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Wondering why our kids are not so great with money? Just look in the mirror; it’s because adults are often financial train wrecks themselves.
Even so, all is not lost. You can still try to instill your children with the right lessons about spending, saving and investing, to prime them for a more secure financial future.
That is the cause of personal finance guru Beth Kobliner, whose new book “Make Your Kid a Money Genius (Even if You’re Not)” has just been released.
She spoke with Reuters about how to equip kids with money smarts.
Q: Is there a time in a child’s life that is best for giving them money lessons?
A: Start earlier than you think, because by age three they start getting money concepts.
Keep your lessons age appropriate. Using anecdotes is helpful, because we all like stories. Show them the numbers with online calculators, and how savings and interest could one day get them to a million dollars.
Q: You say that chores should not be tied to money and allowances are not a great teaching tool. Why?
A: Tying things like making their bed to monetary rewards is a problem. You are paying a child to do things they should be doing anyways, and then they will start negotiating with you all the time. It can end up backfiring for parents.
Allowances start with good intentions, but then people tend to get busy and forget about them. I looked into the research, which is all over the map – sometimes allowances help kids with financial decision-making, and sometimes they don’t.
What is very clear is that, whatever you choose, you need to be consistent about it. Otherwise it sends the wrong money message.
Q: No one is perfect with money; is that why we are so afraid to teach our kids about it?
A: It is a terrifying topic. That is essentially why I wrote the book. It is a primer for parents as well, about basic things like debt and delayed gratification and compound interest, so they don’t feel like they are giving kids the wrong information.
Q: What are the money topics we should not be discussing about with our kids?
A: I don’t think you need to talk about your salary, because kids don’t have any context for it, and won’t really understand it. They also might gossip about it at school.
You also don’t need to point out who is the bigger breadwinner, by saying things like ‘Mommy makes twice as much as Daddy.’
And don’t disclose how much is in your 401(k); either they will think you are rich and can buy anything you want, or they will worry that you are totally broke.
Q: Is social media putting added financial pressure on families, by pretending that we all lead lives of luxury?
A: Absolutely. There is a constant barrage of Instagram photos, seemingly saying: ‘Look at the beautiful place I am, look at the wonderful food I’m eating.’ All of those things cost money. That is why you need to start early by teaching them about wants versus needs, and get into the habit of saying ‘No.’
Q: How did your own parents shape the way you understand money?
A: My dad is 87 now, and growing up in the Bronx, his family was in pretty bad shape. His father drank and couldn’t hold a job, his mother was overwhelmed, and he had siblings who slept in drawers. So he used to go outside of his tenement building, hang out by the pay phone, and answer the phone for people who lived there. They would give him a nickel, and then he would give it to his parents, so they would fight less. Because of that, he always got how important money was.
Q: You have three kids of your own, so how is their financial behavior shaping up?
A: Pretty good, because they have heard me talk about this stuff their whole lives. What I tell other moms is: Make your financial priorities clear, and your kids will pick up on it. Just giving them more stuff is not going to make them any happier. That is something I know for sure.