It’s a simple calculus, kids and money: From birth until college graduation, children consume dollars like they’re chicken nuggets.
For those of us who aren’t independently wealthy, that puts unrelenting pressure on the family pocketbook. The financial demands of raising a child require that money you otherwise might use to prepare for retirement, or to save for a nicer house, a sportier car or a swankier vacation, must, out of necessity, be earmarked for Lego sets and pediatrician visits and school uniforms and Christmas toys and a college savings account and a minivan and a trip to Disneyland … and lots of, well, chicken nuggets.
I’m not saying this to disparage kids. I have two of my own, and money is nothing in comparison to the happiness they bring me and my wife. Yet happiness does not negate the fact that the moment a child arrives — and, actually, months before the arrival — your role as an adult changes in dramatic, profound ways.
And so, too, does your family’s financial life.
Not only are you now on the hook for tens of thousands of dollars in costs over the next two decades, you also have a new obligation to teach your children about money so that they grow into adults who are at home in the financial world and who have a healthy relationship with money. You, the parent, are the first and most crucial link in that learning process.
A Lot to Teach
I know that money seems a simple technology and one that wouldn’t seem to require much handholding. After all, you’ve been spending it yourself since you were a kid, and you’ve been earning it at least a few years. What more is there to know about it, really? And what more do you really need to teach your kids that you don’t already know yourself? Well, if statistics are any indicator, a lot.
In measuring how well 12th graders understand the basics of personal finance, the nonprofit Jump$tart Coalition for Personal Financial Literacy found that a measly 10% could satisfactorily answer questions about personal finance. Many had no clue how to balance a checkbook. Over all, about half the students failed a test on basic personal-finance literacy.
Too Young to Fail? Teaching Kids About Money
Yet life as an adult clearly requires knowledge of personal finance. That doesn’t mean your child needs an M.B.A. in security analysis or that you need to hire a financial adviser to tutor your preschooler. But kids obviously need better information to more effectively manage their own financial resources one day.
Kids have an infinite ability to hear what parents say, even in those moments we’re convinced they haven’t heard a word we uttered. Moreover, the concept you’re pushing might not sink in the first time. Or the third time. Or the eighth time. But there will come a moment when you say what you need to say for the umpteenth time, and the way you phrase it or the mood of the moment or the experience your child just had will cause your lesson, almost miraculously, to suddenly resonate.
Of course, you might not know it at that moment. You will know it, though, when you see or hear your lessons in action.
Driving back from one of my son’s soccer games a year or so ago, a flashy Italian sports car pulled up alongside of us on the freeway and the teammate riding home with us said, “Wow, that guy’s rich.”
Adapted from “Piggybanking: Preparing Your Financial Life for Your Kids, and Your Kids for a Financial Life.” Copyright 2010 by Jeff D. Opdyke. Published by Harper Business, an imprint of HarperCollins Publishers.
My son, engrossed in a handheld videogame, looked up to glance at the roadster and reflexively replied, “It’s not how much money you spend that makes you rich. You don’t know; that guy might have spent all his money just to buy that car and he has nothing else. So he might not be rich at all.”
Here he was casually correcting a teammate about what is and isn’t the definition of wealth, barely having to think about what he was saying. The words were coming out effortlessly. Mom and Dad, he proved, really can make a difference when they set out to instill a bit of financial wisdom in their children.
But my son’s commentary was not based on a one-off lecture I’d given him. The lessons had begun early and his mom and I reiterated them time and again.
Make a First Impression
Kids are far more impressionable when they’re younger and much less likely to have any sort of experiences outside the family cocoon that could shape their thinking before you do. That’s not to say you can’t erase the habits or beliefs they pick up, but by the time they’re hardened teenagers, your messages won’t resonate nearly as strongly.
Ultimately, the aim isn’t to mold children who only care about financial riches.. It’s to raise children who grow into adults who are financially aware and who are comfortable managing the various aspects of money — whether spending, saving, investing or giving back.
Maybe your child does accumulate financial riches. Maybe not. But the true measure of your success in this endeavor is that your child, as an adult, never struggles to understand the basics of personal finance.
That will prove a far greater legacy than any inheritance you might one day leave behind.
By Jeff D. Opdyke