by Scott Hannah
Q: Before asking for your advice I want to come clean that my husband and I have made a number of financial mistakes over the years. Fortunately, we sought professional help and although it wasn’t easy, we cleaned up our debts. Afterwards, we saved up every dollar we could for the next three years and purchased a townhouse last year. Our two kids were little at the time and don’t remember the difficult times but we still feel guilty that we couldn’t provide the same lifestyle for them as some of our other friends provided for their kids. Our son and daughter are now nine and six and we want to help them to be a lot smarter with money and credit than we were in the early years of our marriage. Where do we start? ~ Kristin
A: There have been numerous studies over the years on how we acquire our money skills and values. To no surprise, parents play a critically important role in the good and not-so-good money habits of their kids. This isn’t new information and I’m sure that if you look back over your childhood years, you would see that your money values and behaviours were influenced by how your parents managed their finances and expenses.
Kids have an enormous capacity to learn and absorb information; they are like sponges. Your kids are at a great age to embrace good money habits that you can help them build upon each year. While there are numerous ways in which you can teach your kids about money, I want to keep it simple.
Start by helping your kids embrace the following five money principles:
1. Money Doesn’t Grow on Trees
This old line is easy to say but not always easy to follow. Some parents have a hard time saying “no” to their kids because they don’t want them to feel left out. The tricky part is taking the time to explain why they can’t have everything, just like you and your husband can’t have everything you desire.
It’s about making spending choices so that you have enough for the things you need and a little left over for the things you want. If left unchecked your kids could grow up with an entitlement attitude and not be able to make the connection between living within their means and making wise spending decisions.
2. Let Your Kids Make Their Own Money Decisions … and Learn from Their Mistakes
Helping your child understand the pros and cons of a decision, instead of making the decision for them, puts them in charge of the decision, even if in your mind they make a wrong choice. If you inhibit the ability of your kids to make age-appropriate money choices they will never build the confidence to make good financial decisions later in life. As parents, our job is to help guide our children’s decision-making process, without making financial decisions for them. For example, if your child wants to buy something at the store but also wants to go swimming with friends tomorrow, you could remind them that if they spend $5 at the dollar store today they may not have enough money to be able to go swimming with their friends tomorrow.
The second aspect of this principle is the learning opportunity that comes about when mistakes are made. Your kids will learn valuable lessons when they realize that there are real consequences for the decisions they make, and what regretting a decision feels like. As parents, we have a natural desire to make things better for our kids even when they are the ones responsible for their unhappiness. I strongly encourage you and your husband to resist the urge to fix the money mistakes your kids make. If you always step in to help, you run the risk of sending a mixed message, namely that there are no ramifications when they make decisions that they feel remorseful for later. As you had to learn the hard way, financial mistakes can cost us dearly and impact our lives for years.
3. The Importance of Delayed Gratification
Speaking from personal experience, I remember the spring and summer before entering the seventh grade (my sons refer to this as the “olden days”) when I did every odd job that came up so I could save up and buy a 10-speed bike. At the end of the summer I had saved up enough money to buy the bike I wanted.
I still recall the feeling of riding the bike for the first time knowing that I bought this bike with my own money. Helping our kids to set goals and save towards them is a habit that will serve them well throughout their lives. There will be temptations along the way that may sidetrack their goals but we can help our kids work through them and get back on track.
4. Credit is Not the Same as Money
The level of indebtedness in Canada is concerning. Most young adults do not fully understand the implications of taking on too much debt early in life until they find themselves overwhelmed. Helping our kids understand how credit works, the importance of a good credit rating and when not to use credit are important aspects of money management. Making impulse purchases on a credit card is easy, paying them back isn’t. When your kids see you pay with credit, show them the bill sometimes. While your kids may be a little young yet to understand the specifics of credit, they will need this information when they reach their mid-teen years.
5. Keeping Up with the Joneses Won’t Make You Happy
It is easy for our kids to get caught up in the trap that having the latest and greatest stuff will make them happy and accepted by their peers. What is harder to appreciate is that everyone else is caught up in the same trap. This is challenging for a lot of parents to overcome. I encourage you to reinforce what really matters; having friends and family that care about your kids for their values and who they are versus what stuff they have. It’s surprising how many kids who seem to have it all would give it up in a second for having parents who are involved in their lives.
The Bottom Line on Teaching Your Kids About Money
You will have a significant impact on the relationship your kids have with money, regardless how you feel about your own money skills. The great thing about acquiring good money skills is that it’s never too late to start learning. As parents, we often feel that we need to have all the answers; the truth is, we don’t. We owe it to our kids to help them become smart consumers with the confidence to make good money decisions — so have some fun learning sound money skills along with your kids. The time we invest today will pay dividends in the future when our kids experience their own financial success.
- Use a Shopping Trip as a Spending Lesson for Your Kids
- Why Messing Up Financially Might be Good for Your Adult Children
- Making Cent$ of Money and Other Popular Money Skills Workshops