How to Teach Your Kids About Personal Finance

The first question that I ask clients is about what they learned about personal finance when they were growing up. The most common answer is “Nothing”. The second most common answer is “I learned that we didn’t have much & it was a very stressful topic that nobody liked talking about”. That’s not great. We want our kids to succeed in life, so we send them to school and hopefully teach them something about life. We might even help them map out their careers. But teaching them how to handle their money? Nope. We don’t do that.

We want our kids to thrive in the world, but we don’t teach them how to handle money? That’s a pretty large disconnect. And our kids are paying for it, literally. They can easily run up student loans into the six figures. Even lower, seemingly “acceptable” amounts of student loans can eat up a high percentage of their entry level job’s take home income. In addition, credit card companies are no longer shy about handing out cards to young adults that don’t have much of a credit history. Then, some of these same financial companies will punish these same young adults for having too much debt & bad credit. Yes, there’s a lot of potential for financial damage very early on our kid’s lives. So, why aren’t parents bringing anything to the table here?

The main reason that we don’t teach our kids about personal finances, is that we didn’t learn much about it ourselves, and we’re probably not great at it either. How well does that work for our kids? Obviously, it’s a disaster. So, what can we do to make our kids’ lives better and help them with their finances?

The first step in educating our kids is to educate ourselves. How can we teach them something that we don’t do well ourselves? I certainly recommend that we get our own acts together, and I can help. See my link at the bottom of this post if you want to improve your personal finances & help educate your kids.

But putting aside our own education, what are some high impact things that we can do to help our kids? The biggest thing IMO is to expect more of our kids. The more we expect of them, the more they learn. The less we expect, the less they learn. If we make things super easy for them, give them a lot of things that they didn’t earn, and have low expectations of them, then we do them great harm. We want to create a link between work, making money, saving money & making purchases. When they’re very young, the work might be picking up their room, making their bed, or taking out the trash. As they get older, they can babysit their siblings, or the kids of family friends and neighbors. They can mow the lawn, rake leaves, wash the dishes, vacuum the house or many other basic tasks. So, you can tie their “allowance” to completing these tasks. Get the tasks done, get paid. Don’t get them done, don’t get paid. You can then help them set goals for purchasing things they might like, such as sports equipment, a video game, a doll, or whatever is important to them at the time. So…. work, save up money, purchase the thing that you want. A reward!! Conversely, don’t work, don’t get paid, don’t get the things that you want. A consequence! And don’t cave and buy it for them anyway! It’s a simple lesson that carries over into adulthood.

I think it’s also important to build in the idea of being a generous giver. It can be giving to the church, it can be giving to a cause, or whatever your child might connect to. So, part of what they earn should be allocated to giving. If we don’t teach our kids to give generously, where are they going to pick that up? Mostly, they won’t. Learning to be generous & not horde everything for ourselves is a lesson that helps us all around. Being selfish with our money shouldn’t be the goal.

As our kids hit the age of 15 or 16, they’re eligible in many states to work a real job. They can scoop ice cream, flip burgers, sell movie tickets, etc. Some enterprising kids might mow lawns, power wash driveways, do landscaping, start a dog walking business, etc. And….at that age there’s often a really BIG thing that they want. A car! In their minds, that’s the key to adulthood & freedom!! In my humble opinion, the best thing we can do to teach our kids about money is to require them to buy their own car, or at least contribute a big chunk to its purchase. A kid that buys their own car is really going to learn how to save up and buy their own things… and take pride in them. A kid that buys their own car will keep it clean (mostly) and is more careful not to wreck it. In our case, we had our kids contribute whatever they wanted from their jobs to an investment account I set up for them. I matched whatever they put in. They put in $50 and I put in $50. They put it $300 (and sometimes they did) and I put in $300. It might seem like a stretch to have enough to buy a car, but a motivated kid can quickly build up a few thousand dollars fairly quickly. It’s amazing to me how much they can save in just one summer if the freedom of their own car is on the line. After they’ve saved up a sufficient amount, then you can help them find a reliable, safe cash car. Definitely don’t start them on a car note. They will likely not be able to pay the note reliably, leaving you with the bill. And, learning how to pay for things without borrowing money (and taking on payments) is just a great lesson that’s not taught very often today. If we learn to live life without payments, then we have a lot of extra money every month to use for truly important things, and for having lots of fun.

I reflect back to my teen years and how things were for us. There was nobody I knew whose parents bought them a car. If we asked our parents to buy us a car, the answer was “Get a job!”. So, that’s what we all did. And we all got less than perfect cars, that we were all very proud of, that got us where we wanted to go. It is still amazing to me that a generation whose parents made us earn our own stuff (which served us well) aren’t doing the same for their own kids. And often, these parents will wonder why their kids seem entitled and why they don’t want to work hard. I want to be clear that I think the younger generation is fully capable of all these things and I see it every day. But they are often working from a deficit because they weren’t taught about personal finances and not much was expected of them.

Let’s talk about college. Not everyone is going to go to college, but for those that do aspire to college, it can be very expensive these days. Parents really need to help guide them through the decision-making process. And I’ll write more about this topic next week. But the bottom line is that if we don’t help them, they’re likely to take out student loans without any understanding what it will look like to pay them back. That entry level job that they land won’t leave much room for student loan payments, and “Income-Based” repayment often won’t pay much loan principal. Some loans even grow larger because the interest is higher than the payment. That’s not how we want our kids to start off their adult lives.

The younger generation is really starved for information and mentoring about how to handle their finances. The schools today aren’t going to help. So, it really is up to the parents to do it themselves, or at least get their kids connected with good mentors. We hold the keys to our kids’ financial futures whether we choose to use those keys, or not.

If you’re someone who wants to get their financial act together, whether you’re young and just starting, a parent who wants to teach their kids better, or just someone who’s struggling, click here to setup a Consultation with me. We’ll get to know each other and find out if financial coaching is a fit.

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