Teaching Kids about money

[Reynolds531]

I spend a ton of time thinking about this.

I know most family fortunes don't transition well from one generation to the next. My son is 9 years old. He will someday hopefully inherit a good little amount from me....and another from my ex-wife including a lakefront property.

I've read mmm on the subject....but I still think about this a lot and think it warrants discussion.

What are you doing with your kids?

[GizmoTX]

We were already FI (& 45) when our son was born & were concerned about how we were going to raise him to be a responsible, fiscally knowledgeable, & nice guy. He's 24 now & I think we succeeded. It boils down to expectations & coaching. You need to be hands on now, not later.

Early on, DS had a modest allowance & was expected to use it instead of begging us for stuff. It was amazing how his wants became much less when it was his money he was spending. Sadly, most of his classmates were getting unlimited handouts whenever they went anywhere or did anything extracurricular. DS learned how to save for what he wanted, & we helped him to value shop but allowed him to make mistakes. Later on, though his school work was his primary job, he was expected to do household jobs, including doing his own laundry, cleaning his room (not just clearing clutter), taking care of the dog, & helping with meals. By age 14, he earned the BSA Eagle scout award (his idea). We expected him to work summers from high school on, to manage a checking account with no overdrafts at age 15, to manage a credit card paid off in full every month from his checking account at age 17, & to fully fund an IRA out of his internship earnings during college summers. We paid what his university charged (beyond the merit scholarships he received), but he was expected to cover anything over that. When he had to live in an apartment his sophomore year, we paid a basic room & board allowance once a month -- he was expected to make it last or pay any shortage. He usually saved some of it by cooking & not partying. He started using YNAB after graduation. At this point he's asking us for investment & tax advice.

As he grew older, he could tell that we are financially secure. We've taken him on some incredible vacations, but if he wasn't interested & appreciative, we wouldn't have done it. In other words, we tried to always present travel & family activities as learning experiences & not entitlements. We have never told him that "someday what we have will be his" -- my grandparents did that with my father & it sucked all motivation out of him. Ironically they never had a large estate but he didn't realize that. DS knows that he must manage & grow his own stash independently of what may or may not happen with our estate.

[Freedomin5]

+1 to GizmoTX’s post

For us, the underlying goal is about making sure that DD doesn’t have a sense of entitlement, or a belief that she will inherit a good amount of money, investment property, and our lakefront cottage.

DD is only three years old, but we have already started teaching her the concept of saving and delayed gratification. Concepts such as, if you save your money instead of spending it right away, you can buy a bigger toy later. Do you want a small toy now or do you want a big toy later?

For example, she enjoys riding the little cars and animals (the ones you find at the entrances to supermarkets) that cost $1 per ride. Instead of just letting her ride them, she is expected to save up her money. She gets money by finding it on the ground or finding it lying around our house (DH is notorious for having change drop out of his pocket). She then saves it up in her little box. Once in a while we count the money with her, and if she wants, she can take out a few coins to use on the rides.

We have also started teaching her about price comparisons. She just learned her numbers last year, so when we went shopping at the thrift store we told her she could pick one thing by herself that cost $1. A few times she had to put away a toy she liked because it was “too expensive”. But she was very happy to have found her little meal tray for $1. She uses that meal tray every day and is always so proud of it because “I buyed it! It was 1 dollar, right, mama?” That’s how she introduces her tray to everyone who visits.

When she’s older we will start working on more complex concepts.

[Beach_Stache]

What do you all think about matching stuff w/the kids, like "if you fully fund your Roth IRA then I'll match it" or something like that?  I ask b/c those initial working years are so important for retirement funding, and if you get started at 22 (or even 18) vice 35, it can literally be a double or triple factor.  During college my father talked about a Roth IRA and so when I was working summers between college I put in a Roth IRA, b/c I was already a pretty good saver and didn't spend a lot, but that was probably just how I was raised and what made sense to me.  My 2 sisters weren't the same and liked to spend money.  After college I lived at home for 2 years, and again my father convinced me to max out my 401k since I was saving money by living at home.  I'm so glad I did listen b/c I've been basically maxing out my Roth IRA and 401k since I started working and it's made a huge difference. 

