wants something she has to pay for it from her money. We get them one awesome gift for their birthday and one for Christmas. Of course they get tons of stuff from family members. I try to teach my oldest about how much life costs and how we don’t pick our friends for what they have but by who they are inside. I also try to teach her compassion of others and how money is just a tool. It’s worked quite well because she is choosy of whom she calls a friend and refuses to hang out with girls who only talk about clothes and the latest Disney tv show.
I guess what I want to convey is that raising a non-spoiled child is hard work and you have to work on it EVERY day. You cannot be passive about it. Communication with your child is key.
As a side note: I’ve been a long time reader, years and years, and I’ve really missed JD’s voice. I’m so happy to see you writing here again. Your posts are always thought provoking. Keep them coming! 🙂
Minerva
I found that giving my children extra chores at a pre-ranged price helped. My children never “got” pocket money. My son sold white mice, popcorn he made himself on the stove top. He also what we called ” bompies” (a little plastic bag filled with juice and then frozen). With his profit he bought an electric popcorn maker. My daughter made dresses and skirts and sold these. My daughter and I ran a stall of a Saturday where we sold our wares. Even I at high school, I cut and styled hair and later made dresses for friends and family. Children learn by doing and by copying what their parents do.
Totally agree with you as to why financial literacy fails and this is not restricted to just for kids but adults too
Most financial literacy fails because it focuses too much on mechanics – how bonds work, the magic of compound interest – and not enough on behavior. While mechanics are key (they’re the foundation, after all), they’re not the most important aspect of financial success.
We in India have started a website to promote financial literacy focussing on answering how to!
My 16 year old son got his first job scanning documents at my office this summer. We set up a checking account complete with a debit card for him and have his paychecks direct deposited. He has tracked his checking account balance with an app on his iPod. He has learned to write checks, calculate and pay his tithes, give to others who don’t have the same means that he has been blessed with, budget, save and say no to spending frivolously. My favorite lesson I have seen him learn was when he was out with friends from church. When they stopped for lunch he bought a $1 soda and waited until he got home to eat so he could eat for free. When he has to track every dime he spends of the money he has earned himself it is much more difficult to part with compared to the money I just give to him. My husband and I are discussing transferring bill money into his account and having him pay the bills (under our supervision of course) so he can get a realistic idea of what it costs to live our lifestyle.
jD, you ought to go talk to the admin of the Youth$ave program at REACH CDC (www.reachcdc.org). It’s an award-winning program that’s been around for a couple decades, and it’s right in your backyard.
It should be required for kids to take a six week financial education class before they can get approved for a college loan. This should be law. I am the CEO of one of the largest debt management companies in America. We are working on a financial education series in regards to this subject. It is time to change the world and I see you guys will be right along with us. Good job guys.
Awesome post! I agree that it is so important to teach kids about money so they don’t get in over their heads. Thanks for the information about the upcoming book from Ron Lieber! I will keep an eye out for that. I also appreciate the resources you provided.
Karla Twomey
Looks like I’m a little late to the party here, but I have a few ideas on teaching teens about money that I’ve shared on my own website. You mentioned that Lieber is looking for people to interview for his book, and I couldn’t find a link for contacting you about my interest. So I thought I’d try it this way.
I’ve been a big proponent of teaching financial stewardship for a very long time, and have only recently felt a burden for teaching teens. I’ve been at a loss as to how to go about it too — maybe if I had a good connection with the local schools, I could work something out. That has yet to be figured out.
Appreciate this article. I would like to be a part of the solution too.