Personal finance is made up of quite a few things – budgeting and loans, saving and investing, and understanding trade-offs. When kids enter the picture, it can be hard to decide when to start educating them about finances. Where do you begin? How do you help them develop an understanding? Do you feel you grasp finances well enough to adequately answer their questions?
Ron Lieber recently published The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, which takes a deeper look at this issue.
One of my favorite stories from the book talks about a community where the bar mitzvahs kept getting pricier and more glamorous, with parents spending tens of thousands of dollars on presents for these kids. Years later, one of the parents asked their child what presents he remembered receiving at his party. He said he remembered only two presents out of the hundred received.
Were these forgotten presents worth the money? I can imagine this response might make some in that community reconsider their gifts to make a more meaningful and valued contribution. This question did help the child realize that for all the money spent, it didn’t provide any additional value in his life.
So not only are your kids learning from you, but you are also learning from your kids. Having financial conversations with your kids is a cycle of knowledge and empowerment, but it can also feel overwhelming if parents are uncomfortable talking about finances with their kids. Without these conversations, kids rely on cues from peers on how to think about spending money, and what their financial goals should be.
One of my favorite quotes from the book is “any conversation about money also had to consider the emotional context – the wave of mixed feelings almost all of us experience about the money we have and what others around us spend.”
Whether we believe our kids are spoiled or not, Ron’s book relays stories about creating an open dialogue with kids around finances: how to add their voice to family discussions on what is valued, why money is spent the way it is, and to increase their overall awareness of the way the influx of social media and instant gratification changes behaviors.
According to Ron, the components of a “spoiled child” are:
- Few chores or other responsibilities
- Few rules governing their daily schedule and/or behavior
- Others lavishing them with time and assistance
- Lots of material possessions
So does this mean we must neglect and be strict with our children to offset spoiling them? No.
This is about preparing kids to make good long-term decisions and to further family goals in practicing a life based on living their values.
The book primes multiple ways to create dialogue and provide opportunities for increased value-driven behavior while removing over indulgence.
The following are two takeaways I plan to use from the book.
When your child asks a question relating to finances, respond eagerly with “Why do you ask?”
This question can help you see into the world of your child. Many questions asked around money originate from perceived differences, or a fear of not having enough. For example, your kid may see the number of toys another kid has and think, “They must be rich, and since I don’t have as many toys, I must be poor.”
By not blurting out a response that cuts the conversation short, we can create a more constructive and meaningful moment to teach our children more about the world around them, and how each family’s values shape the experiences and physical things they decide to spend money on.
Taken a step further, we may find it quickly becomes clear whether your own spending priorities match your values as you impart wisdom to your kids.
Use allowance as a tool, and reconsider tying your child’s allowance to chores
If chores need to be done to keep a home running, why do we tie this to an expectation of compensation through allowance? Ron walks through an alternative way to consider allowances and how allowances might change as a kid grows up.
He believes in beginning an allowance as early as when a kid can count, or when the child is in first grade, at the latest. An allowance can be used as a tool to show budgeting through a three-bucket system (spend, give, and save), as well as allocating raises over time and facilitating an example of compounding interest.
I appreciate Ron’s approach to early involvement because often when I chat with young people in high school and college to provide some financial education, many habits are already taking root. Our chat turns into a check-in for determining goals and reevaluating which habits are aiding them in reaching goals, and which habits are causing roadblocks.
The book makes it easy to start early by detailing common questions parents are asked over time, giving creative ways to incorporate savings and budgeting into a kid’s daily life, and describing how to build delayed gratification skills.
In the end, Ron gives several examples and methods for teaching kids how to be financially responsible through creating good habits and providing insight in instilling value-based spending.
Often, things are simple and clear to our kids – either we are doing what we say, or we are not. I encourage you to grab a copy of the book and check it out!
