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Raising Money Savvy Kids

Game of Life car

Car from The Game of Life (used with permission of Hasbro, Inc.)

Most people would rather reveal their weight than their Visa balance. Talking about money is taboo, but those conversations are critical when it comes to your kids.

"It’s like sex was 25 years ago. It’s uncomfortable, but they’re going to learn about money somewhere,” says Neale Godfrey, founder, Children’s Financial Network. “Do you want to teach them or leave it to chance?"

Let AU pros Neale Godfrey, SIS/BA ’72, and Stuart Ritter, SPA/MA ’93, help you.

How can parents overcome their fear about talking to their kids about money?

Godfrey: Make the world your classroom. When you use your credit card, explain that it’s not a magic piece of plastic. Show your kids some bills and explain how they get paid.

Ritter: Parents are more comfortable talking about drugs, sex, and alcohol with their kids than money. It doesn’t have to be a big lecture, though. It’s about taking advantage of everyday, teachable money moments and recognizing that your kids learn about money by watching you.

A lot of parents think, ‘I don’t know what it’s like to invest, so I can’t talk to my kids about it.’ They probably don’t know how a transmission works either, but they can drive a car and teach their kids to drive. You don’t have to be an expert to focus on the fundamentals: saving and spending wisely, setting financial goals.

What are the consequences for a child who’s not financially literate?

Ritter: In the absence of sharing our wisdom, kids will have a much longer learning curve. The fact that kids have to rack up $10,000 in credit card debt before we explain how credit works is sad. If you don’t sit down with them, kids are more likely to draw incorrect conclusions based on their observations.

That said, human beings learn by making mistakes. To avoid big mistakes down the road, allow your kids to make small mistakes when they’re young. Let them buy the baseball cards and feel regret that they don’t have the money saved for a bike. That’s a small, manageable mistake.

How do we teach kids to save?

Godfrey: Budgeting should be a habit, like brushing your teeth. I advise parents to pay their kids their age per week in allowance. Of that, kids should [allot] 10 percent for charity and 30 percent each for quick cash or instant gratification, mid-term savings, and long-term savings (college). When something becomes habit, you don’t think about it, you just do it.

Ritter: Saving and spending can be very abstract—even for adults. Sit down with your kids and identify a savings goal: a bike, for example. Next time you’re in the store and your kid wants something, ask if he wants to spend the money now or save it for the bike. Setting goals and having conversations about saving connected to those goals helps kids learn the skill of delayed gratification. It’s something they need to practice when they’re 10, 20, 60.

What Can we teach kids about credit?

Ritter: There are two parts to the credit conversation. First, the mechanics: how does a credit card work? Often, that’s an easier conversation for parents to have. You can talk about how money flows through the household without getting into actual dollars. The second aspect is values. That’s where parents talk about the decisions they make and how they prioritize their money. You might explain to your child, ‘We can’t go on vacation this year because we want to save for your college education and we don’t want to put the trip on a credit card.’ When you link these conversations back to your values, they’re a lot easier.

Can financial literacy be fun?

Godfrey: Kids love a challenge. Show them the electric bill, challenge them to reduce it by being more mindful about closing the refrigerator door, and share the savings with them. Conversely, you can have a penalty jar. When you leave the lights on—adults, included—you put a quarter in the jar.

Should parents share their finances with kids?

Godfrey: I’m an entrepreneur, so I always let the kids know if it was a filet mignon night or a macaroni night. It’s not that one is better than the other, it’s about being honest with your kids. If you’re comfortable, tell them how much your make, how much you spend, what you save. Remind them there are trade-offs.

How can parents help kids weather a financial crisis?

Ritter: Impart the basic idea without scaring the kids. Say, ‘We’re not going out to dinner to save money in case mommy or daddy loses their job.’ You may have to make adjustments—and you may not be happy with those changes—but families make adjustments all the time. You can always learn and teach your kids, even when things are tough.

Godfrey: Kids are savvy, they sense when something is wrong. They want to know that they’ll be OK and that you’re OK. Tell them, ‘I can’t guarantee anything, but I love you and I’m going to try my hardest.’ Acknowledge their feelings, allow them to storm around and be upset, because they need to feel it.

Can parents turn their money mistakes into teachable moments?

Ritter: Some of it is ‘do as I say, not as I do.’ You may not have the perfect diet, but you still talk to your kids about eating right. There’s nothing fundamentally different about money. Do your best and be honest with your kids. Don’t avoid the conversation altogether because you’re afraid to admit your own mistakes.