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. We love feedback and we’d love it if you would pass it on to me directly at firstname.lastname@example.org . Also, please stay plugged in with us and get updates on episodes and help us promote the podcast. You can subscribe to us at Apple podcasts, Google, Spotify, or your favorite podcast service. Let the financial fun begin!
One of the questions I’ve gotten more often than any other question over the years is: “How do I teach my kids about money?”
Usually, that question comes from people feeling like, “Gosh, you know what, I wish somebody had taught me this stuff when I was a kid or when I was younger so I could have started following good financial principles early.”
Yes, a lot of people wish that they were in a different place regarding finances and how to understand the implications of cash. Had they started five years earlier or 10 years earlier, or if they hadn’t taken out student loans and had been able to start investing money earlier on, what a difference that would have made in their lives and their kids’ lives.
So, that’s often a question: “How do I start teaching my kids about money? And what are the details around that?” Often, people don’t feel like they had the best instruction themselves. That’s not to beat up on their parents necessarily.
Personally, I was lucky. I had good examples and my mom and dad taught me about money early on. I remember my dad teaching me that you don’t borrow money. You just don’t borrow money. And if you do, pay it off as quickly as possible; don’t just borrow it and pay it out on the normal term. Pay it off as quickly as you possibly can. And from my mom I learned to invest in stocks and invest part of my earnings no matter what those earnings were, even if only a really small amount. She would say, “Take part of your earnings, put it away. Use the money to buy stocks, buy investments and start building up your wealth early on.” So I was lucky in that I got some of those teachings at an early age.
Based on a lot of conversations—probably hundreds, if not thousands of conversations that I’ve had in the 20 plus years that I’ve been a financial advisor—I think I’m an exception when it comes to learning about money as a kid. Often, people don’t feel like they had a great example—or if they did have a good example, their parents didn’t teach them anything about how they got to be where they were with money. They just kind of observed what their parents were doing but didn’t actually sit down and talk about any details.
My response to this question of how and when to teach kids about money will be a two-part series. We’re going to talk about this in detail as far as some of the mechanics next week. But this week is more broad. When do I start? How do I start; where’s my starting point?
So, when do we start teaching kids about money? As early as possible I think, because they say that by the time we turn age 7, a lot of our emotions and mindset are kind of locked in. That isn’t to say we can’t change stuff. I believe we can always change if we really want to change or we are properly motivated, but at the end of the day a lot of who we are is formed in those first seven years of life. Therefore, it’s important not to wait too long. Often, people do wait until maybe their kids reach teenage or college age to start talking about money. I would argue that waiting till then is kind of too late. You really want to start as early as possible. In fact, Warren Buffett talked about this recently. He also recommends that people talk to their kids about money as early as possible. Even preschool age can understand basic financial principles about saving. Remember the piggy bank? Yeah, piggy banks still exist. Maybe your parents taught you the principle of saving by using a piggy bank: we take some of our money and we don’t spend it. This is about creating habits and locking in that mindset early on. Don’t spend everything that you earn.
With really little kids, can they earn money? Yes, absolutely. They’re probably going to have some small chores when they first start out. I’ve got a one-year-old and we don’t have her doing chores yet but it’s not going to be long and she’s going to be doing things like feeding the dog and doing some very basic chores. Are we going to pay her for that? Yes. Not because we need to pay her for that, or because we can’t do the work ourselves. Really, this is about creating habits as early as possible, so the kids don’t know any different. It’s presented as “That’s just what we do.” Instill the principle early on, because the number one thing that I can point to as far as whether people are financially successful or not when they are older, is that those who are successful have lived below their means. They were the people that took some of their money and put it someplace reasonably smart.
Does it make a big difference where that money goes? Absolutely. But living below our means and taking some of that money, investing it in the future, makes the biggest difference, and hopefully putting it someplace smart if it’s a long term investment, probably into real estate or stocks, things that have more growth potential.
It’s important to instill that principle early—the one about saving some of our money, but we also want to teach about spending. We want to communicate, “Hey, there’s some power in the money that you’re earning. And some of it’s for the future, but some of it is for now in the present. Help them understand money and what it can do now. Take them shopping. Take them so they can buy little things, whatever it is they want to spend their money on. But emphasize the principle that we don’t spend all of it. Because unfortunately, the average American spends all of it. So we really want to nip that in the bud.
