How Much Should Your Kids Know About Your Finances?
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Charles Dawley I know of parents who don’t ever discuss money with their kids. “They should be carefree at this age,†they claim. Money isn’t an appropriate topic for family conversation at these homes. But is this a cop-out for preparing kids for real life? And are they missing an opportunity to keep one another accountable to a single goal?
It took me many years for me to figure out that I was raised in a poorer home. I had everything I needed up to the age that I felt entitled to more. Junior high ski trips, basketball games, and county fairs alerted me to the fact that we just didn’t have the extra to spend like other families. My mother sat me down and explained to me how our budget worked – and also the very important lesson of “when we run out, we run out. We can’t buy anything else.†I helped her clip coupons, look for sales, and tried not to beg for stuff in the checkout aisle. I was nine at the time.
I now have my own 9-year-old (and a gaggle of toddlers), who come to me begging for everything under the sun. I have taken the time to explain the concepts of saving, spending, sharing, and investing. We have modest allowances for them. I let them clip coupons with me. But I have never, ever given them reason to worry.
Sharing finances with kids is a fine, scary line. In my opinion, it can’t be done too soon. Here are a few acceptable ways to keep kids in the loop, without giving them nightmares:
Give them an allowance. So many parents choose not to do this, and while I understand where they are coming from, I see benefits from it that I had never imagined. Holding a fistful of their own dollars gives you a way to communicate that just talking about it won’t provide. ( I have discussed the allowance practice in detail over at Parenting Squad.)
Help them to manage their own money. Today is a great time to teach about finance. There are more tools than you can shake a stick at, and most of them are very, very good. Even a laid-back parent, such as myself, can find the right program for the younger and older child alike.
Share your situation – in a general way. It’s OK to tell Tommy or Susie that there isn’t enough money this month for a new pair of Heelies or for the latest Wii game. It is also admirable to tell your kids, “Daddy or Mommy has to work 4 hours to make the money for dinner at Chuck E. Cheese. Would it be OK if we do something that costs less?†I’m not asking you to guilt your children by making them choose. I’m suggesting that you help them to understand where money comes from, the sacrifice that earning entails, and keep them balanced with their focus. Certainly there are parents that could take this to the extreme, asking kids if they want Daddy to work for their food, but that is ridiculous (and not at all what I’m detailing.)
Give them some credit. Kids are not stupid (about most things, anyway.) If you’ve been home looking through the Monster.com job listings for the past month, your kids probably know that you aren’t working. (The details are none of their concern, however.) If bill collectors are constantly calling your house, leaving messages, or sending bills, older children will take notice. Be as honest as you can about things without burdening them further. Use the situation as an opportunity to share what consequences are.
Give them opportunities to help. You don’t have to wait until you’re cash-strapped to enlist the assistance of the kids. Small things that will make them feel like they're helping include: letting them plan inexpensive meals, giving them coupons to cut, and taking them shopping. Just like adults, children feel less anxiety over a situation when there is something they can do. If you are in a situation where money is tight – and it’s obvious – kids can do well by lending a hand to the family cause.
Keep the lines of communication going (both ways.) Encourage kids to ask questions about money and the family budget. Regularly engage them in dialogue about money and what types of things are important for your family. Remember that each family will be unique in the priorities that they set, so don’t assume that they are learning this from their friends or teachers.
By not hiding money matters, you are equipping them to deal with the future. By doing it gently, and with age-appropriate experiences, they can learn to feel capable of managing money. Most kids will start to wonder why you are watering-down the milk, anyway. Wouldn’t you like them to learn something from it?
(For another great discussion from the other side of things, check out Sarah Winfrey’s excellent article, Mom and Dad, Your Financial Decisions Matter.)
Tagged: Personal Finance, Consumer Affairs, Family, General Tips, Lifestyle, finances, kids, money, parents
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To this day (where I am a college graduate, employed, married, and own my own home), I do not know what income bracket my parents are in, or what savings they have.
I do know that it was high enough that they told me not to fill out college aid applications, as I would not be eligible. I also know that as a child, we canceled our cable t.v. because finances were getting tight, as well as frequently being told things (like vacations) were too expensive.
