Parenting and Money: How to Teach Children About Good Financial Habits

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July 21, 2015 10:32 AM EDT

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There are parenting books you should read but can’t because you’re too busy parenting, and then there are … pretty much no other kind. So, use our Crib Notes to make sure you always sound like you know what you’re talking about. Next up, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, And Smart About Money, from New York Times money columnist Ron Lieber. The book explores ways to think and talk about money with children, and offers some best practices for bringing up kids who are financially savvy without being entitled or avaricious.

1. Start talking to your kids about money early and often

An understanding of money is no longer optional — Your kid will likely grow up in a world where college loans are massive, health insurance is self-provided and retirement savings are ill-defined. At the same time, social media will amplify wealth disparities amongst them and their peers, so they’re at risk of developing animosity or self-esteem issues. On the plus side, there might be hover boards.

Traditional objections to discussing finances with kids are misguided — Talking to your kids about family finances won’t steer them toward greed. To the contrary, money is a great tool to encourage positive traits like curiosity, patience, thrift, modesty, generosity, perseverance and perspective. And, no, that doesn’t mean you should just spend a bunch of it on a life coach for your kids.

What you can do with this

Your kids will naturally start to express curiosity about money at some point. When they do, don’t evade them; engage them.

Whatever their questions — and the most common are “Are we poor?”, “Are we rich?” and “How much money do you make?” — respond with “Why do you ask?” This will give you and your kid context to explore the more complex answers, and it’s a better response than, “Yes, no and less than that jagoff Alan in accounting.”

With older kids, go over some facts and figures about your income and the family’s expenses. This gives them an understanding of the difference between what you make and what’s actually in your wallet, and it keeps them from Googling “How much does that jagoff Alan in accounting make?”, which will lead to all sorts of misconceptions (not to mention an understanding of what jagoff means).

2. Yes, you should give your kid an allowance; No, it shouldn’t be in exchange for chores

Allowances are about teaching kids how to save and spend — A work ethic is something kids should learn outside the home, in school or at a part-time job. Chores are how they gain an understanding of the family unit and the role they play in maintaining it (since Mommy will leave both of you if those Legos don’t get cleaned up).

What you can do with this

Start them with $.50-to-$1 per year of age, which means they get a nice raise each birthday and will distract them when you forget to buy them a present.

Give them 3 money jars: a “Spend” jar for impulse buys, a “Save” jar for big-ticket items and a “Give” jar for charitable donations. Help them establish how much goes in each, and as they get older give them increasing control over that decision. Establish incentives for saving (like interest) and encourage them to research the charities that they’ll donate to before doing so.

When they inevitably want to spend their own money on something stupid, don’t feel obligated to give them a detailed explanation of why you won’t allow on the spot. As the parent, it’s your prerogative to think it over carefully before explaining why sex-worker Barbie doesn’t jibe with the family values.

3. Both spending and giving present opportunities to teach money smarts

Set spending guidelines and model sensible tactics — Your kids are unmolded lumps of clay in their understanding of how money really works, so go beyond simple rules that dictate “what” and provide explanations of “why” you do the things you do with your money, from a practical standpoint but also a values standpoint.

What you can do with this

Introduce the “Hours-Of-Fun-Per-Dollar” test. Which purchase will bring your kid more long-term bang for the buck — a $2 deck of cards or a piece of plastic that blares catchphrases from the latest animated blockbuster? And if your kid doesn’t like cards, now’s the perfect time to teach them poker so you can get some of that allowance back.

Introduce the “More Good/Less Harm” rule. Does the t-shirt with the fart joke that’s made in an Indonesian sweatshop for the brand with discriminatory hiring practices do more harm than good? Could you buy something from a local business that’s just as awesome and also helps the neighborhood in a tangible way?

Explain to them what charitable causes you give to and why. Let them select their own charities for their “Give” jar and always make sure the donation is made in their name. You’ll forfeit the tax deduction, but they’ll establish a personal relationship with the charity that encourages future giving. Also, why do you care about a 2-digit tax deduction, you cheap bastard?

4. Put the kid to work

Little kids like to have jobs to do — Encourage their innate industriousness before they get old enough to realize that work is work. You might change the trajectory of their lives (or you might just get a few more months of room cleaning out of them).

Employment looks good on a resume — There’s a strong correlation between teenagers with part-time jobs and good GPAs and college expectations. Furthermore, college admissions officers are often as impressed by evidence of a work ethic as they are with academic or athletic accolades.

What you can do with this

In little kids, the usual: Lemonade stands and collecting and redeeming recyclables. But, also, look around the house and figure out what labor they can subcontract from you — small hands can be surprisingly adept at certain cleaning tasks (like car detailing).

With older kids, don’t always prioritize academics over employment. Of course a balance needs to be struck, but recognize the value to their long-term prospects that a good part-time job provides. Also, it will save you money.

5. Don’t let your kids be ungrateful

Foster an understanding of different circumstances — Even if your kids want for nothing, it’s important that they’re exposed to other situations.

What you can do with this

If you don’t live in a socioeconomically diverse community, make the effort to ensure they meet kids from other backgrounds through sports, play dates and other activities.

Even if you’re not religious, make a ritual of articulating thankfulness at family meals. A secular version of grace isn’t going to assuage the wrath of any vengeful gods, but it’s just as good as a religious one for encouraging kids to reflect on their family’s good fortune.

This article originally appeared on Fatherly

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