Kids and Money #1

January 12, 2023

     One of the questions Sean and I like to ask potential clients is what they learned about money from their parents.  The answers would probably surprise you.  Most often that question brings up some resentment and anger toward their parents.  Others are thankful they were taught to budget and live beneath their means.  Regardless of the answer to this question, if you are a parent, you probably want your kids to be able to answer that question with enthusiasm, confidence, and gratitude.  That is what this new blog will be all about.  

     My son turned 4 in September and my goal, similar to yours with your kids, is to guide him to becoming the best adult possible.  Money is a massive component of life and being good with it takes SO much stress out of life.  I have listened to some podcasts, read some books, and will continue to do so for knowledge about teaching kids about money.  But knowledge is caught more than taught with things like money management.  So, here it goes! 

     My wife Sarah and I decided at the end of 2022 that we would use cash for more of our purchases and talk openly with our kids about money (Not all components but more about value and budgets).  If you know me, then you know that I really like credit card points and the protections that come along with them.  I want my kids to see the transaction and learn that an actual exchange is taking place.  An exchange of goods/services for money.  If my kids only see me use plastic, they don’t understand that something is being given up whereas if I use cash, I give some and receive less back or none back at all if I’m paying with the exact amount.  We still are using cards for online purchases, hotels, fuel, and things like that but for our day to day and month to month expenses, we use cold hard cash. 

     For my son, when he turned 4, we started giving him an allowance of $1 each week and allowed him to earn money for little chores around the house.  One of the things I read is that when kids start helping with household chores, they should receive some compensation to start understanding the value of work and money.  So, my son’s chores are simple, he puts his clean laundry in the dresser and hangs them up in his closet, feeds the dog each morning and evening, makes his bed in the morning, gets his room tidy before dinner, puts his dishes in the sink or on the counter when he is done with meals, and puts his clean dishes away.  They are all simple for him, but it helps us out and he is contributing.  Starting in 2023, he will be doing his own laundry.  I feel bad for Sarah because she will teach him how to do that.  I’ve also allowed him to help me with outdoor projects and given him a small amount of money.  He helped me pull some weeds in the summer and most recently, helped with raking the fallen leaves.  I gave him $1 for raking the leaves.  Yes, I know it’s below the minimum wage but he’s 4 and there was a lot of babysitting that went along with it.  So far, the allowance and helping with chores has been good because he knows that he won’t get his allowance if he doesn’t do the majority of his chores.  We let him slide every once and awhile, but he is probably around 80-90% success with getting these things done.  

     For Christmas, he received a wallet to carry his money in.  When we go out he takes that wallet and we’ve given him the freedom to buy things he chooses to buy…for the most part.  We walked through Walmart recently and he had $5 in his wallet and he wanted to buy a toy with the money out of his new wallet.  Much to my surprise, it was difficult to find because everything is expensive these days.  We managed to find a toy that was $5 and he wanted to buy it because he could (I’m covering the tax. I don’t want to destroy his dreams😉) but I stopped him because I knew it would be a bad purchase.  I realized afterward that I should have let him do that to understand that there is a lot to be learned from bad purchases.  Next time, I’ll let him buy whatever he would like with his money.  Afterall, it’s his money and if he doesn’t make mistakes, he will not learn. 

     So, we are roughly a week into this, and I’ve realized that like riding a bike, I have to let him fail or he won’t get better.  Teaching him financial independence will be a challenge and over time, I will teach him the concept of saving for purchases, investing, and other financial management topics but I am starting with earning money to buy things as that is really what we are doing all of this for.  We are earning money to buy things, whether it’s food, shelter, clothes, cars, toys, etc.  Once he understands that he can earn more money for doing harder things and that will allow him to buy cooler stuff, we will get into the concept of saving that money and building it up for purchases.  Then, thinking through getting his money to work for him via investing.  

     Keep in mind, I’m learning as well and coming up with some of these things as we go for a 4-year-old.  If my son were 12, I would approach this quite differently, but I think the sooner you can get children to start thinking about what money does and how to get it, the better. 

     Last thing I’ll mention here is that we have adopted the attitude that if he can figure out how to buy it, we’ll let him buy it.  I listened to a podcast a while back about this and the podcaster was saying this helps kids be more creative and driven to accomplish goals.  The podcaster’s example was that his kids wanted horses.  That’s right, horses.  He told them if they can afford to buy them, feed them, and store them (I’m not a horse guy so I don’t know if you store horses but you catch my drift) they could have them.  So, his 13 and 11 year-old daughters figured out how to earn enough money to buy horses and take care of the other requirements for them and they are thrilled about their success.  

     So, keep in mind, kids are way more creative than adults so allow that to flourish.  Good luck!

Rory Hartmann CFP®

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