I didn't have cash handouts or matches or anything, but did get the benefit of being able to live rent free, getting some bones thrown at me here and there like help w/the wedding, getting a moving truck paid for at our last move, etc.  We have 3 boys (9, 7, 4) and I'm not obsessed about it, but I do like to think how we can pass money on to them and give them the jump start they need to have the same situation as we do.  We don't make a ton, but both have middle class jobs and have invested for as long as we've been working, so will be in good shape when we decide to retire.

We don't spoil our kids and try to teach them about delayed gratification and saving money.  We don't give them an allowance but will give some dollars or coins here and there to put in their piggy bank.  If they go above and beyond we'll tell them "I'll put X amount in your college savings account" which we do anyways but they think it's a special treat.

I'm hoping in time our oldest gets a full time job but I would like to incentivise the savings, whether it's free rent in our place for a few years or matching his Roth IRA or 401k if he maxes out or something like that.  We don't (and probably won't ever) tell them how much money we have b/c we don't want them to rely on us for anything and turn them into dead beats, but I do worry that if we incentivize them in the wrong ways that it could backfire. 

Thoughts about matching money on investments for kids when working, or part time jobs in High School/College, etc.?

[formerlydivorcedmom]

What do you all think about matching stuff w/the kids, like "if you fully fund your Roth IRA then I'll match it" or something like that?  I ask b/c those initial working years are so important for retirement funding, and if you get started at 22 (or even 18) vice 35, it can literally be a double or triple factor.

We do a parental savings match for vacations right now.  Our kids are 8, 10, and 12 now.  For the last 5 years, when we take a family vacation, we match dollar-for-dollar anything they save in the 3 or 6 months before the vacation, up to a certain dollar amount (the max was $100 per kid).  The day before the trip, they get the parental funds.  It's worked really well - they are all decently good savers.

I've talked to all of the kids (and half their friends) about the importance of starting your retirement account when you get your very first job.  I've toyed with the idea of matching what they invest during high school and college, but we haven't made a decision on that yet.

We talk about money constantly in our house.  We talk through decisions on why we buy what do and why we don't buy stuff too.  We talk about choosing our financial priorities - yes, mom has lots of money, NO, mom isn't going to spend it on this random thing you want/etc.  The oldest knows how much we make and how much we have saved and our financial goals for the family.  She hasn't clicked to how much might be left over when we die, but we have talked about how I want to give a lot of money away.

My kids get allowances. We don't buy any toys at all, and not so much junk food, so that's their way of saving for the things that they want.  (The youngest figured out it's cheaper to buy a giant bag of Cheetos than a single serving bag, so he now buys the big one and portions it out into snack-size ziplocs with his name on them.  It's amazing how much further they stretch THEIR money than mom's.)

Each of my kids also has a savings account.  We deposit money for good grades, and every quarter we look at the bank statements with them.  They see that they are earning interest (albeit a tiny amount) just for having savings.  This money will be the basis for buying a car when they are teenagers.   Want a nicer car one day?  Make better grades now.

I can already kind of see their future financial personalities.  Middle child is a saver; she hates spending money.  Oldest child sets financial goals and saves for them, with the occasional small splurge (like me).  Youngest child is more of a spender, but I think he's on the right path, we just need more practice.

[Beach_Stache]

I like the idea of making them buy the stuff they want.  We really don't buy much for our kids, sports equipment and some minor things here and there, but for Xmas and Bday's they get a few minor presents, but with grandparents and birthday's and Xmas they get a bunch of stuff (in my opinion - but way less than the rest of their friends).  Right now they just save everything they get but I think the next toy they ask for (rather than us putting it on a list for a future bday or xmas), we'll just tell them to buy it so they can value their own money and how far it goes.  I think if they can see their piggy bank totally drained after 1 thing they want, they will value saving a bit more.  I keep meaning to open a Capital One savings account for each kid, so we can transfer their cash savings into electronic money, so they can get used to that and to see the small interest payments they get each month.  They are 9, 7, 4, but I think we can start putting into action their own money saving & spending habits so they can see some real world examples.  Thanks for the advise!