You can be talking about planning, talking about budgeting and saving for purchases. Let’s say if they want something that’s a little bigger than they can afford with their weekly allowance—and believe me, I’ve got a couple of kids that like to have the money burn holes in their pockets. They want to spend it right away. Yes, sometimes these principles are hard to knock into them. You can’t force anybody, right? We all have our own personalities, but for those longer-term purchases, t’s important to understand that we need to save up for them. We don’t want to go into debt. We don’t want to borrow money, even if it’s borrowing money from our parents or a friend or something like that. Lock that in early. Make it clear that “No, that’s not what we do. We don’t spend all our money immediately once we have it. We save up so we have some money for those long-term purchases.”
Also, we take part of our earnings to help other people. That’s another factor we instill in our kids—to take some of the money and give it to the church. That’s a weekly thing we end up looking at with them and their earnings, using money to help other people, people that are less fortunate. We also sponsor a few Compassion International kids. They write letters back and forth, and we talk about how we’re financially helping to support kids who wouldn’t be able to have a good education otherwise. These are kids in remote villages in Ecuador. We’ve sponsored them for several years. So we’re teaching the kids about that as well, locking it in that, “Hey, we’re blessed financially and blessed period to be living in this country. Even our poorest people are better off than most of the people in the world, so let’s try to help out other people, because it’s not just about us. It’s also about making a contribution.”
Some tools for early learning: you can get a piggy bank. You can open a bank account. You can also use a service such as Busy Kid, which gives them a little debit card that allows us to pay them their weekly allowance in the form of an account card. Then they can take that money online. We show them how they can take that money and decide how much they want to have in their spend account, how much in their give account, how much to invest for the future. This is not a commercial for Busy Kid, btw. I don’t have any association with them other than being a customer. They actually let you go out and buy stock, too. Our kids have invested some of their money in stocks—little itty bitty fractional shares of certain things, because right now it’s a lot about the principle. It’s not about the dollar amounts, it’s about locking in those principles and keeping the conversation going.
It’s a lot more natural and comfortable if we talk about this stuff over time in an age-appropriate way. These subjects can come up at very young ages, so I would say we want to be talking about money often. They are watching us and listening to us even when we don’t think they are. Even when they’re teenagers and they’re tuned out, they’re actually listening. They are listening and observing what we’re doing. And we can talk till we’re blue in the face, but ultimately they’re going to watch what we do.
I want to take a pause here, because a lot of people feel inadequate when it comes to talking about money, and that’s why that financial conversation never comes. If people feel like they were never taught well or they don’t know enough, or maybe they’re not comfortable with where they are financially—if they don’t have their own financial house in order, they might feel like they’re not qualified to have that conversation with the kids. I think it’s important to recognize that wherever you are, you can still be a good example. You can be honest and show them what you’re doing and some mistakes that you’ve made. That’s OK, I’ve made plenty of financial mistakes and I’m in this business. I’m a wealth management guy and yet I’ve made plenty of mistakes throughout my life. I can share that with my kids and I’ll share that with you too. I’ll readily share some mistakes I’ve made that I don’t want you to make.
There are great programs through the schools, too. A lot of high schools now have mandatory financial education components to graduate. There’s also Junior Achievement. They will come out to the elementary schools and middle schools. I’ve had the opportunity to go out and speak on a number of occasions to all three levels of school kids—elementary, middle school, high school, using age-appropriate ways of talking about money. It’s been a lot of fun. My kids’ classes all end up talking about some money stuff. That’s great, you know. It’s good that there’s that education component. There’s also plenty of free stuff online, but it doesn’t let us off the hook when it comes to talking about money and being a good example.
Making money a safe topic of conversation is really important because typically money is a taboo subject, just like sex. People don’t talk about it. There are a few topics that are often kept in the dark. People don’t feel comfortable talking about them. They don’t feel comfortable having these conversations with folks and maybe even their own kids. But making money a safe topic of conversation and being willing to be vulnerable and to share successes and failures opens the door to some important conversations. You’ve screwed up and so have I when it comes to finances and everything else, right? We all make mistakes all the time but being comfortable with sharing those successes and failures will show the kids you’re human—and that you don’t want them to make the same mistakes.
