Teaching Kids About Money: Leading By Example
Posted by jefferson on Sep 27, 2012 in Parenting | 53 comments
I recently participated in a Wisebread Twitter Chat where the topic of discussion was “teaching kids about money.” Several folks in the chat advocated sheltering their children from their financial struggles to avoid causing them to worry or burden them with issues that are not their fault. Instead, Michelle and I have always been fairly transparent with our kids about money. In fact, when we started on the journey out of debt earlier this year, we called a family meeting and gathered everyone around the kitchen table to discuss the situation.
We qualified the meeting by reminding the kids that financially speaking, our family is much better off than many folks out there. We assured them that they would not ever have to go hungry or be without clothes or school supplies. They would also still be able to participate in their activities; swimming, soccer, baseball, and Cub Scouts. There would be some sacrifices that we would make as a family, but our priorities (which the focus on them) would not be altered. We went on to break the news that we wouldn’t be taking a family vacation this year and we wouldn’t be making any major purchases until our debt was paid off. We also would be eating at home almost every night (our preference regardless), and we would be making an effort to find free forms of entertainment on the weekends whenever possible. In the end, we also assured them that their mom and dad had a plan forward that we were committed to, and that brighter days were ahead.
The main reason that we decided to bring our children into the loop, is because we want our kids to be intelligent with their own finances when they get older. They need to understand that it is okay to want for things, but that you have to be willing to work for what you want, and sometimes this requires you to be patient. Kids learn many things by watching their parents, and when they observe the way that we handle money, it will be critical to forming their own relationships with money as they get older. As parents, it is essential for us to model the behavior that we want our kids to emulate in the future. By teaching the kids about money now, we help show them that burying themselves with debt is not a path that they want to take.
As parents, we do a number of things to try to teach our children about money:
- We opened savings accounts for each of them, to hold their birthday money and any other funds that they get through chores or achievements. This helps to teach them the value of saving for something that you want.
- We regularly give them opportunities to do “jobs” around the house or in the yard, to earn extra money to purchase things that they want. The harder the job, the more it is worth. This teaches them the value of hard work.
- Outside of holidays, we try not to purchase toys and sweets for our kids, instead letting them know that they have their own money that they are welcome to use, if they really want it. This forces them to make purchasing decisions based on priorities, and teaches them that money is a limited resource, while also teaching them that treats aren’t a necessity.
We believe that all of these methods are effective ways to teach our children about money, but leading by example is the most important. ”Do As I Say, Not As I Do” has never been an effective way to be role model. If kids see their parents spending frivelously on things they don’t need, then chances are good that they will repeat the same behavior. Much the same as when children of alcoholics or smokers are more likely to end up with the same addictions as their parents, children of debtors often fall into the same destructive patterns.
You see, one of my goals as a parent is to show my children that money cannot buy happiness. I want them to understand that true happiness comes from love, companionship, and connecting with others– not from a new pair of shoes or an LED television. The joy that you feel when you purchase something new is real, but it passes quickly. Meanwhile, the trouble that it causes you down the road when you find yourself crippled with a credit card bill that you cannot afford to pay, will cause frustration far outweighing the initial fleeting happiness that the new toy provided.
So far as I can tell, my children are on board with our plan to get our finances in order. Next year, when our debt is paid off, we have a number of financial goals that we are hoping to tackle as a family. With the extra money factored into our budget, we plan to: start getting serious about our retirement, increase funding to our children’s 529 college savings plans, and to start saving up for a vacation. Next summer, we plan to pay for a vacation with only cash (no credit) for the first time in our lives, and there is no doubt that it well be so much sweeter because of it.
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These are great ways to include children in your financial decisions. Not surprisingly, the whole reason we are waiting a while to have kids is BECAUSE of finances.
I hope to teach them to be entrepreneurial as well, since that is something that was totally lacking when I was growing up.
DC @ Young Adult Money recently posted..Ways to Save on “Everyday Use” Items
There is an old saying that says if you wait until you can afford it, then you will never have kids, but I understand where you are coming from, DC. You should at least try to find yourself in a position where you can handle all of the baby expenses (and there are a ton of them)..
I have heard that saying
We both are on the same page about waiting 7+ years before having kids. My wife for sure has to at least get a masters if not a phd, I may go to grad school, and we are just focused on other things for the time being.
DC @ Young Adult Money recently posted..Ways to Save on “Everyday Use” Items
I think that is great that you guys are making sure that both of you get a your education solidified before jumping into family life. Even if one of you ends up staying home with the kids, you will always have your education to fall back on when you decide to return to the workforce.
