It's a matter of building
responsible money habits into the fabric of your child's daily routine. Like brushing teeth, the earlier you start the better.
and it has never been more important.
If there is one thing this financial crisis has taught us, it's that we need to become financially literate and self-reliant. When it comes to kids, only a parent can get their child started.
Practically speaking however, a parent's role in raising the financially responsible child is limited
. That's because learning how to responsibly manage money takes hands-on-practice.
But for kids, this kind of practice is fun.
Being responsible with money means to live within one's means:More money has to come in than go out. It seems simple, but it only sticks when it is personally experienced.
Financially empowered kids get comfortable with money earlier and learn to make better financial decisions over time. They understand that money is not the point of life, something to obsess over, or something to fear.
Money is simply a tool to confidently use as we work toward our life's dreams.
If you're like me, and lots of other parents, you want to raise financially responsible kids. Partially it's because we want them to eventually move out and stand on their own two feet. But mostly it's because we want them to do well, to get ahead and lead happy, purposeful lives.
Our kids have wonderful dreams, and we want to see them achieve those dreams.
But we also know that in today's world this goal is harder to achieve - especially when a few faulty financial decisions on the cusp of adulthood can undermine even the best laid plans.
18-24 year-olds represent the fastest growing age group filing for personal bankruptcy
... and it's been that way every year for the last 10-years.
If you're reading this e-book, it's unlikely personal bankruptcy is something that awaits your child.
Nonetheless, as parents we need to take action today, if we want to best position our kids
to achieve their potential.
It's true the apple doesn't fall far from the tree. That's usually a good thing. Then again, if we're honest about our own saving and spending habits, perhaps we want that apple to roll a bit.
Do our kids really know about money? Understand where it comes from,
how it works, how best to use it? Mine didn't.
Not long ago my 10-year old son over-heard a conversation my wife and I were having about the need to buy a new vehicle to transport our growing family. We're thinking mini-van. He quickly suggested a sports car as a practical solution. He even knew its expensive price - a topic of conversation at the school yard. I jokingly suggested I could strap the baby seats to the roof of the car, but where would the money come from? "Just use a credit card!" he said.
Parents don't despair - you're not alone!
We live in a world saturated with advertising and hype - all geared to get us to spend now, spend big - pay later! And somehow if we do so - we'll be happier. It's been that way for a long time. How many of us can truly say we were instilled with a confident, comfortable sense of money - strong enough to resist the lure of commercial messaging, self-disciplined enough to set goals and boundaries, self-assured enough to be content to live within our means?
Moreover, what parent has the stamina to consistently communicate and demonstrate financially responsible behavior? Between getting the kids dressed, fed, cleaned, homework done, and to school, practice, lessons, games, and birthday parties - we parents are overwhelmed!
But we want more for our kids, to equip them to succeed, to have the edge they need. Only parents can get their children started and that takes your involvement.
But here's the irony: although it starts with parents, a child's financial education is really up to them, as personal experience is a child's best teacher.
I have good news:
All kids want more money - and to be in charge of it.
Good news you say?!
What planet are you from?
Before your little darling lands on earth and develops bad habits or anxieties around money, now is exactly the time to financially empower them: put them in charge of their own earnings, let them naturally develop healthy financial habits - with a little coaching from you of course.
We all know the best time to teach a child a new language is before they even know they are learning one - as toddlers. And it's easy to see how kids who start a sport early in life and work really hard at it, become solid athletes by the time they are 20.
Good habits become second nature and are hard to break.
It's no different with money.
Sure, your kids will make mistakes with money, especially at the start. Nobody, not even Warren Buffett handled his money perfectly from the beginning. Isn't it better to let our kids make little mistakes today under our watchful eye, than much larger mistakes later when there's no one there to catch them?
Rest assured, your kids will remember those mistakes -
as long as the money is theirs and not yours.
Have you ever noticed how your child spends your money like there's no tomorrow? It's really not surprising. We all tend to over-stuff our plates at the all-you-can-eat buffet. Things perceived as "free" are just not handled as responsibly. It's not that our children are financially irresponsible. Given the rules as they understand them, they are behaving perfectly rationally!
Kids are much more thoughtful when they spend their own money - and happier too.
Of all the books my kids have read, the only ones they tend to re-read are the ones purchased with their own money. Now you may be thinking - well they re-read those books because they are better at selecting stories that appeal to them.
But isn't that the point? When it comes to spending money, aren't we all better at satisfying our own preferences? Kids are no different - within reason of course.
Truth is, being financially empowered: juggling priorities, making decisions - is more fulfilling. And that's good news for us parents, because financially empowered kids learn lessons and values that stick for life.
Handing your child $5 before entering a store and saying "This is your money. Now spend it wisely." is not ownership.