[RyanAtTanagra]

What do you all think about matching stuff w/the kids, like "if you fully fund your Roth IRA then I'll match it" or something like that?  I ask b/c those initial working years are so important for retirement funding, and if you get started at 22 (or even 18) vice 35, it can literally be a double or triple factor.

No kids yet, but I think about these things a lot.  I too like the idea of matching to give them a head start, but I worry about when/how to cut them off of it.  At some point you have to and all of a sudden their savings just became 50% less effective, which I can see making saving vs spending seem less appealing.  I'd be curious to hear from others who have gone all the way through this and how the kids handled losing the savings boost.  It's probably an invented problem that doesn't exist in practice.

[Beach_Stache]

I too like the idea of matching to give them a head start, but I worry about when/how to cut them off of it.  At some point you have to and all of a sudden their savings just became 50% less effective, which I can see making saving vs spending seem less appealing.  I'd be curious to hear from others who have gone all the way through this and how the kids handled losing the savings boost.  It's probably an invented problem that doesn't exist in practice.

That's a very good point, at what point do you cut them off, and if you do, will they stop saving just to make the difference?  I found that the rent free living for a while gave me the ability to fully fund my 401k and Roth IRA at a lower salary, and after 2 years of raises I was able to rent at a low cost and really wasn't missing the rent free that much.  Then was able to transition to buying a place with my spouse (soon to be at the time) and with 2 salary's it really wasn't that bad.  You make an excellent point though, while my parents saved me a lot of money, they didn't directly contribute, and I can see where kids can be accustomed to this after time.  I see some friends who's parents put a full 20% down on their first place, they were then able to get roomates and basically never had to pay mortgage or down payment and it was a HUGE boost to them, but see others who will never pay their parents back and just take expensive vacations b/c they did have that boost.  I guess like anything it's about moderation and teaching good life lessons and values, otherwise they'll be lost regardless...

[GizmoTX]

You stop any allowance when they start working, & we believe summer jobs are a requirement for learning life skills. We matched our son's summer earnings during HS in a Roth IRA because his job paid less than the max. He earned much more during his college internships so we stopped matching, but by that time he had gotten the habit that he needed to max his IRA each year.

We initially helped our son open a bank savings account when he was around 8, but 0.1% interest is not motivating. Instead, I-bonds were earning 4% at the time, so he bought a number of them over the next few years from his savings. He liked the fact that they could be cashed after the initial holding period & the taxes were deferred until sold. He still has them.

We funded all educational & health expenses through college, but DS was responsible for everything else starting in HS, including phone plan, car use expenses, & discretionary clothing. His summer jobs funded these purchases. He worked part time during his college semesters (a college project, tutoring, & teaching assistant) & had 2 good merit scholarships. No student loans.

[Parizade]

I spend a ton of time thinking about this.

I know most family fortunes don't transition well from one generation to the next. My son is 9 years old. He will someday hopefully inherit a good little amount from me....and another from my ex-wife including a lakefront property.

I've read mmm on the subject....but I still think about this a lot and think it warrants discussion.

What are you doing with your kids?

I gave my son a generous allowance until he turned 12, then I handed him an advertisement for a local paper route and told him he had to start earning his own money. It was only one night a week, and all the deliveries were within a few blocks of our house. He was angry about it at first but now that hie is grown he has thanked me many times for the lesson and plans to do the same with his daughter.

[Freedomin5]

Yes, stop allowance when they start working. In my case, I started earning a lot more than the $20/month my parents gave me.

