Let’s talk about teaching your kids about money today. We know you want the best for your kids. If you’re here, you’re probably like us and that “more” isn’t defined as more stuff or more wealth necessarily. More likely, you want them to have the knowledge and tools to pursue a life of purpose, impact, service and happiness. You might look at your own financial history and know you don’t want that for your kiddos. That might mean the sheer lack of knowledge you had when you started out or avoiding the bigger financial mistakes you made. We’re with you and we are here to help.
Before we start this conversation, let’s revisit the statistics that we know we don’t want for our children.
- The average American has over $90K in debt
- 78% of workers live paycheck to paycheck
- Money is the top source of stress in the nation
- 67% of Americans don’t have enough savings to cover a $1,000 emergency
- Stress & fights about money is the #2 cause of divorce in the country
That might seem extreme, but the numbers prove that it will absolutely be the truth for the next generation if we don’t do something about it.
- 22% of teens lack a foundation in basic financial skills
- 4 out of 5 Americans are looking for more ways to teach their children about good financial habits
- 59% of parents are uncomfortable talking to kids about money
23% of teens do not know how to make a budget
- 73% of teens want more personal finance education
Okay, so that was part of the why for teaching your children about money. The other part is all the hopes and dreams you and your children have for the future. Whether it’s their own business, traveling or missionary work it all costs money. Moreover, poor money management will handicap them to a life that keeps those dreams always at bay.
Let’s move on to the HOW of teaching kids about money. There are two main points to be made when it comes to how. First, you need to raise your expectations for your children. Second, lose the ideal of “normal.”
Raise your expectations
So often we don’t realize all that our kiddos are capable of. We can hold them back by not realizing they can and will do more than our concept of them can even imagine. A very silly example of this comes from one time my (Shana) son was in preschool. He was my first kiddo so I had no idea what I was doing. I began my career as a mom knowing exactly two lullabies to sing at night: ABCs and Twinkle Twinkle (those are the same melody btw). with Imagine my surprise when I went to pick up my two-year-old and he got up, picked up his plate, dumped it in the trash. I had no idea he was capable of such things! But you better believe he started doing it at home that very day!
Another example comes from when our boys started private school. In sixth grade they are required to memorize and recite a 70 stanza poem called Horatius at the Bridge. Now, to most of us that idea is far from possible! Who could do such things? Turns out every sixth grader in the school can do it, year after year. Had they not had really high expectations (and a supporting education plan), those kids would never have even attempted this huge feat.
The point is that while we love and admire our children, we can lose sight of what they’re truly capable of when pressed and properly motivated. That comes with personal finance. They can learn and establish great habits and concepts right now. We just have to be willing to have these grown up conversations with them and walk through learning some of the concepts before they leave the home.
Take a look at the stats mentioned earlier and it’s easy to see that normal is broke, in debt, bogged down and stressed. No thanks. But it’s not that simple. If you want to teach your kids about money the right way, you’re going to have to let go of some of the things that normal considers the right way.
Normal is broke. It’s time to be weird!Dave Ramsey
The normal American path is college, debt, more debt, work for 50 years, retire and pinch pennies. Truly. That does not have to be the way it is, but we have to reject normal so we can figure out how to forge our own, awesome, unique path! In fact, there are thousands of people who have completely forged a new path and are living more minimally but able to “retire” (that often just means not forced to work) early while being financially independent.
Many of us adults struggle with personal finance so it can be tough to figure out how to impart wisdom to our children. However, you certainly know a few things that got you where you are now. Please share your wins and your losses with your children. Don’t be held back by shame or by false humility. Your kids will benefit from your wisdom and they can and will handle the truth. Moreover, you will build that trust and soon-to-com adult child to parent relationship. And we’re going to point out a few other things to talk with them about.
Okay, now that we’ve covered the basics, let’s dive in.
Teaching kids about Money
Money either gets a really bad rap or it is idolized. We don’t want any part of that. What we believe is that money is a tool. It is a tool that can be used for good or for bad, sure. Nonetheless, it’s just a tool that will make you more of who you are and give you options.
If you’re reading this, you’ve probably taught your children about greed and some of the bad things that can happen when it comes to money. However, sometimes there are a lot false believes and baggage we can pass down inadvertently. We want to challenge those and be sure we’re not handicapping our children from the beginning.
- What should I do with money?
- Generally, you should give, save and spend your money.
- As our mentor Dave Ramsey says, “Giving is the most fun you’ll ever have with money.” He’s not wrong. If a young person can get in the habit of being generous from the beginning of their financial journey, they will get to participate in this soul-filling fun more than most.
- Saving your money is a definite. It’s hard to convince young people to focus on saving, especially when they typically have little to work with. It’s because of this that most young people experience what is called “The Lost Decade.” That decade, between college and their first earning years when they’re spending everything they’re making. What we want young people to understand is that if they can save, even though it hurts at first, in those first ten years and then COMPLETELY STOP their money will continue to grow in such a way that those who start in their 30s can almost never catch up to. Yes, saving when you’re young gives you the biggest advantage: time. All the time you’re busy going about your life, your money is growing and growing without you having to even think about it! It’s working for you.
