Someday, I hope to have children (although, not someday soon). It’s one of the things that Sondra and I have discussed; we both want one or two children once we have finished our respective educations, gotten married, and have the resources to devote to raising them in a warm, loving environment.
Given this desire, and my own personal interest in money and other personal finance related matters, it’s only logical that I’ve given some thought to how I intend to teach those little whippersnappers about money and what you should (and shouldn’t) do with it) once they are old enough to understand the concept.
Here are some of the lessons I hope to impart on my kids about money management (and life) once I have the opportunity:
Probably the first area where my kids will be exposed to money is when I spend it. They won’t watch while I earn it (although, they will probably have an idea of ‘Daddy goes to work to make money’, as most young children do) and it will be a little while before I can explain properly the importance of investing, they will be watching when we go out to buy groceries or visit the mall to buy gifts, and will see Daddy pull out a handful of bills or swipe his credit card before we leave the store.
The most important lesson I’ll try to pass on when they are first getting old enough to learn about money is that, when Daddy (or Mommy, for that matter) gives the cashier money or swipes his credit card, that money is going from Daddy to the store, and Daddy can’t spend it anymore. Given that Daddy, like everyone, doesn’t have an infinite amount of money, he has to decide what to spend it on; if he buys expensive food, he’ll have less money available to spend on toys, and similar trade offs. When they are younger, the biggest lesson on spending is that you can’t have everything you want; you need to make choices and compromises about where your money goes.
As they get older, I’ll try to open up more on all the places where the money goes. I’ll try, as much as is possible, to share the cost of the household expenses and what sort of income I have coming in, explaining why I use particular services for heat or electricity or water. I’ll also try to emphasize the importance of putting some money aside, in savings accounts, retirement plans, and 529 plans (or similar education plans) to help them with tuition when they get old enough to go off to college.
I’ll admit, I’m a bit torn about whether to give my kids an allowance. On one hand, I didn’t get an allowance as a kid, and I seem to grown up with a pretty decent understanding of money. On the other hand, my mother (and my father, to a lesser extent) tended to buy me things out of her own pocket whenever I asked, which I’m certain didn’t help to form a link between getting something and earning the money to buy it in my mind. As a result, I’m leaning toward providing an allowance.
What I do NOT want to do is link that allowance to performing chores. To my mind, that creates the expectation that you should get paid to do things around the house to earn money, rather than because as a member of the household, you should contribute to making the house look nice and livable. It’s a fine line to walk, I realize; if the children know that they will get money regardless of what they do to help the household, they might simply opt to slack off and play rather than cleaning their rooms or helping with dishes.
What I might do is try to split the differences: paying them for ‘extra’ chores, like helping with dishes, shoveling snow, or raking leaves, IF they’ve done all their ‘required’ chores, like keeping their room(s) clean. Then, they’d learn that there are some things you simply have to do, but going above and beyond them can lead to rewards. (I should probably consult with a parenting book or two before I commit to anything, though, to get a better idea of how children usually react to such plans; the last thing I want is for my attempts to reinforce the wrong lessons.)
As they get older, there will be changes, of course; first, as they grow, I’ll expand what falls under the rubric of ‘required’; while an eight year old might be suitably challenged by simply keeping her room clean, as she reaches ten, twelve, or her teen years (*shudders*), the level of tasks I’ll expect from her as par for the course will increase (and of course, when she has a car of her own, she’ll be expected to care for it on her own). The list of ‘extra’ chores will also expand, as they become physically able to handle more complex and challenging tasks; I wouldn’t trust an eight year old to mow the lawn, but a twelve year old is a different story.
When they get old enough, I’ll encourage them to get a part-time job, both so they have a better idea of what the working world is like (especially if you don’t have the education/training to get a higher level position) and so they earn some money on their own. I’ll also do my best to explain the concept of passive and alternative forms of income, and encourage them to do something like start a blog or create another website as an additional form of income. (Now, of course, I’ll also need to teach them how to be safe and secure online, but that’s a whole new barrel of monkeys.)
Saving and Investing
One thing I definitely want to emphasize is the importance of putting a portion of your money aside, creating a fund for future spending as well as trying to grow your money so you don’t have to work for every penny you spend. When they are younger, this might just consist of teaching my children to put part of their allowance or any other money they get (from birthday cards, Christmas gifts, etc.) into a savings account at the bank, so that they aren’t tempted to spend it and can earn a little interest.
As they age, I’ll start to introduce the concept of investing, explaining how they can earn more money than at a bank, and how important it is to invest if they hope to retire (or meet other big goals throughout their lives). When they first start out, I’ll probably pick investments for them and have them trust that Daddy wants what’s best for them, but when they get older, I’ll encourage them to find their own investment opportunities so they learn how to research. (I’ll check over said investments before they put any money into them, at least until they are older enough to know what sort of scams exist in the world of investing.)
To further encourage them, I will probably add some of my own money to their investment pot. Not only can help encourage them to invest enough to get a company match on their retirement funds when they reach that point of their lives, but I can help boost the size of their investment pot to help them get a head start for longer term goals like school and retirement.
Perhaps the most important thing I can teach my children is how to give back to the less fortunate. When they’re young, I’ll probably try to emphasize times when I give physical money to charity, by putting cash in the bowl at church or slipping a few bucks into a Salvation Army bucket in December. Those are perfect teachable moments, and should be ideal for explaining why Daddy is giving money to this strange man.
As my kids get older, I’ll share more about other ways to contribute to charity, explaining how I make donations online and how I decide deserves to receive money. I’ll encourage them to find charities to support and to donate to them a portion of their income. I’ll emphasize the importance of finding a good, worthwhile, legitimate charity, and trying to keep those donations coming. As with saving and investing, I’ll do my best to chip in some of my own money to help increase the impact that their donations will have (and help out the charity, as well).
Wow, I didn’t think I’d write quite so much; but money is a big topic, and trying to create an 18 year plan (or so) for sharing what I know with my children would be hard to condense into a 1000 word column. This is a pretty good start to getting my thoughts on the subject organized, though.