From this, I assume that they are well off, and became that way largely through methods like those found here.
My father works in the finance industry, and we do talk about money more than most families: pay off your credit cards but don't be afraid of them, max out your 401k, save and pay cash rather than financing purchases if at all possible. But we never, never talk amounts.
Is this a good policy? I don't know. I believe I developed a relatively healthy attitude about managing my own money. On the other hand, it seems awfully awkward and secretive. I doubt knowing concrete figures now would make a difference. Would it have changed my attitude for the worse as a child? I don't know.
I do think that the actions and examples speak louder than any targeted conversation.
I know that we can't ever really credit any one behavior of our parents for our attitude towards finance. I'm glad that you shared your personal experience, because it shows that communication and openess are valued above hard numbers type info. It sounds like you have a healthy grasp on finance in general.
I appreciate the comment!
My father used to share his 'general situation' with us; namely, that we were poor and had no money.
As early as 4, 5, and 6, I felt the weight of responsibility for our family finances. And I felt extremely guilty.
I didn't tell him about field trips, year books, or anything 'frivolous'. (It wasn't until I could start buying my own that I had any.)
When I was old enough, I got a job and gave him every one of my paychecks to hlep out. Now that I am an adult, I am middle class; I own a home, have some debt, pay my bills responsibly, etc.
Where is he? LIVING AT HOME WITH MY GRANDMOTHER and living off her social security and retirement monies.
The point? Kids are more sensitive than you realize about money.
My parents were secretive about money not only with us kids but with each other, too! When my dad passed away, a woman gave my mother $10,000 cash and thanked her for my dad's generosity in loaning that to her husband. My mom had no idea. That was the norm, not the exception. Lots of money secrets and intentional misrepresentations.
Ever since I can remember, they told us kids that there was never enough money for whatever we asked for, but they always dragged the whole family to Vegas several times a year, where Dad lost thousands at the blackjack tables and Mom lost at least a thousand in the slots.
Since my parents fought so much about money and seemed to worship it, I became repelled by the love of or desire for money. I still wanted all the things that money could buy but I made the unhealthy disconnect between money and things. I wrongly assumed that if I just got a high-enough-paying professional career, I could easily pay for everything I charged. $120,000 of debt later, I realized I'd better learn about personal finance and slowly dig myself out of that quicksand. Which, thankfully, I did by finally finding a dream worth pursuing (writing through blogging!) and then deciding to become as frugal as possible to support myself exclusively through my writings someday, however humble that income might be.
If I have kids, I will definitely explain personal finance to them as soon as they can understand my words. I would teach it along with safety tips, good hygiene, and good manners. Thanks for the great post!
I started giving my daughter an allowance when she was 3 years old. One of the main reasons was to make my life easier -- I didn't have to decide to indulge or deny her when she wanted this thing or that. I would tell her that she could buy what she wanted, but that she had to use her own money (and there were no advances). Of course, I kept track of it for her at first. When she wanted candy, sure she could buy it (it went into her candy basket to be doled out as dessert). When she wanted a toy (and it wasn't Christmas or birthday) she was welcome to purchase it after she had saved up. The begging stopped almost immediately, because I had a consistent answer! (She also has to put a set amount of her allowance away for long-term savings and for charity). Now, at 11, she always keeps $100 in ready cash, just because it feels good. She also offers to pay for things for our family (like movie rentals) which shows she understands that we are all in this together.
I agree. Parents should teach their childeren about money that is how they learn. They should also talk to them about what they did right and wrong with money.
This way the kids can learn from the parents and hopefully have better lives.
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I can identify with some of the other posts. It was very clear to myself and my sister that we were poor growing up, but it was also very clear that our father's needs were more important then many other things. We would be told that we couldn't have certain things "because we can't afford it", but we were also the first family on the block to have whatever the latest technical gadget was. All while bills went unpaid. This is something I was aware of at a very young age.
I love my parents and for the most part they were good parents, they were, however, terrible with money. Thankfully, I was able to see this. Although, my husband and I are by no means perfect with our money, we are both aware of problem areas and we actively seek to improve our habits.
