Make Your Kid A Money Genius (Even If You''re Not) 1 14 Rules for Talking to Your Kids About Money The fact that you''re reading this means you know you should talk money with your kid. Whether the subject terrifies you or intrigues you, or you''re simply looking for ways to broach the topic, the good news is that you''re plunging in. Go, you! A few quick words about this chapter. Though its title might make it sound like I''m expecting you to be a financial drill sergeant ("Now drop and give me twenty compound-interest calculations!"), I''m not. This chapter is the gentle one, meant to ease you into some overall concepts--and context--that''ll help you engage with your child about money. Some points will apply, others might not, depending on your kid''s age, interest level, and even gender. So don''t think that you need to commit everything to memory or take furious notes. The idea here is to put down your highlighter and just read.
One final thought before we begin: Money conversations don''t happen in a vacuum. Instead, they pop up at various times throughout the messy business of living. Though it''s become a cliché, most learning happens during these everyday "teachable moments." The tips below and throughout this book are meant to help you take advantage of these opportunities. So here we go. 1 Start even earlier than you think you should. By the ripe old age of three, researchers at the University of Wisconsin-Madison report, many children are able to grasp economic ideas such as value and exchange, albeit in a very rudimentary way. They can also delay gratification and make choices.
Though basic, all these concepts are important in understanding the role of money in our daily lives. Although there''s no economic equivalent of Baby Mozart videos, no stuffed dolls that look like Warren Buffett to tell your kid to "buy low and sell high" when you squeeze them, that doesn''t mean you shouldn''t pay attention to this stuff when your child is small. Your toddler is eager, and able, to understand a lot. When you notice your little one "swiping" a pretend credit card, asking to push the buttons at the ATM, or looking through your wallet, instead of chuckling indulgently in a "kids say the darndest things" way, start teaching him some of the basic lessons in this book about where money comes from and how to pay for things. Even if your preschooler doesn''t absorb it all, he will still notice that you''re talking to him about something that matters--something grown-ups care about. And odds are, he''s already soaking up more than you think. 2 Keep it age appropriate. Sticking to the truth is good when it comes to money, but so is adapting your message to your kid''s level.
If you lose your job, it''s fine to say to your elementary schooler, "We''re going to cook at home more, since that costs less than eating out." Skip the part about being in such dire straits that you''re dipping into your 401(k) to make ends meet. Given the same scenario but with a kid in high school, talking about how the loss of an income will affect college financing would be not only acceptable but also wise. You can discuss the reality that your family might not be able to put as much toward college expenses, but at the same time explain that she might qualify for more financial aid. In general, when it comes to having any hard money talk with your kid, it''s good to tell it like it is, but also offer reassurance that she--and you--will be okay. 3 Use anecdotes. More often than not, when we launch into lecture mode, our kids tune out. Or, worse, our pontificate-y good intentions backfire and push our children to do the opposite of what we''re trying to get them to do.
Instead, use stories to illustrate a point. When my friend couldn''t get a decent rate on a car loan because she''d run up too much debt on her credit card on a monthlong, over-the-top European trip the year before, I told my kids the details (without mentioning her name). Anecdotes such as these, which highlight how financial blunders lead to consequences, tend to stick in kids'' minds. Same is true of positive lessons, like an example of the neighbor who saved religiously for ten years, putting aside 1% of every paycheck, so that he could finally buy his dream fishing boat. You get the idea. 4 Use numbers, even if you''re mathphobic. People understand money concepts better when a point is made with specific numbers. Saying to your kid, "It''s so important to put money into your 401(k) even when you''re young," is much less effective than offering an example.
"If you put $315 every month into a 401(k) starting at age twenty-two, by the time you reach age sixty-five, you could have more than a million dollars." (The very words million dollars invariably make kids take notice.) If you have no idea where to get the numbers to show your kid, use some of the examples from this book or, if you''re feeling ambitious, check out the simple online financial calculators on a website such as Moneychimp.com. (I used a compound-interest calculator to crunch the numbers for the example above, and I promise it''s easy. Really.) 5 Don''t lie about your money past--but don''t overshare, either. Most of us have had a flirtation with bad money management at some point, whether we ran up too much on a credit card or bounced a check or two (or ten).
But resist the urge to come clean about your money mistakes to purge your own feelings of guilt or irresponsibility: Your kid isn''t your financial advisor--or your priest. Take a page from the latest research on talking to kids about drugs, which shows that parents who have themselves indulged in the past should not go into details with their kids. If you''re answering a direct question, definitely pick and choose which financial sins you disclose; tales of emptying your bank account for a road trip with an old boyfriend or blowing through your 401(k) savings to fund a wacky business scheme may glamorize what were actually regrettable decisions that took you many years to overcome. 6 Never fib about how much money you have on you. This is something that nearly all harried parents do at some point. Whether our wallets are full or empty, in the heat of the parenting moment, it is natural to want to lie a little to avoid tantrums when passing our kid''s favorite stores or during difficult checkout-line discussions. Try not to. Although it might seem harmless to tell a young child, "I don''t have any money with me, so I can''t buy you that bag of gummy bears," it''s better to say something like, "No, I don''t think we need to spend money on that now.
Besides, the dentist told us to avoid chewy sweets." Straight talk is a good example to set, and if there are real reasons behind your decisions, it''s actually helpful to share them with your child. If what your kid wants simply isn''t in your budget, say so and explain why. Or if you oppose the purchase for some other reason (say, you don''t want your kid toting a bazooka water gun around the neighborhood), then explain that, too. Remember that children are smart and won''t just settle for "We can''t afford it," which, surveys show, kids mostly don''t believe anyway. No matter what your reasons, saying that you don''t have cash won''t work, since kids know there are lots of ways to pay for things. If you swipe your credit card a few minutes after pleading poverty, you''ll be busted. Once you get caught in a lie, your child will always wonder if you can be trusted.
It''s just not worth it. Bite the bullet at the point of purchase now, and it won''t bite you in the backside later. 7 Identify your financial baggage--then leave it behind. Nina, now in her midthirties, used to tell anyone who''d listen, including her kids, that her "inability to do money," as she put it, is due to her parents'' financial ineptitude. "They knew nothing about budgeting, never saved, and lived life in a completely irresponsible way," she''d say. I also know people who tell me the opposite: They''re bad with money because their parents were so controlling and frugal, and they promised themselves that they wouldn''t live that way when they were parents. Here''s the point: It''s good to be aware of how your parents handled money and the ways that has affected your behavior, but don''t use it as an excuse to explain away your money foibles or, worse, to avoid teaching your kids about the subject. Approach money in a positive way--you might need to fake it, at least at first--instead of passing on that negativity.
8 Keep the money fights behind closed doors--and don''t let your kids get caught in the middle. Researchers have found that college kids whose parents regularly fought about money when they were younger were nearly three times more likely to owe $500 or more on their credit cards than kids whose parents kept the financial peace. You and your spouse aren''t always going to see eye to eye on family finances, but it''s important to shield your children from your big money disagreements whenever possible. Try your best to present a united front to your children. It''s perfectly fine to call a money "time-out" for parents only and tell your teenager, "We''re not sure what we think about paying for you to go to that music festival with your friends, so we''ll discuss it and get back to you." If you and your spouse or ex are often at odds over money, you will need to figure out in private how you are going to work out a compromise.