And without a sense of ownership, the odds are much less likely your child will act responsibly.
The pink piggy bank on your child's dresser or the savings account you opened for them at the local bank do a poor job of moving them toward healthy money habits too!
Let me explain. First off, I'm a fan of cute little pink piggy banks and I would never say it's not a good idea to open a savings account for your child. But here's the real question: Are these approaches effective at instilling financially responsible behavior in our children?
I think not - not in this day and age.
Not when corporate marketers are reaching kids at ever younger ages, with millions of dollars spent on advertising and promotions. Not when the messages that surround us every day encourage some kind of consumption. Not when more than 5 billion credit card solicitations are sent out every year. In fact, the average college freshman receives 10 credit card solicitations in their first week of school! Not when hyper-connected kids say they learn more of their money-skills from peers than parents.
Truth is we parents need a better financial defense for our kids than a pink pig and a faceless bank account.
While the piggy bank does allow our children to physically touch money and occasionally dump it on the bed to count, their incentive to save and their learning-curve falls way short.
Where do our children learn about, more importantly see interest accumulate? Understanding how your money can work for you is perhaps the linchpin of responsible money management.
Without the interest incentive, your child is just delaying the time until they spend their money rather than really saving it.
Moreover, how is the piggy bank going to convey what some call the 8th Wonder of the World: compound interest? Kids who understand and experience the incredible power of compound interest are almost certain to demonstrate the discipline of saving more, from an earlier age, and consistently over time. For once, kids see Father Time as their friend.
Instilling the savings habit in our children can't happen soon enough.
Not with social security, healthcare entitlements and job insecurity threatening our children's future. This financial crisis has taught us we need to be financially literate and self-reliant. Teaching our kids to save, really save, plays a pivotal role in helping them lead happier, more stable, and more prosperous lives. And piggy banks don't cut it.
Bank Savings Accounts
If you're like most parents, when the balance in your child's piggy bank gets too large, you responsibly suggest it get deposited into a bank account.
From a kid's perspective, bank accounts are one-way trains to nowhere. Money chugs in, and never comes out.
Where's the learning in a bank account? Learning to be responsible with money requires empowerment, decision making, and use. Kids can't develop judgment when money is out of sight and out of mind, any more than tennis players can develop their serves without a racket.
Further, bank accounts offer no-to-low interest rates, eliminating the savings incentive for our kids. They require a car ride to get to the bank, diminishing a child's sense of ownership. And they certainly don't educate our children.
Banks serve many useful purposes. Just not for kids.
Perhaps the hardest thing to accept as the parent of a soon to be financially responsible child is turning over the spending reins.
In the mind of a parent, each dollar spent is a dollar not saved. Perhaps worse, wasteful purchases will be made.
Let me remind our readers of the need to separate how our children behave when they spend our money, versus their money.
Kids that spend their own money are more thoughtful and deliberate.
They have to be:
Their money is finite;
a parent's is infinite - isn't it?
To be sure, your child will still make some ill-advised purchases, even with their own money. And it's difficult as a parent to sit idly by. But remind yourself: The child who buys the free-refill soda at the amusement park for only $12.95 (as mine did - with no refill of course) will not soon forget the lesson. In fact, she'll tell you about her mistake on the way home in the car.
How does sharing help our children become financially responsible?
In an age where kids often define themselves by the brands they wear and are heavily influenced by a celebrity culture that excessively displays wealth, kids need a suit of armor to fend-off the pressures of consumerism.
One great antidote - compassion: the ability to understand and alleviate the distress of others. Compassionate kids are more grateful for what they already have. They find it easier to keep things in perspective, providing a natural defense to our spending culture. Kids with compassion are better able to focus on their real dreams and work toward them with greater resolve. In short, compassionate kids tend to have a healthier relationship with money.
But just like financial skills, compassion requires practice from a young age too.
Of course there are many ways to encourage compassion in our kids: from paying attention to the plight of the less fortunate around us, to diversifying our reading, to volunteering time. Donations play a role too: but once again, with their money - not your money.
Consider as well the concept of sharing money more than donating it. Perhaps it's semantics, but donations are typically made to "organizations". For kids, donations can feel more like money taken, than willingly given.
Sharing is different. Kids who share do so with a specific cause in mind. There is a direct connection between their monetary contribution, its use, and most importantly, its impact. Sharing resonates more deeply with kids, which is long remembered, filling a child's natural sense of justice and generosity.
Raising financially responsible kids isn't just about the money.
It's about raising the whole child:
financially responsible and socially compassionate.
The funny thing is our kids want that too!
They're just not going to ask. They wouldn't know how.
Only you can get them on the right path.
Give your child the boost they need - it will be a gift for life.
Founder and CEO