I do think it is important to be honest with your children about finances (within reason of course), but I also feel you should back that up by being a good example.
Great article! It really struck a cord with me because my parents did most of these things, and my siblings and I are better off for it.
Perhaps it's not the "in" thing to do, but the best thing my parents did was say no. My siblings and I were given an allowance (and expected to do chores). Anything we wanted beyond the basic clothing, school supplies and other necessities we had to save up for and buy with our allowance (and later our income from paper routes, babysitting, part time jobs, etc. -- AFTER a certain percentage of our earnings went towards our college funds). My parents would treat us to things, but usually unasked and never if begged (my youngest sibling tried that tactic a lot because his friends were so successful at it with their parents).
The overall message was that we couldn't have everything. We had to think about what we really wanted. Looking back as an adult, I understand that we were learning to live within our means. Overall, I learned that money and things don't make you a better person, and it's okay to do without. I worry that many children today aren't getting that message.
We are very honest with our kids about our finances. Our two oldest are only 9 and 6, but they know a credit card is not infinite, imaginary money to spend. It's easier for me to illustrate how we operate in examples--
My oldest (daughter) has gone away to summer camp for one week each summer since she was 7. This year, she announced she wanted to go for two weeks, which at over $500, is more than we'd care to spend on one kid's vacation time. We told her she would need to be responsible for the second week- and that if she followed thru with applying for a grant at our church, that would likely cover the money. She did follow thru with it- and even had to present her case to the church endowment board- and she got her money. Similarly, she wanted to go to Girl Scout camp for a week with some of her troop mates. We did the math at cookie time and she knew how many boxes of cookies she would have to sell to go. In the end, she was only about $15 shy of earning her way- the grandparents kicked in the remaining amount. While I will miss her like crazy this summer, she earned her vacations! Big time! And I certainly can understand her wanting to have more time with friends her age rather than being big sister(to sibs ages 6, 3, and 1) all summer long- she needs her fun! We also herald her endeavors to anyone who will listen, and make sure to let her know how proud we are of her for earning her own way.
My 6 year old was given options for sleepaway camp or day camp, if he wanted. He decided he would rather try a day camp- so he will have 2 weeks at a day camp program- costing a little less than the one week of sleepaway camp. The bus picks him up in the morning and brings him home before dinnertime.
We are not fans of allowances because the moment they started, the kids saw every action or chore as something they wanted to be paid for. We kept it going for a few months, but it was very annoying to us parents, being nickled and dimed over every chore and favor. It was also difficult to try and determine what would be their responsibility for spending the money on- so it just ended up being either squirreled away or spent on junk. We took allowance away just before spring and it *might* come back in the fall- once we get a better handle on how to operate it in a more feasible manner.
I actually had a conversation with my 14year old last night. We have a neighbor who is losing his house to foreclosure. I have recently been shopping at Aldi because the milk is a $1 cheaper per gallon, and I have discussed food budgets with her. She is a natural worrier and asked Dad if we were doing okay financially. He said yes, but I believed she deserved more. At her age I knew that we were on welfare, that we got food from the food shelf regularly and I worried every time we went to the store that my parents wouldn't have enough to buy the things we needed. My brothers and I contributed babysitting and newspaper delivery money to the grocery bill. To this day, I worry every time I go to the store with them. They have no financial sense.
So I sat her down, explained the housing bubble, crazy mortgage programs and credit card debt. Then, I explained our situation, 30 year fixed mortgage on a house well within our budget, emergency savings, vacation savings, retirement savings and college fund. I explained that by putting aside money for these things first, I insure that we don't go into debt, are able to have nice vacations, summer camps, etc. We live on a budget so that we are able to save and not have to worry too much about rising prices.
I think she slept more soundly after that and understands that when we say something isn't in the budget, it's not because we are "poor" but that we try to manage our money smartly.
Your daughter sounds a lot like my 9 year old, Edgertonsc.
I pointed out many of the things you identified in past discussions with my daughter too. She once freaked out when she overheard me discussing the credit card bills after the holidays with my hubby- and she was very worried about us losing our home. I had to explain to her how we do live within our means- but we needed to get back on track after some extra purchases during the holidays.
