In my opinion, one of the most important classes that high schools offer is Personal Finance. It’s the course that teaches kids about the basics of not ruining your life as a young adult.
Kids learn many of their habits in their formative years between the ages of 4 and 7. That doesn’t mean they stop learning after that, but it’s interesting how much that impacts what they do later in life.
Here are my experiences, and 6 ways to teach your kids about finances.
Different Outlooks on Money
Attitudes about finances are mostly learned from the parents. My husband and I have very different attitudes about finances.
Me: As an accountant, I budget, save, invest, stay out of debt, and spend money only when I have it. I believe in paying cash for slightly used vehicles, rather than financing them. I believe in maximizing my retirement contributions. I believe in making additional payments on my mortgage to save hundreds of thousands in interest. I believe in never carrying balances on credit cards and paying off the balance each month. I believe in well planned and infrequent travel and investing in assets for recreation, such as our cabin.
My husband: He is probably like most people and isn’t irresponsible with money, but he does believe that financing a vehicle is fine and expected. He also believes that if he can afford a payment on extras like an expensive computer, a motorcycle, etc., he can afford to buy it. He believes in putting away a good amount in retirement, but not necessarily maximizing it if there isn’t enough excess after debit payments. He believes that making the minimum payment on our mortgage is fine and expected. Again, he is probably where most people are with their personal finances.
We are a blended family and so to add to the mix, my husband’s ex-wife (and a dear friend of mine) has admitted her struggles with debt and managing money and although she has become better with managing money later in life, the kids have witnessed her struggles as they have grown up too.
As you can see, we all have different approaches to personal finance and without getting into details, it’s interesting to see how our approaches have affected the kids.
Teaching Our Kids About Finances
I grew up in a very poor household and always wanted to teach my kids how to avoid poverty. As a single mother, my kids were taught to always work hard to contribute to the household by doing chores and earning money when they could. I encouraged them to pay tithing to the church. I bought them play checkbooks to write me checks for things and keep their own balance. I got them low balance credit cards when they were 10 years old and taught them how to use them. I taught them how to use gift cards and keep track of their balances. I put money in investment accounts and talked to them about their investments. I talked to them about money and let them know when we couldn’t afford to do things and explained why. When they earned money from their investment accounts and had to file tax returns, I showed it to them and had them sign their returns. It was so cute when my daughter wrote her name with hearts and flowers! I remember discussing the difference between renting and buying a house as they got older. I talked to them about how expensive debt was and why they never want to have debt. I really didn’t hold anything back on my knowledge of personal finance. I always treated them like they were capable of understanding it and they often had really good questions for me.
After marrying my husband, I worked at teaching many of these same principles to the rest of our kids. I helped the youngest buy her Starbucks cake pops from a gift card that was hers, rather than just purchasing it when I would go in for my drink. We worked with our teenagers on financing their vehicles and explained the important of paying extra payments to pay them off early to avoid paying interest. I worked with them on budgeting and staying out of debt.
As our kids have grown, I’ve also learned that even though principles are taught and experiences are shared, many kids just need to experience their own mistakes to learn valuable lessons. Some personalities are just not interested in learning from others’ experiences or expertise. It can be difficult as a parent to allow them to learn from their own mistakes, but there are times that there is no better way for them to learn.
All of this brings me to:
6 Ways to Teach Your Kids About Finances
- Start them really young (no later than 5). Get them a gift card to spend from, help them learn to calculate what they are spending with cash.
- As they get older, set up checking accounts with debit cards and ensure that they reject payments from debit cards when the money is out. We tried connecting their accounts to our credit cards to make sure they didn’t get charged fees, but it was a disaster and didn’t teach them to stop spending. It’s okay for all their money to disappear from overdraft charges. It’s a great lesson. Credit cards may or may not be a good idea depending on the personality of the kids. This has gone really well with some kids and creating a lot of debt owed to us by other kids.
- Talk about money with them their whole lives. I don’t know how discussing finances became something that parents thought was too stressful for their kids to hear, but how will they learn? Sit them down and talk to them about your household finances. Let them know if there is a deficit in your household and talk to them about ways to save money and stick to a budget. As they get older, help them create a budget, reconcile their checking account, save for something they really want, etc., they will come to understand that it isn’t about how much money you make, but how much money you spend that makes the difference.
- Be consistent. Try to create a united front with your spouse on what things you want to teach them about handling their money. My husband and I struggle with this and I can see the negative affects it has had on some of our kids. Sometimes, what we want for our kids is detrimental to their life lessons. This issue also continues to be a stressful topic in our marriage. If you are the stepparent, you may have to let it go to keep your marriage happy and see what you can do in more of a life coach capacity.
- If they don’t have enough money to get what they want, give them opportunities to earn money by doing extra jobs around the house. If you cover the difference for them or loan it to them what are you teaching them about debt or buying things that they can’t afford?
- Let your kids learn from their mistakes. Talk to them, without scolding them, about their consequences, but let them experience them. There is no better teacher than experience. If they spend all of their money and don’t have gas to drive to school, they can take the bus or get a ride. I guarantee you that they will set money aside for fuel the next time they get paid! If they buy a car they can’t afford, let it get repossessed! It might sound harsh, but how else will they learn? As an aside, my husband would NEVER let that happen to one of his kids! However, see number 4. We are still figuring out our own differences on the subject.
Even if you feel like I’m more extreme on this topic than I need to be, I hope I’ve given you some great ideas on what you can teach your kids to help them with personal finance and help them avoid trouble in the future!
My last suggestion!
Whatever you do, ask yourself what the kids will learn from your examples and messaging before you respond to them or offer guidance. It might change your decisions! Good luck and feel free to offer other great ideas below!
I hope my blog post gave you some good tips, if you’re interested, check out another post of mine on key elements for creating healthy boundaries!