What Are We Teaching Our Kids?

| September 30, 2013 | 0 Comments

I was waiting in line recently and overheard three parents talking.  The first one said, "My kids think money grows on trees".  The second one replied, "I know, they think I'm an ATM.  They don't get it."  Oddly, the third one said, "My horse thinks I'm made of money".  I doubt I can help the third one who apparently has enough extra cash to pamper her horse, but the first two should consider what they are teaching their kids about finances.  Is it the kids' fault they don't understand the value of a dollar?  How are they supposed to learn?  I'll give you a hint; it's not the kids' fault.  Parents are responsible for teaching their children about finances.  That responsibility comes after feeding, sheltering and keeping them safe.

What are we teaching our children about spending?

It's not as simple as sitting them down at the breakfast table and explaining cash flow or supply and demand.  Parents need to lead by example and explain to their children why they decided to buy something and not to buy something else.  Parents shouldn't underestimate their children's ability to grasp concepts.  Teach them early and teach them often and they will learn to control their spending habits.  This doesn't mean you have to share your bank and investment account balances with Junior, but it does mean you should talk real numbers using real examples.  Kids can relate to actual examples better than theory.

Kids don't need to understand how many hours it took for you to make the money to pay for each item.  It's easier to relate it to items they love to buy.  For example, let your daughter know, if you don't buy this random toy three times, that's equal to a new American Girl doll (I use Lego sets with our son).  If she's into dolls, she might understand the benefit of not buying the other toys or at least can take part in the discussion of which one she would rather get, because both are not an option.  Creating the scenarios where kids get to choose between two different options allows them to start to realize that not everything can be theirs whenever they decide they want it.  If a parent consistently buys whatever their child asks for, the child learns that everything is cheap and they can have whatever they want, whenever they want it.  The value of a dollar is lost.

As parents, we make decisions every day on what to buy or not to buy.  Not every one of these decisions needs to involve your kids, but a few, on a regular basis will go a long way in creating a thought process that goes beyond, "I want, so I will buy now".  As children get into their teens, parents need to add in some lessons/examples on credit card interest.  If you regularly carry a balance on your credit card, you can explain that if you buy something else before you pay off the last thing you bought, the new item could cost your double due to the interest payments spread out over time.  If you are too embarrassed to tell your offspring that you have credit card debt, stop spending and start paying it off.  They will find out eventually, so you might as well make a lesson of it before they start repeating your bad habits.

What are we teaching our children about saving?

Aside from avoiding (evil) credit card debt, the beauty of not spending more than you make is the ability to save and invest.  Some parents force their kids to save a portion of their allowance.  That works well for some people, but it doesn't do much without a lesson of why they are saving.  My favorite lesson on money working for you is how fast interest adds up when a penny doubles every day for a month.  It's an exaggerated example, but makes the point in an easy way.  Again, real life examples tend to hit home even better.  Parents can consider sharing some of their personal achievements to make a point.  For example, a parent can point out that they were able to buy their new boat (or car or bike, etc) from interest/capital gains made in their investment account that year.  The lesson isn't that we have so much money, but that because we've saved, we bought this big item with money that we didn't have to go to work for.  It's working for us.  This concept can quickly slide in the wrong direction.  Kids might realize that your accounts are kicking off tens of thousands of dollars each year in "free" money.  The lesson is that because you didn't waste money, because you saved and invested, your money is producing for your now.  If you continue to control spending and invest, you'll be able to buy a lot more the next time.

Parents can drive lessons home by including kids in the rewards of not spending.  If a family vacation is usually to the beach, but next year you plan to go to another country, let them know they can come along (even if you planned to take them anyway) if they can help you save.  Ploys like this can quickly turn into a game for kids.  Every time a child is denied a newly requested toy, the parent can explain that they are that much closer to their trip to the Mediterranean the next year.

What else?

Have I missed some easy examples?  Share with me how you've taught your children the value of a dollar.

Filed Under: Spending


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