I remember when I was a kid, my father seemed like the owner of his company. He worked so hard that I thought he was making tons of money. I didn't realize that he wasn't making as much or nearly close to as much as I had once thought.
In fact I lived a fairly simple life. As a kid I had everything I needed. I would play out back I had a tree I climbed, played baseball with my friends and I was involved in recreational activities. I remember the first time that I realized we didn't have the money I once thought. It was Christmas and I had asked for my first electronic gaming system, which at that time it seemed like everyone in my neighborhood had one. When Christmas rolled around and I didn't get my gift I was depressed. I was young and naive and asked my parents about it and they said they were unable to get it, but if I saved my money up I could buy one for myself. It was from that point on that I began saving money. In fact a couple of years later I started my own company numbering curbs in my neighborhood.
I think it is kind of funny how vivid this memory plays out in my head. I hope my kids learn the value of money the same way I did.
When I was a kid I got an allowance, but it was always as credit. I never had cash in my hand, unless I pestered my parents to give it to me, and I was never really sure how much I had available to me. We would go to the toy store to cash out my allowance in the form of Barbie's or whatever else I wanted. I really don't think it was the best way for me to learn about money.
I have found, as an adult, that paying for things with cash that I've worked hard for and saved, is a lot different than paying for things with credit. I really wish that my parents had allowed me to discover this on my own at an earlier age. I also wish that they had encouraged me to open a savings account and deposit money in it.
These are all things that I plan on doing differently when I have children of my own.
Linsey, I knew I shouldn't have let my kids have my ATM card and PIN. I couldn't figure out where all my money was going.
BTW, great insights on your post. While everyone has their own opinion and everyone does it differently, I think teaching kids to understand money is not a bad thing. It doesn't mean they have to grasp the difficulties and hardships that come with making a living, but sometimes children are just too out of touch with the real world.
Besides, when you're dealing with money, there is always a good home-school math problem to be found.
Lindsey - I really enjoyed your article, and agee with you on many points. This is a big concern of ours, too, as homeschooling parents.
I too grew up in the dark about my parents' financial situation, and in retrospect, I think they really were children themselves trying to deal with money. They had no good role models, until much later in life when my grandmother began a restaurant with a partner. Knowing what I know, I think the partner is probably why the place did so well financially, not my grandmother.
However, the emphasis in my home was on the APPEARANCE of wealth and money on expensive clothes, haircuts and always going out to eat (and taking friends out to eat versus cooking for them) all fed my idea that we were pretty well off, until my teens. Imagine my surprise at 14 when we had moved and the $350 long distance phone bill (from calling friends back home) came the same day (a week before Christmas) as my dad was laid off from his job (in a one-income family), AND we'd just purchased a house.
I wanted video games and expensive clothes that Christmas, but I received a typewriter and instructions to PLEASE pay mom and dad back as soon as possible. In retrospect, I think was one of the best things that could have happened, given my age. I was finally old enough to understand the debt AND earn money....I began to babysit and houseclean like mad for everyone in the neighborhood- including after school care and weekends, and by Spring break three or four months later, I had paid my parents back AND earned enough for a plane ticket to go see my friends back home (that I had spent so much money calling) and still had $150 or so dollars in spending money for my one week trip! I had finally taken responsibility, and our little "crisis" probably led my parents to be much more responsible fiscally with my younger brother, who was encouraged to work and earn money at a much younger age than I for the "extras".
Now with three kids ages 15, 14, and 11, (who all homeschool) our finances are usually pretty tight with one basic income and then our part time farming. They have learned from my earlier mistakes- they used to get an allowance, and then that morphed into credit for anything that went over our monthly budget for classes for them.
There did begin to be a fair amount of nickel and diming, so now there are just basic (unpayable) chores, occasional bonuses (like concert tickets or a pool mmebership) and they earn their own money through writing, designing cover art, babysitting, mother's helping, and selling items they make (like jewelry and bags) at the farmers market. We occasinally give advances for some items- but not for things like candy or consumables.
