Raising Financially Fit Kids
By: Sarah Johnson, CFP®
Last summer, as I watched my children almost effortlessly learn to waterski, I was reminded of how much easier it is to learn a new skill at a young age, especially as I then watched my husband’s struggle, who had not waterskied as a kid. This is true with financial literacy as well, however as parents, this is a topic we often don’t think about until our kids are going off on their own. A recent study by Visa showed that only 18% of parents felt their young adult children were ready to manage their money. Certainly, we can do better than this. So how can we make more of an impact on our kid’s future success? Let’s start with what we do know. Studies show that there are two traits which most appropriately predict a child’s future financial stability. These traits are: 1.) An ability to delay gratification and tolerate distress, and 2.) An ability to stay focused. So, without over-emphasizing the focus on money, here are some ways that you can help prepare your child for a secure financial future.
Pre-school to Kindergarten: Clear jar over piggy bank While piggy banks are cute to look at, they lose one of the greatest teaching tools for this age group – a visual. This age is still very much in the “out of sight, out of mind” way of thinking. When they put their savings in a clear jar, they can see it getting bigger with saving, and smaller with spending. And remember, just as we do with all habits we are fostering at this age – make a big deal out of seeing the savings getting bigger. Encourage sharing of toys. While parents understand that this is an important lesson as our kids go out into the world to make friends, it also helps children learn to manage and control their emotions. The ability to sit with, and tolerate the feeling of wanting something is crucial to not only their financial success, but their mental health as well. If we can help our children practice patience as they share a toy they want to play with, down the road they will be better prepared to practice that same patience when choosing to let their money grow, rather than buy a big new toy as soon as they see it.
Elementary and Middle School: Work on impulse control. Again, the ability to delay gratification is key to success. However, as any parent can tell you, this does not come naturally to kids. It must be taught. When it comes to spending money, encourage kids to wait a few days between the initial “want” and the “buy” especially for all purchases over $5-$10. Kids at this age are still impulsive, and lack understanding of money. Helping your child put time between the “want” and the “buy” allows you time to talk with your child, and teach them how to properly think through a purchase. Manage anxiety and improve focus. Make sure their homework area is free of clutter, help them learn and practice deep breathing, and make sure that during stressful situations, such as homework, they take brain breaks – get outside, or at least stand up and walk around every once in a while. The brain can only absorb what the body can tolerate. A more focused mind will generally have an easier time evaluating bigger or more difficult decisions, such as those related to money. There will be many situations as kids grow up where they may need to make quick decisions – renting an apartment, buying school supplies, or a car, etc.- and being in the habit of calming down in the face of a complex situation is a great skill to start practicing from an early age. Should I give an allowance? This is a personal choice that each family needs to think about and find balance about. This age still needs to be learning that money is something that is earned in order to understand its value, so kids should not be given allowance without some sort of contribution. Do not tie allowance to chores that are expected. Kids need to understand that in a family we help each other. Instead, consider attaching allowance to expectations or chores that go just a little above and beyond. Another technique that can be used is to have them split their allowance into 3 buckets: Spend/Save/Give. This technique helps foster the idea that saving and giving are expectations, not only spending. Some families even choose to give their child “interest” on their savings.
High School: Saving for Education. It’s time to emphasize the “save bucket” more, with a focus on saving for education – whether that means a trade school, a 4-year degree, or a skills-based program. Giving at this stage is still important, but can now be of your time more than money (and hey, volunteering doesn’t look bad on a college application). Debt: By the end of high school, make sure to have a talk with your child about the dangers of debt, and how people get themselves in trouble. Particularly student loan debt and credit card debt. Help them understand what a credit score is, and the effect that debt has on it. Kids at this age still struggle with seeing the big picture. Make sure they understand that debt and poor credit will decrease their choices and opportunities in the NEAR future. While working on all of these tips are sure to improve your child’s financial future, most have wonderful mental health benefits as well, it’s a win-win for all.
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