I don't know if I would match retirement contributions, but that's because in Canada, we can carry forward RRSP and TFSA contribution room. So even though I'm not making as much money now and maybe cannot afford to maximize RRSP/TFSA contributions, I can make up for it in later years when I make more money.

At the end of the day, it's not about the financial boost you give them by allowing them to start saving more early on. It's about teaching financial responsibility - which includes working hard to earn your own money, and then taking care of the money that you have earned.

[ysette9]

I don’t have any answers,  it thinking back on my own childhood, whatever you do I think it needs to be very hands-on and involve the kids a lot. What I mean is things like handing them cash allowance so they touch and feel having money, handing it over, and clearly realize when it is gone. If you have a college savings account, tell them how much is in it, show how the balance is going up, and put that into context “this is half of a year at college or two years at junior college”.

My mother took us to the bank and had us open savings accounts with our birthday money. I don’t remember much beyond the feeling that I didn’t have money anymore after handing it over to the person at the bank. I knew there was a college savings account for each of us,  it I had no idea what was in it or what it was worth. It wasn’t until after I came home that I learned my year abroad as an exchange student had come from that account.

When I was in late high school I wanted to know more about money so my mother showed me what my father and her earned. I remember reacting that his paycheck was so huge! She tried to put it into context but I don’t remember that part of the conversation too well. I just didn’t have any context until I got my own job and started paying for my own stuff.

[formerlydivorcedmom]

If you have a college savings account, tell them how much is in it, show how the balance is going up, and put that into context “this is half of a year at college or two years at junior college”.

I think the context part is crucial and something a lot of us don't do.  My littlest still thinks that $1,000 and $100,000,000 are pretty close to the same - they are both HUGE amounts of money.  Now we talk context.  For small savings, its how many bags of Cheetos or books we could buy with that amount.  For larger amounts, it's "how many of you could we take on a cruise with this amount of money".  (They value cruises and Cheetos and books and Pokemon cards way more than college at these ages.)

We also talk a lot about value.  That $3 cupcake at the new fancy bakery was sooooo yummy and beautiful that we still talk about it weeks later.  The $3 pack of Oreos one of the kids bought the next week has been forgotten.  Which one had more value to you?  If you buy this toy, you will play with it for Y hours. If you buy this craft set on paper airplanes, you'll play with it for X hours.  Is that price worth it to you for the amount of enjoyment you'll get out of it? 

....and values.  We value family time, helping those with less than we have, education, physical activity/healthy habits, etc.  We splurge on things that reflect those values (including cruises).

I feel like after years of trial and error, we've finally hit on the language that works for our kids, and they are starting to talk through these concepts on their own before they make a purchase.   

[ysette9]

Yes, naturally this has to be age appropriate. I assume I’ll be having those conversations about how much college could get paid for with college investments when the kiddos are in high school or thereabouts. Right now wouldn’t be productive to start that conversation as her impression of school is the place you go to in order to play (good!). :)

[caracarn]

I spend a ton of time thinking about this.

I know most family fortunes don't transition well from one generation to the next. My son is 9 years old. He will someday hopefully inherit a good little amount from me....and another from my ex-wife including a lakefront property.

I've read mmm on the subject....but I still think about this a lot and think it warrants discussion.

What are you doing with your kids?

Have used a system based on a book "The First National Bank of Dad" which we started with about 20 years ago.  I can explain in some detail if helpful but the high points are:

• Kids get money each week
• Pay them a lot of interest to teach that concept
• The money is theirs, they buy what they want.  I stop paying for what they want.
• Eventually convert from savings to stocks, but still in Bank of Dad
• They grow up and understand money better (one hopes, some did better than others)

[honeybbq]

I like a lot of what has been said in this thread.

We basically just explain money; how it is acquired (hard work) and how it is saved and spent. We have a nice house, but we have old cars. We buy what we need, and sometimes what we want, but not always what we want. We explain that we save money to buy things we really want (vacations, etc) and for future expenses (college, etc).

