Raise your hand if you feel uncomfortable having money conversations with your kids! No worries, you are in the majority camp. Across most cultures, money is a taboo subject for adults, bringing kids into this conversation can be even more unthinkable! Here are some of the reasons I hear from parents on why they don’t want to talk about money with their kids:
“I don’t want them to have to worry about money.”
“I don’t want them to be too money-minded.”
“Money is just something that we don’t ever talk about. It’s not polite.”
There are many more variations, but notice how each of these statements comes loaded with assumptions. It has been the common wisdom that if you study hard in school and get a good paying job, you’ll be set for life financially. Therefore, you won’t need to worry about money. Additionally, money is often perceived as the source of evil, so being money-minded carries a negative connotation. Who wants to be labeled as the “bad guy”?
Here’s the reality:
Whether we explicitly teach our kids about money or not, they will learn from us. They learn from our explicit instructions. They also learn from our silent behaviors. When we don’t provide guidance with their learning, they interpret their own “stories” about money. For example, a child growing up with a working father she never sees equates money with the absence of love. Or a child who is given a toy she was personally saving up for stops doing anything with money for herself. I have seen this pattern over and over again in my coaching clients.
Another important reason why we need to teach kids about money is because of the fast changing world that we live in. No longer will it be the case that as long as they study hard and pick the “right” profession, they will be guaranteed financial security. A job that pays well today may not even exist in 10-20 years.
So, how can we best prepare them for the future?
I believe the key is to help them build confidence, resilience, and adaptability. All of these qualities don’t come from academic achievements alone. Imagine two scenarios:
- A child who has been groomed to do well in school but has no idea how people make a living in the real world, because the parents have been providing everything and shielding him from all money-related matters.
- A child who has been planning and saving money from allowance or part-time jobs to purchase something they really want. Although a simple gesture, that sense of independence when paying with their own money is so powerful that they will remember it for life.
It is through the small habits and mindfulness around money from early on that the seeds of inner confidence and resilience are sowed.
Learning about money at an early age
Teaching kids about money is really about teaching them values, and it doesn’t have to be complicated or hard. Start with getting clear on what are YOUR values that you want to pass on to your children. Here are a few simple practical ways to approach this:
1. Explain your money choices
While you are shopping for groceries with the kids, talk to them about how you make your choices. If they are still very young, make it a math game. Ask them to read out the prices to you, and have them compare which one costs more. We don’t even need to get into the philosophy of choosing the cheapest or going for the “best”. These games simply create awareness and mindfulness around money and what they can buy. When we do this right, we can help kids to see money as a simple tool for exchanging goods, without the emotional charges.
2. Give allowances
I recommend giving kids allowances, around the age of 8. However, I don’t like to tie that to doing chores. My belief is that as a member of the family, they are expected to share the household responsibilities as they grow older, without monetary compensation. I started giving my kids $3/month, although anywhere between $5-$10 is reasonable as well. The key here is to help them make plans with their money.
3. Use an envelope system
I used an envelope system, with five categories: Wealth/Savings, Plan/Special Projects, Education, Angel/Charity, and Fun. They have learned:
- Savings is something they never touch no matter what
- Plan is for special occasions where they might need money (think of the need to remodel a kitchen or buying a car in the real world situation)
- Education will be a thing that they will continue to pursue to keep on enriching themselves even beyond college
- Charity is for helping others
- Fun is where they get to spend on anything they want, no questions asked! Through this planning system, they learn the balance between having a planning discipline and indulging and empowering themselves.
When they are young, you can start with equal percentage split among all the envelopes. As they grow older, you can help them modify the percentage based on your values. There is no one “right” way to do this. I now let my teenage kids decide on the percentage split. I ask them for their reasoning, not to judge them but to help them get clear on their own thinking process.
4. Teach them to make choices
When your child asks for a toy, ask her what is she willing to give up in her current stash? This simple dialogue of choices will help her establish a thought process that will eventually lead to better decision making between wants vs. needs.
5. Small habits produce big results
Pay attention to the daily habits: does your kid leave the water running while brushing teeth? Do they turn off lights when they leave the room? Do they scribble a bit on a piece of paper and toss it right away? How about saving them as scratch paper? These are good teaching moments because it’s not just about saving money, it’s also about respecting resources. Learning the core value of respect will be transferred into other parts of their lives later on.
6. Rewards for savings
As your child gets older (after 10), open a checking account for them with their Savings money. Although the current bank interest is pathetically low, for a child, a couple of cents “for free” is still an excitement. This shows them the reward for savings, and as they grow older you can teach them the concept of compound interest.