Teaching children how to be smart with money
School is in! Thank goodness. I don’t know about your family, but mine needs structure. Sometimes I think school is more for the adults than the children.
While school will help children develop various skills and traits to succeed in life, one lesson that I often find often missing is on money.
As a parent I know that trying to teach your children about money is difficult — even for a finance guy. Thankfully, someone has written an excellent book on the subject — one not just about practical tips and to-dos but one that touches on the more important aspects about money — the philosophical side. The title and author: The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money by Ron Lieber.
Money lessons are tough
One aspect that Ron touches on in the book and one that many of us can relate to is how difficult lessons on money are. The main reason for many is that money is very emotional. It is rare if not impossible to consider it or talk about it in a purely rational state as it surely has affected all of us in some form or another over our lives.
For this reason parents find it hard to have open and honest discussions surrounding all facets of money. The problem, of course, if we deflect the conversations or avoid them all together we are missing out on huge teachable moments.
Not dealing with money and the values we wish to conscribe to it as a family actually can create future issues for your children.
The first step, then, is to stop running and honestly confront your children’s questions on the subject. If you don’t want spoilt children with no healthy concept of money what do you do?
Mr Lieber suggests that spoilt children have four primary traits in common: they have few chores or other responsibilities, there aren’t many rules that govern their behaviour or schedule, parents and others lavish them with time and assistance and they have a lot of material possessions. I’ll briefly give my thoughts on each.
Few chores or responsibilities
Work ethic and responsibility are important. Ironically, Mr Lieber suggests you shouldn’t pay allowance for getting chores done because that simply ties money solely to work.
He also mentions that children are smart and if they happen to earn enough money from chores they may stop — why work when you have that $75 for a new Kindle fire? I think the key here isn’t so much to link effort with money but to link responsibility to being part of a team where everyone pitches in. Besides, in life money doesn’t solely correlate with work effort — different vocations pay different amounts, yet we still wish to raise children that value a job well done and not just going to work for money.
Boundaries are a part of life. Without them there are no consequences, but consequences offer lessons. Limitations with money are a part of life and helping children establish boundaries or banned substance lists to prevent them from buying things they shouldn’t seems reasonable to me.
Lavish parents that assist
Ahh, yes, the helicopter parents. They mean well but they are likely severely handicapping their children’s development. Tough love and lessons are critical when it comes to money.
Kids need to waste it, lose it, and realise they need to resolve independently to get it. One of the worst ways to learn about investing, for example, is to be very successful early. Those that do this simply believe it’s easy and then later ultimately learn the hard way that it’s not.
We all learn in failure more than in success, so it’s important that children be allowed to make bad decisions with money to learn.
Of course we don’t want them to make irreversibly and future-limiting errors, but they do need to strike out on their own.
Swooping in to save children from all their bad decisions and/or making all the decisions for them does nothing to help them grow and will likely only result in raising a kid who is incapable of making smart choices in the future because they haven’t had to.
So, in my opinion, let your children buy that Furby, especially if the next day they realise they can’t buy something else. Let them have small failures to learn.
Ron does a great job discussing how materialistic children are made and even notes that “multiple studies have shown that materialism is correlated with higher levels of depression and anxiety and a range of ills from backaches to drug use.” The key, in my opinion, is breaking the link between “stuff” and happiness.
As parents I think we need to make sure “stuff” is not the reward or the value. Kids that get everything and all material possessions simply grow up with little gratitude. This also links to lavish parenting. Granting all wishes will only foster feelings of indifference with stuff and an ingrained automatic expectation or entitlement.
Parents leave lifelong impressions with their children and therefore it’s also important to be aware of your own personal money axioms and perspectives.
Children, of course, watch what you do more than listen to what you say. Your actions and attitudes bear great weight on their future actions.
Part of teaching children about money isn’t just preaching, but actually walking the walk yourself. Like most of life’s greatest lessons, those on money are hard. Money lessons are not, in my opinion, simple to do lists or rationale spreadsheets but philosophical value choices. Money lessons are hard because we all want to give our children a better life and boundless opportunities but the greatest financial lessons you can offer them is not a handout. School should inspire our children to learn but it currently is up to parents to teach the children about money. The key is to align your core values with money and not let money be your core value.
• The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber —
• Meb Faber Show — Episode #62: Ron Lieber, We’re Not Having the Right Kinds of Conversations with Our Kids About (Money) (https://tinyurl.com/y8stmgpf)
Nathan Kowalski CPA, CA, CFA, CIM is the Chief Financial Officer of Anchor Investment Management Ltd. and the views expressed are his own. Disclaimer: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by the author to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. Readers should consult their financial advisers prior to any investment decision. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.
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