Hi, Everyone. Welcome to the Wiser Financial Advisor with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money. This is Josh Nelson, Certified Financial Planner and founder and CEO of Keystone Financial Services. Let the financial fun begin!

Today we’re talking about how to teach kids about money, and this is a topic that comes up over and over in client conversations. Over the years, a lot of people that have even been very successful are worried that their kids and grandkids are not going to be able to have the same level of success or financial security that they have themselves. So they raise this topic with us often.

There are so many different resources out there that it can be confusing. So I want to narrow it down to a few things today and get you on the right track with a few principles that I think are important as far as end result and outcome. What are we trying to get across to kids, whether through opening up a bank account or playing Monopoly or whatever it may be? There are lots of different ways to do it.

First of all, it’s never too early and it’s never too late to start, so don’t underestimate the power of even a 2-year old being able to do a chore and have a little piggy bank, things like that. They can start to learn about money when you show them what they’re getting for doing that chore. It’s also never too late. You might have kids that are grown, and you can share with them some of the successes and failures you’ve had in life.

The number one first principle is the importance of saving. That is the most important financial decision in your financial life—what percentage are you taking out to pay yourself? We’ve covered that in a different episode and I do want to hammer that home again. The most important decision you’ll ever make about money is how much you take out of your income before you get it to spend and do other stuff with. What percentage are you putting away? Compound interest is a miraculous thing, and given enough years, even somebody with a very modest income can accumulate a lot of money in savings and investments to cover their own security and freedom in the future. So teaching kids to save money from an early age will help them to develop that habit of saving and help them build a strong financial foundation.

You can encourage kids to save by setting up a savings account for them or giving them a piggy bank or something simple like that. Most banks or credit unions will set up kids’ accounts and even issue them a debit card, if appropriate for your kid or your grandkid or whoever you’re setting it up for. You want to do something that’s going to work and be as true to life as possible. Cash is fine. It’s good to teach them how to make change and so forth. But these days, more than likely they’re gonna be using some type of a debit card in the future. Try to introduce that as early as possible. Show them statements. Show them how to log in online and how to use a debit card, so it’s not a big deal later on. You don’t want a kid in high school to have no idea how to do any of this stuff. There are games: Monopoly, The Game of Life, plenty of things you can go through with kids without having to have a formal sit-down talk about money. Maybe you’re playing a game and then you get done with the game and talk about it. For example, “This person won the game. Was it just luck or did they plan ahead?” There are ways to be creative in getting these conversations started.

Principle number two is budgeting. Nobody likes that word, by the way. Budgeting is kind of a dirty word in the financial world because people think a budget is gonna constrict them, that they’re not gonna have freedom anymore. People don’t like to be constrained when it comes to what they want to spend money on, whether it’s that Starbucks drink, that trip, or something else. I don’t like to be constrained either, just to be honest, so it’s a crucial thing to teach kids about money, because money does not grow on trees and it does have limits. At some point they are going to run up against a limit with how much money they’ve got. And sometimes those are hard lessons and important lessons to learn. What does it feel like to run out? What does it feel like to not be able to do stuff because you spent all the money you made?

These days, of course, people can go into debt and get credit cards and so forth. We really want to avoid that, though. Of course, if they’re kids, they won’t be able to get access to that. At that stage, it’s good to instill as early as possible that they need to save up money and plan their spending. Maybe to say, “spending plan,” is a better term to use than “budget,”—just so they have a way to start learning to manage their money effectively and plan for expenses. This will help them avoid overspending, which is rampant in our society right now. Overspending, going into the negative on checking accounts, going into credit card debt or massive credit card debt or just debt in general. The “Buy now, pay later” stuff that’s going on right now is crazy. Everybody seems to be offering that and I hope nobody listening to this is doing that, even if it’s zero interest. It’s very, very tempting to do that zero interest stuff. But that’s a slippery slope because unless you have planned out everything, including unexpected stuff (and of course you can’t do that, because you don’t know all the unexpected stuff that could happen), “buy now, pay later” can really bite you in the end. So we want to encourage kids to keep a record of their expenses so they know what they’re spending and teach them how to make a budget and stick to it, how to actually plan ahead.

Principle number three is delayed gratification. It’s important to know from an early age that you don’t just get everything you want whenever you want it. I think that’s pretty important in life, not just with money, but with a lot of things. There’s value in having to plan for something and not getting everything we want immediately. That might sound really countercultural in today’s society, because the average person does not want to wait. So many people’s finances are in shambles because of buying something now that they can’t really afford yet. When looking at the statistics of where people are at from a wealth-building standpoint or a debt standpoint, it doesn’t take long to know that a lot of the troubles come down to not delaying gratification; instead, doing whatever you want, whenever you want. Sometimes that works but most of the time it does not. So, delayed gratification is important to teach kids, whether that’s not getting a piece of candy or a toy at the grocery store, or whatever it is. Instead, teach them that they could plan ahead or they at least have to earn it. That’s where we get some satisfaction and real pride, when we do save up and plan ahead and then get to have a nice experience. It’s important to instill that as early as possible. The values instilled early on, whether by accident or on purpose, from teachers, parents, and other adults, tend to stick. It can be hard to break those habits once we get going. By teaching kids delayed gratification, what we’re trying to instill is that impulse buying is usually not a good thing.

It really is financially immature to impulse buy. I’ve been there. I’ve made impulse purchases in the past. And often, after the fact I wished I hadn’t. So, we want to instill that lesson as early as possible, so that kids have a moment of hesitation and understand it’s better to wait. If it’s something that will be gotten in the future, it’s fine to delay getting it, to make sure that I really want it and I’ve got a plan to pay for it.

Thanks so much. I always want to be a resource to you if you have any questions, comments, anything that would be helpful for the Wiser Financial Advisor for other folks, please pass that on as well. Have a great week and God bless.

We love feedback and we’d love it if you would pass it on to me directly at josh@keystonefinancial.com Also, please stay plugged in with us, get updates on episodes and help us promote the podcast by rating us and subscribing to us at your favorite podcast service.

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