That’s a lot of why we do this Wider Financial Advisor podcast, by the way, so we can learn from each other. We learn from past mistakes as well as successes, so use that with kids as well. If we don’t teach them about money, somebody else will. It could be that they themselves will have to learn just by making mistakes through trial and error. This is not fantastic, because often whatever influences they have will not be teaching them things that you want them to learn. So think about who a teenager is most likely to be influenced by. At that point it probably isn’t parents; it’s probably going to be their friends. And if they haven’t had some principles taught to them earlier on, by the time they’re teenagers they may not be listening quite as much as you want them to. Their friends are an influence and their friends may have been taught stuff such as going into debt to buy stuff instead of saving up, blowing all the money right away instead of saving for the future. Or maybe investing in things you don’t agree with. Maybe it’s cryptocurrency or being really, really speculative with investments. If your kids have been taught some of these principles, maybe they wouldn’t be led down that path.
Another big influence, of course, is advertisers. We are inundated more than ever with social media and everything that we consume online. There are advertisements constantly and the whole point of advertising is to get us to buy stuff. Buying online can be addictive. Buying from Amazon, you have that immediate gratification; sometimes here in Northern Colorado we get stuff the same day it’s ordered. Advertisers will definitely be there, willing to fill that void if you haven’t talked to your kids about money.
Another thing is banks. Banks and credit unions. Student loan organizations. Credit card companies. These are all institutions that make money based off people buying stuff and borrowing to get it. That’s not a great influence for kids going into a time period when they’re going to start being able to make decisions once they reach adulthood. I’ve met with thousands of people over the years and usually the thing that trips people up more than anything, is getting into debt and believing they should just finance their lifestyle, their college tuition, or a vehicle that they probably shouldn’t be buying that early in life. There’s all kinds of stuff they could be buying. Often, people want to emulate their parents’ lifestyle after their parents have worked for 20, 30, 40 years building up wealth. They want to be able to live in the same type of house, drive the same type of car, and go on the same types of vacations. But if they do that, unless they start out with a really good paying job with a high income, it’s not likely that they’re going to be able to have that same lifestyle without going into some serious debt.
So talking with kids about money will help combat the bombardment they’re going to get from other people, whether it’s friends, advertisers, or banks. Even the government often encourages people to borrow money. That’s why we’re in the student loan crisis we’re in. Even when I was a college student, I remember getting a letter from the government saying how much money I could borrow in student loans. I was fortunate that my parents covered part of my education, but I was also responsible for a portion of it. Yet I was told I could borrow massive amounts of money with zero interest deferred. And I had a lot of classmates who were seduced by that. They’d say, “Well, why wouldn’t you borrow the money if you don’t have to pay interest? You don’t have to pay it back until after you graduate, so it’s just like free money.”
I know so many people who got themselves in trouble and went into their early working career with tens of thousands if not hundreds of thousands of dollars in student loan debt. That is a big hole to dig out of, and we don’t want our kids to be influenced by that. So recognize again, if we don’t teach our kids about money, somebody else will.
Finally, it’s important to talk to the kids about money now. I say “the kids” kind of generically. A lot of you probably have kids and so you’re trying to figure out how to teach them, but you could be a grandparent. Or maybe you’re a teacher. It could be that your kids’ friends are coming over. Maybe yours is the house where they hang out and you end up being a big influence in their lives—especially with teenagers that can be the case because they’re hanging out with their friends. You could be a great example, especially if you know they don’t have one at home. You could be the one that actually gets them started on the right foot and install some of those principles. Because although starting really young is optimal, even young adults will be influenced by people they interact with at the university level or maybe even in their career. It could be that you are mentoring some of the younger employees at the company where you work. Or maybe you’re a manager or business owner. The whole point here is that you may have a position of influence and it may not just be your own kids.
That’s it for part one of teaching kids about money. Next week we’ll talk about more of the mechanics and the actual things to be doing with kids, not only talking about it, but what actions to take and specifically what to be teaching them from an early age and into their teenage and college years.
I hope this is helpful today. I hope you have a wonderful week and God bless.
The opinions voiced in this episode of the Wiser Financial Advisor with host Josh Nelson are for general information only and not intended to provide specific advice or recommendations for any individual. Investment advisory services offered through Keystone Financial Services, an SEC Registered Investment Advisor.