There's nothing wrong with saying "No, we're not wasting money on that". She sees me clip coupons at the grocery store. I tell her "We don't buy junk" at the candy aisle. We don't watch much TV and if we do, commercials are 'annoying' and 'trying to get us to spend our money'.

I think it's getting through. My 6 yr old told me she's saving her allowance for HER DAUGHTER'S college education.

[ysette9]

Not totally related but fun insight into kids and money.

My 3.5 year old was asking why I have to go to work. I explained I need to earn money to pay for our house. She protested that we already bought the house and I had to clarify that we would be paying for it for a long time. She then told me that I am buying the house now and previously when I was on maternity leave it was her father buying the house (he isn’t buying the house now because he is on paternity leave). Haha!

[Heroes821]

I've had, what I feel is a brilliant idea for this for awhile. My wife is not on board so it has sputtered, but I think it could work well.

The idea is give your kids an allowance, monthly, weekly doesn't matter.  Base it off chores so they learn that the money comes from doing work. 

Then instead of handing them $20 a week in cash you hand them 20 $1 and start deducting.  10% is your withheld taxes. $5 is your rent. $3 is food for the week. $1 is your portion of the water bill.  Basically they end up having to manage their money between living expenses, taxes and "take home".  In reality the cash they are left with is the allowance you intended them to end up with all along and the "expenses" that were taken out just get put into their savings/529 whatever.

It could even evolve into teaching an older child (10+?) how to fill out a basic tax form for filing taxes etc. You could teach them about rates by timing their showers and then showing them how the water usage bill changes every month and now that they took 15 1hour showers in the month their water bill goes from $1 to $3. 



TLDR: You want your kid to have a $20 a month allowance, you give them a $50 allowance and then deduct expenses for household goods, utilities, food, etc.

[Michael in ABQ]

We have five kids from 2 to 9 and we've never given an allowance. However, I offer a very generous savings account that pays 5% interest per week. Each Sunday the kids get their money jars or wallets and we count out how much money they have and then they get their 5% interest (often 10% as I'll forgot one weekend or be gone). If they've just received some birthday money from relatives and been good about saving they've got up to as much as $40-50 which means I'm paying out $2+ per week. Most of the time their savings are more modest and I'm paying out $0.25 to $1.00 per week.

Lately I've had my two oldest boys start calculating their interest on a large whiteboard we use for homeschool. We haven't really got to multiplying with decimal points but I explained it to them and when I told them they wouldn't get their money until they solved the problem it certainly provided an incentive to figure it out.

Most of the time they buy little toys like a $1 matchbox car and occasionally a small Lego set costing $6-15 dollars. We've let them buy some really cheap plastic toys that inevitably break within a day or two but they've mostly learned their lesson that it's better to save up and pay more for a better quality toy that won't break. Sometimes we'll let them buy some candy or a soda at the grocery store. Usually they only have around $10-20 dollars on hand so it's enough to get a few quarters each week and if they do resist spending it for a couple of months it can add up quickly. I explained how if they had $20 and didn't spent any of it for a year they would have about $250. However, so far the allure of spending some of it has kept them from saving anywhere close to that.

We also pay the kids for some extra tasks. We have a large tree in our front yard that dumps a tremendous amount of leaves. I did no raking at all as our three oldest boys took care of it all earning $1.00 - $1.50 per bag of leaves filled. If the three of them worked together then I split it up amongst them, sometimes adjusting if one kid stopped working early. They probably each earned around $10 doing that.

Since we use almost exclusively cash for our purchases we'll sometimes have our kids watch as we do our monthly budgeting. We'll have a pile of cash and start dividing it into envelopes. I think a lot of parents avoiding talking about money with or in front of their kids but we're very open about it. We explain how we're not going to spend money on something because either we don't need it, or we're saving up to buy a house.

[Reynolds531]

It's nice to see many others thinking about this.

When I was my son's age I was delivering flyers, picking strawberries, and running lemonade stands. I guess my Alex P Keaton isn't rubbing off as much as I'd like... he's more normal. Lol