- Spending your money comes down to deciding what you want most versus what you want right now. Use a budget to figure that out.
- Generally, you should give, save and spend your money.
Teaching kids about a Budget
- What is a budget?
- A budget is a way to plan how you’ll spend or save your money. At best, most people do accounting, which only tells you what happened to your money. But it’s past tense. A budget looks forward and spends every dollar on purpose based on your goals.
- Isn’t a budget a bummer?
- Nope. It may seem like it. But a budget gives you freedom and peace of mind to spend money on what you want to spend money on! It tells you how much you can set aside for fun and it tells you you’ll totally be able to afford your bills.
- When do I budget?
- We advice budgeting every month since most bills and expenses end up being measured monthly.
- You can also create a paycheck plan when you budget so that you know exactly what to do every time you get paid.
- How do I budget?
- Your budget will look like this: Income – Expenses = 0
- Your expenses will be broken down into needs and wants, as described below. It will also include saving money both for emergencies and for the future.
- What are needs vs. wants?
- One of the most important distinction to make when it comes to budgeting is distinguishing between needs and wants. Needs are things you, YES, need to survive. That includes shelter, food, transportation, clothing, etc. Those are the bare minimums. Then you have tiers of wants. The first tier might include internet and a phone for example. This is often a gut check. No, many of the things you consider needs are actually wants. There is nothing wrong with wants, you should have them in the budget, the trick is to fund the needs first! The next tier of wants might include restaurant money, traveling, subscriptions and more.
Related: 5 reasons why you need to budget right now
Teaching kids about Saving & Investing
This topic might be the most difficult. Most of us don’t really understand investing and saving so we stay in the dark and just try to do the best we can. However, these concepts are pretty simple. They can become more complicated the more your young person wants to pursue them. However, there are the basics:
- How much should I save for emergencies?
- Everyone, even a brand new in the world young person, should have $1000 set aside for emergencies. This will keep them from going into debt, it will set them up for success and to not have to call you when they get a flat tire and can’t afford to replace it.
- At the next level, you want to have enough money set aside for 6 months of your living expenses just in case. For a young person, this isn’t going to be nearly as much as it is for older folks.
- How much should I invest?
- Best case scenario, young people will start setting aside money from their paycheck to invest on the FIRST paycheck. If they do, they’ll get used to living on less and they’ll learn to never miss the money. Moreover, their income will only ever go up and so they can recover the “loss” as they continue to get raises and such.
- If you can invest 10-15% of their income, they’re going to win!
- Tempt your kiddos by telling them that investing allows your money to make you money-while you’re laying in bed!
Related: Everything you need to know about an emergency fund
Teaching kids about Credit & Debt
If you need to use debt to pay for something, that means you can’t afford it. This is a glaringly obvious truth that most of us never learn. So, let’s start there.
- What is debt?
- Debt is any money you owe to anyone, for any reason.
- Examples include credit cards, car loans, personal loans, furniture loans, family loans, student loans, mortgage and more.
- Do I need debt?
- The answer is no. You can absolutely save up to afford everything you want in life. It will be hard. It will require delaying gratification. But it is possible.
- Most people believe
- But don’t I need a credit card?
- Oh boy. This is actually what most parents teach their children. They tell them they need a credit card to begin increasing their credit score. This goes awry in almost every single case. That is, most people start out with great intentions and before they know it they’ve got thousands of dollars in debt. It happens almost every single time. It is a much better use of your time to teach your child how to use a budget and cash rather than how to use a credit card.
- What about my credit score?
- We call it the debt score. All it does is let companies know how good you are at borrowing other people’s money and paying it back. You may find yourself in need of that extreme cases, and we’re happy to talk about it. For now, just realize that entire industries have been born trying to convince you to use debt, to increase your credit score not for your benefit but rather because they make money.
- Why do you hate debt so much?
- Well, debt means you owe someone. You know when someone lends you a book or a movie? You feel the weight of paying them back. Now, let’s add money to that feeling. it really is a bummer, if you truly take the time to understand it. And, in most cases, you’re paying someone to borrow their money.
- Debt means your income is robbed every single month. It means every hour you work, every paycheck you get, you must spend a portion on the PAST. Boo.
- Debt robs you of what your money could be doing. With debt, you PAY interest. That same money can be used to invest. With investments, you EARN interest.
Related: 9 reasons you should cut up your credit cards and divorce them forever
Teaching kids about College
College and obtaining a four year degree is now as much a part of the American dream as owning a home and apple pie. However, when we’re teaching our kids about money the conversation about whether college is a part of their journey certainly needs to had. And, if it is, how, where, how much, etc.
- Do you even need to go to college?