And at the end of our growing season, we figure costs, and profit and pay them a portion of the profit based upon how many hours they worked for the farm business. Last year, it was a very minimal amount since it was our first year, but they are all invested in it ,so it is more now like a co-op (everyone is paid the same amount per hour) than a business supported by low-wage earners.
I think some times they might know a little too much about our finances and get worried (people rarely get rich from farming) but generally when I ask what they want for birthdays and other gift occasions, they say they want a few small things, but also state that they have all that they need. They all save (some btter than others) and occasionally, they will buy something big like a mandolin, or computer or a lamb with those savings after careful research and consideration.
So, I am really hoping we are on the right track with them! Viva homeschooling math:)
My children are currently 14 and 18 and have both received allowance since they were 5. I could claim that this was a brilliant plan on my part to impart financial prowess to them at an early age, but in fact it was a response to my son’s incessant desire for more and more Thomas the Train items. We just figured it was easier to give a quarter for each year of life and let him save for the trains rather than his constantly asking us for a new one each time we went to the mall.
In his case it was a huge success. It took 5 weeks for him to save up and he only ever wanted to go to the mall once every 5 weeks. He was never in doubt as to what he wanted to do with his allowance, only which train to buy each time.
When he turned 6 we switched to a dollar per year of life, but now the money had to be divided up into three equal buckets. One third for saving for university, one third for charity which was for our local church, and one third for spending which at that time meant Thomas the Train. We have kept with that dollar per year of life ever since.
His 14 year old sister has gone through a similar allowance process. In both cases we have emphasized that they each have chores that must be done. There used to be lists on the fridge that had to be checked off, but now everyone knows their chores and that they are not paid by chore, but that chores must be done.
Several years ago at Christmas my daughter was very disappointed that she did not have the money she had hoped for to buy presents for her older brother and for my wife and myself. I casually suggested that if she saved a dollar a week, she would have $52 for Christmas next year. The following week when I doled out the allowance she had a new tin for her money. I asked what it was for and she proudly announced that it was for next Christmas. Even since then she has faithfully put that dollar a week aside, and recently she has even topped it up with a percentage of the birthday cash that comes her way. (As she is a June baby, I am impressed that she could look that far ahead and realize that money saved now will be useful 6 months away.)
My parents’ attitude about money and their willingness to discuss things in detail as my brother and I got older was a real help. My wife and I try to include our children in our discussions about money. When they were younger it was mostly about letting them know how expensive things were that they could relate to. One of the first things I remember costing out for them in detail was our vacations.
We took a number of significant vacations, starting when they were ages 7 and 11. That year we went to France for 3 weeks. I was unemployed by the time we went, but we had saved and so we went in any case. They were both young enough to miss the irony of our taking a $9,000 vacation while one of the key earners was unemployed. Fortunately my wife had a good job and we were careful with my severance pay so that we were able to take the vacation despite the change in financial circumstances.
I took my daughter out to do some errands today and on the way home she was talking about that vacation to France even though it was 7 years ago and she was only 7 at the time. I have come to think that while vacations are important, the real value is that we talk about what happened and hence vacations become part of our family culture – they are part of the bond that we share as a family; good stories and even silly stories.
Every vacation since then has been discussed with them in some detail from a financial aspect. It has become a bit of a touchstone for the relative worth of things. They now know that my most recent car cost about a vacation and a half. They know that our recent new roof for the house cost almost two vacations. That is a hard thing for young people to learn; the relative value of things, that is just so obvious to adults.
In closing, give your kids allowance, discuss money openly and add more detail as time passes. My parents did it with my brother and I and we have both been very successful in managing our finances. My son had his first job last summer and saved every single penny for university so I am fairly confident that it is working with my children too.
Thanks for sharing! Your details are helpful, and it's great to see real-life examples bringing about positive attitudes in your family!
Linsey
I'd add to your list, teach your children how to give money as well- both by instruction and example. This was a lesson I didn't learn until I was an adult, but when I learned how to give I also learned how not to live in a mentality of scarcity, which is the biggest value to planned giving- no matter your income level.
Thanks for the great list!
-Suz