Human beings may be destined to do everything the hard way. Consider teaching kids about money. Parents can do this quite simply, following a few guidelines. Yet few make any real effort, and we ask schoolteachers to fill the gap.
Parents are hands-down the most influential force in any child’s life, and studies show that this extends to money management. Yet the money talk still doesn’t happen in about half of all households.
Meanwhile, we have a global movement to bring financial education into the classroom. This effort has been clumsy at times though sorely needed. Too many kids go to college or get their first job without a basic understanding of budgets, debt, and saving. We ask the schools to address this need before the kids turn into bankrupt adults whose financial assistance boomerangs back on society.
(MORE: Communication Breakdown: If You Think You’re Talking About Money, Your Kids Don’t Hear It)
If only more parents took control, the lessons learned at school would resonate with what they hear at home and sink in to a greater extent.
Jonathan Clements is one of the few parents I know that has made a big effort at raising financially literate children. A former personal finance columnist at the Wall Street Journal, Clements is now the director of financial education at Citi Personal Wealth Management. He started family money lessons at age 5 with his children, who are now twentysomethings with, he tells me, enviable money management skills.
Clements believes there are four simple guidelines to raising money-smart kids:
- Make them feel like the money they spend is theirs One way to do this is pay an allowance, explain what the money is for and never give in when they ask for more. “The first rule of parenting,” Clements jokes, “is to never negotiate with terrorists.” With young children, play the soda game. When you eat out offer $1 if they drink water instead of a soft drink. It’s shocking how often they take the $1. Pay allowance to a bank account so that they must make a withdrawal before they can spend.
- Tell family stories that illustrate money values Clements’ own grandfather inherited and squandered a small fortune. He says he grew up hearing the story over and over from his parents; it ingrained in him and his siblings the lesson that money spent is not easily replaced. Share stories about your humble roots or how you struggled when starting your career. That way your kids will understand they must work to earn their lifestyle. “We all had cockroaches in our apartment at one point,” Clements says. “Don’t be afraid to dress up your story a little bit for emphasis.”
- Lead by example Even if you are not a financial whiz (and who is?), you can set a good example by paying your bills on time and staying out of debt troubles. “If your kids know you’re up to your eyeballs in credit-card debt, they aren’t going to pay much attention to any wise words you might have about managing money,” Clements says. “Your kids are more likely to do as you do, not as you say.”
- Manage expectations In their teens, Clements’ kids clearly heard what Dad would and would not pay for as the kids reached adulthood—how much he would pay toward college, what kind of support they could expect after college and how much he would pay towards a wedding. This gave them a realistic sense of what was coming and “no bruised feelings” later.
And there you have it. The hardest part may be consistency with your message and, for some, staying out of money trouble themselves. That’s all the more reason to commit to a plan like this, which will benefit you too.