I like the strategy of teaching kids–and showing by example–that having fun and being happy are unrelated to spending big money. Though my family surely enjoyed a big (and costly) vacation ‘out west,’ some of our best holidays have been at nearby campgrounds, festivals, etc. or days spent with local friends. Not sure it’s really worth the extra money to be able to post on Facebook yet another photo of Old Faithful?
Kurt @ Money Counselor recently posted..Invest in You!
This is very true.. While we haven’t taken any vacations this year, but we still have had a bunch of good times here in town with the free entertainment. We have plenty of photos of smiling kids, I swear
Teaching our children early is extremely important. No matter what it is in life they are going to follow your lead. Just by teaching them the small things like saving their allowance and living below their means will end up going a long ways down the road in their lives.
Sean @ One Smart Dollar recently posted..Life Insurance Has Lasting Effects Well After We’re Gone
Absolutely.. Well said, Sean. Kids will follow your lead, so where you choose to lead them is entirely up to you.
I couldn’t agree with you more. It is so important, all too often parents want to shelter/protect/whatever their child from their own problems which creates a huge disconnect in the family unit. My husband grew up in a house like this, never discussing money or health issues-both of which can lead to serious problems if NOT talked about. I’m hoping we don’t do this with our daughter.
mrsplungedindebt recently posted..How We Eat On $300.00/month- My Meal Planning Guide
Yes.. That really isn’t our style. Good time and bad, our family is all in together.
I think it is far better to let your kids in on it. As long as you frame it in a positive light, it won’t cause kids worry as they get older. I think I would have really benefitted from seeing my parents pay down some debt and budget. I would have LOVED to start budgeting earlier.
Gillian @ Money After Graduation recently posted..When maxing out your RRSP contributions is the wrong choice
My parents did involve us somewhat, Gillian, by letting us earn an allowance. But I was completely in the dark about their financial situation. We certainly didn’t “live large” when I was a kid, but I didn’t hear much either way.
I feel the same was as you do! I feel it is my job to help teach my kids the importance of money.
My kids both have a College Savings 529 and I show my 3 year old her balance every month. She doesn’t understand 100% but she knows that her birthday and Christmas money goes in there…and she knows that mom and dad contribute to it monthly.
She also earns money by doing chores…not a lot but I think she is starting to understand somewhat. I hope that I am teaching her to work hard and save.
Holly@ClubThrifty recently posted..Why Being Out of Style is Cool
Wow, Holly! You guys are starting early! Of course, we have a savings account for our 14 month old, as well. I think its awesome that you guys plan to bring your kids into the budgeting process and already are getting them excited about saving at such an early age.
Great points. I completely agree on bringing your kids in on finances. I know that my parents never really did that and I had to learn about finances the hard way. I hope to take what I’ve learned and pass it on to them to help better set them up for life.
John S @ Frugal Rules recently posted..Are Credit Cards Really That Bad?
One of my goals as a parent is to avoid forcing my kids to learn “the hard way” whenever possible.. I want to pave the road for them. (while it is still up to them to traverse that road)
I don’t think kids really stress about money like adults do. So I really don’t see any harm in keeping them in the loop about the family’s finances. If anything it would help them understand why the sacrifices have to be made. With any luck they will keep that lesson with them for their lives and later be willing to follow the same path if necessary. When I was young my family didn’t have much money and my parents made that pretty clear. As a result I wouldn’t be whining about wanting this or that. Plus it made me appreciate money more and understand that if I want something I have to be willing to work towards it.
Modest Money recently posted..Professional Indemnity Insurance
My kids really don’t know what it is like to struggle.. They have never truly felt hunger, or had any real hardship. The sacrifices that we are making are really minimal in the grand scheme of things.. But all the same, it is good for them to see and understand, no doubt.
I wholeheartedly agree with your approach Jefferson. I think part of the reason people end up being bad with money is because no one ever taught them to be financially responsible.
Mackenzie recently posted..Potato Cheddar Chowder
You are right, Mackenzie.. There is virtually no program at all for financial literacy within our school systems, so the onus is on us parents.
That vacation is going to be awesome even if it is less extravagant than your past vacations.
I think what you are doing with your kids is great. They don’t need to know all of the details but at least they know it happens.
Lance @ Money Life and More recently posted..What Would You Do? Pay Off Higher Interest Rate or Variable Rate Loans First?
We don’t give them all the gory details, Lance.. Don’t worry.
And you are right.. We don’t know where we are going yet, but there will most certainly be a beach involved.. Our little one LOVES beings outside and LOVES the water.. She will have the time of her life splashing in the waves, no doubt.
I want to do the same family meeting down the road when we have kids. It’s great to hear about a real-life example of what it looks like to bring kids on board with your finances. My parents had little tupperware containers labeled spend, give, and save but they didn’t last long. It’s got to be challenging to lead by example but it sounds like you guys are on the right track!
