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Or: You can teach old dogs new tricks, but it’s easier to train a puppy.
One of the rewarding aspects of being a financial planner is helping people learn how to help themselves. As my clients walk with me through the DBT360 Financial Plan® process, we invariably discover weaknesses that need to be addressed through focused planning and effort. And almost always, at some point, I hear the familiar response: “I wish someone had told me that sooner.”
So, how much sooner? I’m not suggesting that your financial path through life was cemented early on because you spent your entire allowance on baseball cards or candy. But it is true that basic financial concepts learned at an early age can shape habits that will benefit anyone throughout their economic journey. You can teach old dogs new tricks, but it’s easier to train a puppy.
Let’s start with the greatest money lesson of all time:
YOUR CHILDREN LEARN BY WATCHING YOU.
YOUR HABITS (GOOD OR BAD) BECOME THEIR HABITS.
If you do not have a budget, your children won’t. If you cannot demonstrate impulse control when shopping, your children won’t. If you spend more than you earn, your children will. On the other hand, if you invest and save, your children will. If you make choices when shopping and sometimes “go without,” your children will. If you model a relationship between hard work and economic reward, your children will share that belief.
The problem with this one great lesson? Most adults weren’t taught how to handle money well, so they just don’t have much know-how to pass along. Presuming that you as a parent want your kids to make solid choices about money, there are a few concepts that you can introduce as your children grow up that can set them on a path to financial stability.
LESSON ONE (Age 2+): You do have to make choices, and they do have consequences
Kids from a very early age will respond to opportunities to control their environment. Making choices about the toys with which they play or how they spend their time is a big part of developing personalities, and an opportunity to introduce the concept of patience through making choices. You may do this through budgeting screen time, treats, or toys. An example is allowing one hour of “screen time” each day, maybe even broken into “credits” worth 15 minutes each. Once it’s over, it’s over. If your child wants to watch a movie, she can watch it over two days or save up screen time. Even without currency, this type of exercise forms the building blocks of budgeting, making choices, and saving today for greater benefit tomorrow.
LESSON TWO (Age 6+): Budgeting means you plan ahead and make good choices
When your child is a bit older, allow her to help plan an event, such as her birthday party. Discuss the amount that you intend to spend on the whole party, and then explore different options for what to do. As you price the activities, begin to formulate the guest list. Your child will then have to determine how many (and whom) to invite, at least in part based upon the cost per guest. Include as many details as you like - home or at a venue? Fancy cake or homemade cupcakes? Printed invitations or emails? Fifty helium balloons? (Fifty? Really?) Party favors?
As the decisions are being made, praise any decision that keeps the party under budget. Your child may not initially like the idea of limiting what she gets at her party, but positive reinforcement goes a long way. Kids also revel in and grow from the opportunity to accomplish something on their own, and this is a great way to do just that. The goal is not to cut corners, but rather to introduce the idea of a fixed pie and raise awareness about all of the little details that add up when making a budget.
LESSON THREE (Age 8+): Shopping is a skill and a challenge
This one really works, especially if you are building on Lessons 1 and 2. Grocery shopping is full of small lessons that leave lasting impressions. Start by planning a week of meals with your child. Whatever your dietary preferences are, establish some guidelines about what will make up each meal. Allow him to add in some “fun” to the menu with his favorite dishes. Encourage him to space out the fun so he doesn’t plan Pasta Monday and Pasta Tuesday, leaving himself with only chicken and veggies for the rest of the week. Spread them out, and pair the weekly dessert with a “healthy” meal. Delayed gratification teaches saving - you get the idea.
Once the list is prepared, take your child to the store. Ask him to help you do the math when you are choosing between brands or comparable items. (“We chose to get some fruit for lunches. Should we buy bananas or oranges?”) Be sure to stick to the list so you can model impulse control. If you get the “Please Pleas” (“PLEASE PLEASE PLEASE CAN WE GET THIS????”), which is almost always directed at something less than healthy, let him know that he will need to give up something else “fun” to get it. You may be surprised how quickly your child will start to make good choices, and how this will flow over into other parts of his life.
LESSON FOUR (Age 10+): Debt should be used wisely and monitored closely
This is one that a few adults could likely use as well. Debt is not inherently a bad thing, and long-term responsible debt, such as a home mortgage, can be used to maximize the use of resources and spread costs over time. As long as you pay off your credit card balance at the end of each month, make it a habit of showing your monthly bill to your child so he can see all of the expenses in one place, and not just as individual swipes throughout the month. Remember the birthday party we had and the groceries we bought? Now we have to pay for them out of our bank account, which means we have to work to replace those funds.
LESSON FIVE (Age 13+): Big things cost big money
Many adults grew up in houses where money was not discussed, which I personally think is an innocent mistake from generations past. The more kids know about how much things cost, the likelier they are to appreciate the choices their parents make and to be prepared to make good choices themselves.
Start to talk to your children about how much the family vacation or summer camp costs. Let them know that you researched the cost, that you reviewed whether it worked in the family budget, and you decided that spending the money was a wise choice for the family. It’s also good to explain why it was worth it, and that you have delayed gratification in your own life (“we’ve always wanted to take the family to a national park, and we decided this is the year to do it.”)
As your child approaches driving age, the economic lessons multiply. If you intend to purchase a car for him, discuss the various makes/models and investigate the purchase price, as well as interest rates on automobile loans and total price if the car is financed. He should also compare gas costs, maintenance, insurance, repair estimates, and warranties. Gaining an appreciation for the full cost of car ownership can be eye-opening. If he will be assisting at all in paying for the vehicle, set up a payment plan so that it can be a part of his personal budgeting. If he misses a payment to you, the car sits in the garage until payments are current. If he has to contribute funds before purchasing, there’s a built in saving/delayed gratification lesson.
Children will have their own journeys with money, but they can benefit from these subtle lessons along the way. At a minimum, thirty years from now, they won’t be the one that whispers “I wish someone had told me this sooner.”
Securities and investment advisory services offered through FSC Securities Corporation (FSC) member FINRA/SIPC. Additional advisory services offered through BFS Advisory Group, LLC. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC.