Raising Financially Responsible Children

Jeff Brown, MD

It is absolutely essential for our children to understand the use, and misuse, of money so they can successfully function through their lives. The responsibility to teach these skills falls on parents.

Studies have shown that 75% of parents consider it important to teach their kids about money management, but only 36% know how to do it. And unlike sex education which may start as early as kindergarten, few curriculums at any level even touch on the subject of money. The good news is that kids are generally keen to learn more about money.

In her book Raising Financially Fit Kids, Joline Godfrey lists 10 basic skills that parents should help their kids with. That is, after each parent is square with the subject and each other's attitudes. As you are aware, ours is a society where people will freely discuss their most intimate relationship or medical issues, but when it comes to our personal finances, we clam up.

The first principle is an extension of the idea that we have to be comfortable with our own understanding, first of all. As I have always told my patients, "Kids only have eyes, not ears." You must believe and practice consistency in what you preach or there will be a mixed message and confusion. So set, communicate and live your values is number one.

Basic money attitudes could include 1) do you value experiences or possessions more highly?; 2) is it important to live below, at or above your means?; 3) what are your earnings and savings goals; 4) how do you view investing and risk taking?; and 5) how do you feel about charity, personal and financial?

The second principle is to start with an allowance for the child to manage. Be careful not to make it an entitlement, salary or reward. Those might be separate issues to bring up later. A current rule of thumb, I am told by young parents today, is about $1 for each year of age per week. And make sure that you are consistent on the day of the week that it is disbursed, avoiding the inevitable request for an advance.

With the initiation of the allowance, start with the simple concept that it should be split into two buckets or envelopes or piggy banks — spending and saving. With experience and age, you might later introduce a third bucket for giving and a fourth one for investing. Use the same plan to add in any monetary gifts. The now-quaint practice of receiving savings bonds from your relatives for occasions to be put away “for college” may bring a smile to mind, if you are of my vintage.

The third concept to employ is seizing those mundane daily activities involving money to become teachable moments. When you are out shopping, briefly give an age-relevant reason why and how you make your purchasing decisions. You should do the same with saving, investment and charity choices when they come up.

Learning to spend wisely is every bit as important a skill to learn as saving. How to prioritize, balancing wants versus needs and getting the best price are all things that adults struggle with daily. In part that may be because most of us had to learn ourselves from on-the-job training, with only implied, and often inconsistent, guidance. And don't we all want to do a better job than our parents, to make life more understandable for our children, to pass on better skills?

And even though money issues are too often handled with a grim visage and clenched teeth, it will really help all involved to make these little exercises fun. Kids have short attention spans, so making the whole business pleasurable will help retention and ease the tension that sometimes arises.

Godfrey cites additional basic necessary financial skills including how to keep track of money and later on how to get paid what you are worth when you enter the job market. This last is a lifelong preoccupation for many of us, and I have written about how doctors can and do deal with this hot button.

She goes on to review budget making, and establishing and handling credit. This last has been such a society-wide problem over the last few years that it probably, by itself, could be put into, say, high school curricula as a national security priority!

Lastly, Godfrey touches upon how money can be used to change the world, hopefully, for the better. Money is many things — a measure of value, a store of value and a medium of exchange. It is also the lifeblood of societal activity and the understanding of its use, and misuse, is absolutely essential for our children to successfully function through their lives. We owe it to them, and ourselves, to be as clear and complete as we can.

It takes awareness, persistence and time to be effective at money education, or any worthwhile endeavor for that matter, although all are commodities in short supply. As O.A. Battista once said, “The best inheritance a parent can give his children is a few minutes of his time each day.”