Jessica @ Budget for Health recently posted..Make a photo book online with Blurb- FREE GIVEAWAY!
I like the ideas of “spend, give, save” jars.. and we have tried something similar.. but it never last a very long time, for whatever reason. We have had much better luck with savings accounts.
One of the thoughts that goes through my head is that I wonder if I had known how poor off we were, if I would have done better. Granted I knew the basics but nothing else. When I have children, I want to pull them into family meetings because it does effect them. I don’t want them to make the same mistakes that I made.
Bobbie @ Bogofdebt recently posted..How learning to manage my finances has helped my health out
By.. “if you would have done better”, do you mean, behave better as a child? I don’t think that my kids necessarily behave better.. but it does give them some idea of how to react when they hear all of their friends at school discuss expensive new toys like cell phones and iPads, or extravagant vacations…
I definitely think that you are making the right decision involving your kids in the money discussion. If you explain it correctly, and do what you did- tell them they never have to worry about the necessities- it is important o show them the value of money and why they should avoid debt. I always wish there was more of an open discussion about money as I grew up, I think I would have a better understanding about a lot of things if it had been different.
Kelly@Financial-Lessons recently posted..7 Location-Independent Careers
I don’t think that I was properly aware of the consequences of going into debt entering adulthood.. I just thought of credit cards as a means to get what you want quicker.. It never occurred to me that the payments and interests would severely handicap my ability to budget down the road.
I agree with all the points you made on why you share your finances with your children. When we finally decide to have children I would like to do the same thing that you are doing. Setting responsible financial values and showing them that money isn’t everything.
Stan @ DebtsnTaxes recently posted..You Got Fired, What’s Your First Step?
It is the last part in your comment that is the hard part, Stan. Kids get messages from all around society that tell them that more money and more gadgets are the way to happiness. As a parent, you have to find a way to combat that feeling.
I’m expecting our first child in January and I want to make sure that when our child is old enough to understand that we do the same thing as you are doing.
I think it’s as important a part of your education growing up as any other thing you learn. I also believe schools should put more focus on financial understanding than they currently do.
Glen @ Monster Piggy Bank recently posted..Keeping up with the Joneses on the iPhone
Congrats on your new arrival, Glen! Parenting is the most wonderful journey that you will ever take!! Thanks for stopping by.
That’s great that you explained everything to your kids so that they wouldn’t feel neglected, but rather understand the why behind certain cut backs and see the bigger picture. The earlier kids learn the better! My parents also were pretty open with me on finances and they gave me an allowance w/the price based on the difficulty of the job – these things all really helped me in adulthood!
Shannon-ReadyForZero recently posted..Confessions of a Former Shopaholic: How I Broke My Spending Habits by Moving to the Big City
Awesome, Shannon.. It is great that your parents clued you in and gave you some tips on how to handle your finances in the future.. I definitely think that our kids are building a nice foundation of their own.
That’s a great advice. I think, a parent should be responsible enough to teach their kids the importance of money, and practicing them how to start saving money.
I know they will understand that and maybe soon, they will be a responsible money holder.
Melly Schug recently posted..Brisbane – Just a Great Place To Live
As a society.. There are so many people out there that are NOT responsible.. Giving our kids the knowledge and the tools to take care of themselves, puts them at a clear advantage in the world.
I find it difficult to decide on a way to teach children. Sometimes, providing details of your mistakes to your children only gives them a benchmark for them to excuse themselves. You get something like “I’m not as bad with money as you were.”
However, I think keeping kids in the loop is better than shutting them out.
By the way, the kids are getting 529 contributions for Christmas this year! A college education is a great way to help them succeed in personal finance.
JP — We frame the discussion a little differently. Our financial situation is not focused on the mistakes that were made (as much of our debt was caused by a change work circumstances and medical bills), but instead on the path forward. Our kids are seeing the dedication and sacrifice that is required to work your way out of a difficult situation.
And yes, all of our kids have 529 plans.. We absolutely plan to step up the payments to a new level once our debt is clear next spring.
We don’t have kids, but I think I like your strategy better. I remember feeling like I knew what was going on when I was younger, and that caused me to be understanding. Otherwise, you may misinterpret why you are hearing NO. This is true for money but has broader implications, such as it applies even when talking about hanging out with certain people
Roshawn @ Watson Inc recently posted..Even Adults Need Those “Look What I Did!” Moments
It is true that I don’t want our kids to think that we are with-holding expensive new toys or extravagant vacations because we are “mean”.. But instead, we have explained, we are doing it with a purpose.. That purpose is to eradicate debt, and have a better life going forward.
