A few months back, I posted a video on my YouTube channel about what parents needed to teach their kids about money. It was filmed at 1:00am in an airport hotel room and it shows (Here’s the link for those that are curious: https://www.youtube.com/watch?v=ao4na0pEXh4&t=33s).
I made a few points about why teaching our kids about money was important, and that it is important to show our kids that money is not the point of life, but it allows us to live our lives on our own terms. What I didn’t really articulate… because it was 1:00am and I was in an airport hotel room… was exactly what a kid needs to know about money. There are lots of things that kids need to know about money and finance, but I’ve managed to distill them down to a few key concepts that kids need to get used to.
It starts with why this is a concern for parents. As a parent of three toddlers I have often been in that situation in shops that start with “Dad, can I have….” And you’re left with what I call the parents conundrum…. If I buy it, am I being a bad parent? But if I don’t am I also being a bad parent? What if I don’t have the money to spare? and quite often I try in vain to turn the situation into a ‘teachable moment’ and try to implement some kind of reward/saving situation. In December it’s quite easy to fall back on the old “maybe Santa will give it to you” thus instead of teaching our kids about money, we re-enforce the concept that if you’re good the things you want will just appear…
As parents, what we want is to know that our kids will be smart with their money. We want to ‘teach them how to fish’ as the saying goes but inevitably we just keep handing out fish.
If we are going to raise financially savvy kids, here are the four things that I think they need to know.
Money is finite.
My son is 4 and knows how to spend money. It’s quite easy, just take what you want to the counter, then swipe Daddy’s magic card…. If this idea isn’t squashed at the age of 4, it will continue into adulthood. Kids need to know that money is finite, and I’ll add that they need to know that it arrived due to effort. We teach our kids to count, so why aren’t we doing this with money and killing two birds with one stone? If you have $20 and the thing you want is $30, then how many times do you need to mow the lawn to buy the toy?
There is this concept that I’ve been told about, called delayed gratification… not something that I’m proficient in, but quite often the best value can be found by waiting for the right time to buy something. Take a mobile phone for example, saving to buy one for $1,000 is much better than borrowing to buy one for $1,200 just because you want it now, but a lot of kids will take the quick option. There are plenty of studies that show kids who can delay gratification are generally more successful in their lives, which is what we really want as parents isn’t it?
You need to set goals
Kids have a natural tendency to just ask for what they want, and react according to your response. If they want something that you are not able or inclined to buy for them right now, then it becomes something that they need to achieve if they really want it. Helping them set a goal and understand what is required to get there is an important process to go through.
Your goals need to be prioritised.
The concept of competing goals is important to developing smart money behviour. Have you ever seen a kid enthusiastically compose their Santa list? They usually write down every single thing they’ve seen in the last 12 months with furious vigour. In our house, the only fat man that gives out presents is me, and I have finite resources. So teaching your kids that as in adult life, if they want one thing bad enough, they may have to wait or forego some other goals. If you have $100 dollars and three $50 goals then you really need to learn how to prioritse your goals, which is hard to instill in our kids but unless we do, our kids won’t learn this skill.
If you can find a way to instill these four behaviours in your kids from an early age, then they stand a much better chance of growing up to be financially savvy which is what we all want for our kids.