- Depending on your career goals, college may not be necessary.
- Depending on your career goals, a two year degree or certification might be more appropriate.
- Do you know right now, at the age of 18, what you want to do and therefore are willing to pay a large amount of money to study it? Or, more likely, are you totally unsure and might do better seeking an internship or work experience while you figure out what you really want to dive into?
- What college do you need to go to?
- Your “dream school” can severely hinder your future because they are usually much more expensive. Most “dream schools” put you into debt to the tune of six figures. That is like a mortgage payment right off the bat when your earning potential is at its lowest it’ll ever be. That means your ability to do anything else you desire as a young person will always be haunted by a student loan payment. Moreover, what you could’ve done with that money might blow your mind (stay tuned).
- With extremely rare exceptions, no one looks at where your college degree comes from once you graduate. It’s a checkbox. Why would you pay an exponentially higher sum for a checkbox?
- Do you need student loans?
- No one has ever spent six figures on college and twenty years later thought, that was totally work it. We dare you to find the person. No, it is more often a really bad decision that has no undo button.
- If you choose an affordable school, you can pay as you go and / or supplement with scholarships.
- You don’t want to saddle your future self with a huge obligation. Imagine how excited you’ll be to be done with college. You don’t want to ruin that by immediately wrapping a ball and chain of student loan debt around your ankle. No, you want to go out into the great & crazy world free and ready to thrive!
Teaching kids about Net Worth
Broke people track their credit (debt) score. Wealthy people track their net worth.
- What is net worth?
- Net worth = Assets – Liabilities. Assets are things that you OWN that are worth money. Liabilities are money you owe.
- $300,000 Net Worth = ($300,000 paid off home, $20,000 investments) – ($15,000 car loan $5,000 student loans)
- Something interesting to understand is the concept of real assets versus false assets. False assets look like they are assets, but they actually cost you money daily, weekly, money. For example, that’s a car, a house, etc. The money you spend in maintenance means they cost you money. There’s nothing wrong with having those, it’s just important to know that. A real, true, amazing asset is the one that doesn’t cost you a cent and in fact makes you money (real estate property, ROTH IRA). A young person can be very successful if they understand this early on.
Teaching kids about Financial Freedom
Here’s the deal: your kids can be millionaires. It’s just simple math, and it’s not that difficult. In fact, it could be as simple as investing $100 a month for the first ten years of their adult life. That initial investment of $12,000 can compound into over $1,000,000 by the time they are in their early sixties! That’s just regular math. There is so much more to this concept but that simple truth usually opens a young person’s eyes. Personally, we are SO MOTIVATED to help young people understand this concept. We want our young people to realize their potential and their opportunity. Simply be being smart with their money and avoiding debt, they can be financially free so much sooner than any of us were or will be. They have the amazing benefit of not being bogged down by bad decisions. And they have nothing but time on their side!
- What is financial freedom?
- One fun definition is being able to do what you want to do when you want to do it.
- Dave Ramsey defines it as: Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them.
- For many of us, it means not being tied to a job that you don’t like because you aren’t overly dependent on the income. It may also mean that you are able to pursue a new career or starting your own business if you desire- because you are financially free.
- For some, it means being able to travel or give freely without having to say no.
- How do I achieve financial freedom?
- Generally, you achieve financial freedom when your income is more than your expenses.
- For us, financial freedom means you’re living on less than you make, hitting all of your money goals, saving money, giving money and not stressed about money.
- More aggressively, it can mean that your passive income (real estate, pensions, etc) and your sustainable asset withdrawal (401K @ 4% for example) are equal to more than your living expenses. More and more, young people are achieving financial freedom well before the traditional 60-70s that older generations have modeled.
- What might prevent me from achieving financial freedom?
- Many people fall for the trap of the acquisition of stuff. So, they get the house, the boat, the car, the pool, the everything. This is not inherently bad. However, you want to focus on the acquisition of financial freedom. You need to weight what it will mean to you versus what that new gadget will mean to you.
We have a few workshops and courses coming out to help your children learn these things and give them a great advantage. Please sign up below if you want to hear more about them once they’re out.
We might also recommend you read the following books with your older children and talk about them together.
- Total Money Makeover by Dave Ramsey
- Smart Kids, Smart Money By Dave Ramsey & Rachel Cruze
- Tribe of Millionaires by David Osborn et al
- Your Money or Your Life by Vicki Robin and Joe Dominguez
- Rich Dad, Poor Dad by Robert Kiyosaki
Ideal Balance is The Life Coaching Facility in Navarre, Florida that focuses on Fitness, Family & Finance. We help our clients create the discipline & habits they need to strip off what’s holding them back from living the life God created them to live. We work with clients in 1-on-1 sessions in person, virtually and in small groups. We offer life coaching, financial coaching, health coaching. We also offer personal training and home organization locally here in Navarre, Florida. Fill out the information below if you’re interested in our help and we will contact you.
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