We have been fairly open with our kids as well. As a couple we have put off an anniversary trip twice and this year I told my wife to just take a certain amount out each month when she does the grocery shopping. After two years we should have enough saved for the trip.
We believe couple time and time with the kids is important but just try to do less expensive things. They still get to do their sports and we still eat out more than we should, but we have a big family, lots of activities and sometimes it just works that way.
Still they are conscious about asking for things and look for ways to earn their own $.
Chris@JumboCD recently posted..September 2012 CD Rate Update
Couple time (altho we SORELY need a date night) and family outings are both very important, and you are right– There is a way to do it without breaking the bank..
Thanks for stopping by!
I think it’s very difficult to teach a child the importance of money. As much as I thought I got it when I was younger, I can see now that I should havee done things differently.
I started investing in my 401k when I was a 18 years old, but the percentage was very small. Looking back, I should have maxed my contributions out. While you think you’re doing good, you can always do better.
JW @ AllThingsFinance recently posted..High Frequency Trading: Man vs. Machine
The best part of this is reminding them how fortunate they are. That is so great, and can help buld appreciation and squash any sense of entitlement in the future.
I plan on doing the same, be transparent without overwhelming them, but making it fun to help mommy and daddy make wise money decisions, and learning that savings is way more fun than debt
Jacob @ iheartbudgets recently posted..How The Latte Factor Works In Real Life
We want to show our daughter how to be smart with money and the power of saving. I think you are definitely right to be sharing with your kids. We took our last vacation without credit. We planned and saved. We knew how much we had to spend for each meal. It was the most gratifying vacation ever, and we ended up bringing money home because we found ways to save while on the trip. It didn’t feel like sacrifice at all. We just were used to living that way. It was so different when we didn’t pay attention and whipped out the credit card.
Kim@Eyesonthedollar recently posted..Why You Should Visit a National Park
Looks like you both have a great plan for teaching your kids about $$. This is so crucial, as it seems people that are good with money were usually taught how to manage it by their parents. (and vice-versa)
I have similar goals for my 2 girls, and also try not to buy them “gifts” when it isn’t a special occasion. Instead we have them manage their own money they earn through chores and other methods.
Jason Clayton | frugal habits recently posted..Must Visit Blogs
I believe that teaching our children financial responsibilities must be done as early as possible that they may be aware of how important it is to be conscious of what is wrong and right in spending money, as well as saving.
Great topic, Jefferson! It’s so important to teach kids value of money. You are doing an awesome job by teaching your kids that happiness comes from within. It’s also important to teach kids that most other children in rest of the world nearly don’t have what American kids have. The idea is not to make them feel guilty; rather, it is to make them generous and develop gratitude early on for having a great life in a great nation.
Shilpan recently posted..Best Stocks to Buy: My Rock Star Stock Portfolio Update
Growing up, my mother was always transparent to me about our financial status. She would explain to me that there are times that they would not be able to give the things I want. She also taught me personal finance the same way she taught me to ride a bike. She put some guidelines in place (training wheels) then when I was ready she let me make mistakes and learn from them (crashing when taking the training wheels off). Not once did she save me… she let me learn my lesson. To this day I will never go over my phone bill again or miss a payment. I love here for that.
Dominique Brown recently posted..5 Ways to Help With Childcare Costs
Jefferson!
You’re doing one heck of a job teaching your kids about money.
I learned a lot from my mother, and despite all the good teachings, I made some foolish mistakes, but the core always stuck with me.
Cheers!
Eddie
Eddie recently posted..CPFC 2012 Highlights and the Importance of Investing in Yourself and Your Blog Through Confernces
Wow, this is a great topic! I am right there with you and the tactics that you use. We regularly try to encourage our kids to save for what they want, earn money by doing jobs around the house, and to plan ahead (right now for Christmas present buying).
We’ve also got other ones. We usually adopt a family for Christmas which the kids get a kick out of. We also took them to Goodwill to buy old clothes for a Halloween idea we had, but I think the trip really opened their eyes to how the other side lives. We are also just generally trying to get them aware of how much things cost so they put the value of a dollar in perspective (for example, how much a car really costs).
My Money Design recently posted..SB1040 Pension Plan Options – Introduction
You are setting a fine example for your kids and I agree that they should be included in the discussion. If they feel they have some kind of ownership in the families success they will gain confidence and also not complain every time you say no to an expense.
Adam Hathaway recently posted..How I Am Generating Passive Income by Dumping My Savings Account and How You Can Too
Beautiful, I really admire your family for bringing your kids the best way you can. I believe it is a good idea to train your kids to be financially responsible and aware of the scarcity of life.