January 2023
Kevin says that many children tend to model their mindset around money after their parents’. Therefore, it is crucial to have constructive conversations about money and set healthy examples for young kids as early as possible.
For instance, Kevin suggests setting up three jars for your children or using these jars as hypothetical illustrations: money they want to save, spend, and give away. Any time they receive a larger amount of money for a birthday or holiday, ask them to consider how they would like to divide their money. Teach them to compare their options: they could buy a new toy now or save up for an even better toy in the future.
Finally, Kevin encourages parents to add their children as authorized users to their credit cards to help them build credit from a young age. When they are 18, they may be able to rent an apartment without a cosigner or qualify for a car loan with lower interest. Having a credit card statement to review together may also help children evaluate their habits on a monthly or yearly basis.
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Watch previous episodes of The Financial Commute!
Ep. 19 How Secure Act 2.0 Could Affect Your Retirement
Ep. 18 What You Need to Know About SPACs
Hello, everybody, and thank you for joining us for another episode of The Financial Commute. I'm Chris Galeski, your host, joined by Wealth Advisor and Partner Kevin Rex. Kevin, we're here to talk about kids and money, a topic that both you and I are extremely passionate about, partly because our education system doesn't make it the forefront of education for kids, but also, you know, kids kind of go with what they want or what they're excited about, not necessarily what they need.
And so money is a topic of conversation not only for our families but for our clients.
Absolutely.
Yeah. So when you think about education lessons for kids or even kids of clients, what are some of the most important things that you're wanting to instill into your kids lives today when it comes to money?
Yeah, what's baffling or crazy for me that I didn't understand growing up is we actually create our money habits, they're formed by the age of seven. Right. So we have young kids and you think about like they're not really paying attention. Here we are shopping on Amazon or going and taking them to the grocery store.
They watch our reaction and our response to can we spend money? How do we spend money? Do we get like, angry? Does it cause stress? All of those things create such an impact from an early age. And so the biggest thing for me, when I think about children, it's let's start having those conversations. Let's start bringing them into decisions that we make as a family as early as we can.
Yeah, it's funny that you say that, you know, my daughter's two and a half and we were home a couple of weeks ago and my wallet was missing. I didn't know where it was. The next thing you know, I see, you know, I've got a money clip and I got my credit cards and money clip all spread out over the floor.
And I knew I had a few dollars in my wallet, you know, because I like to wrap it around the cards. And I looked at my daughter and I said, what are you doing? She's like, Oh, I just I wanted the money. I mean, she's two and a half. I said, where'd it go? She said, I put it in my piggy bank.
So even as early as two and a half, she understands what money is. We were at the grocery store not long after that, we were getting ready to check out and she said, okay, Dad, give the money guy money. So she viewed the checkout person as the money guy because that's what she's used to seeing me paying for those goods and services. So they are very aware of it.
That's awesome. It's great that she has the habit of saving. That's something you really want to instill. The stealing...
The stealing, I got to work on that.
But no, that's great. And I love that you bring up kind of the grocery store, right? That's a place that we all take our children, and so you and I were talking ahead of time, but like, when I go in, if I take my kids and we walk up and down every aisle without a game plan, it's I want Cinnamon Toast Crunch, I want Pop-Tarts.
I want this little toy. It's the wants that come out of them. Because as children, it's the world is amazing. And you just want to have fun and enjoy it. And so, like, one of the lessons I like to talk about is have the game plan. Tell your kids we're going in for milk, butter and eggs. They know that's what we're going in for. That's what we're coming out with. And if they say, I want Cinnamon Toast Crunch, it's sorry, we're here to get milk, butter and eggs because you put them in a situation where they see all these things that are built to grab your attention with, you know, think of a cereal box and all the toys and giveaways that they have.
It's meant for kids to want it. And so trying to create this no, this is the game plan. This is what we're doing. And then also, it's oftentimes as parents, it's, oh, we don't have money for that or we don't you know, we can't spend money on that. That's not the truth. Right? Oftentimes, like we have about $20.
We can buy that. It's we're choosing not to spend money on that and the reasons why. Obviously, that's when, your daughter at 2, you can start sharing those things. She'll start getting it as she grows older.
But yeah, those are good points the delayed gratification, instilling certain money habits at an early enough age that way they stay with you the rest of your life. You think about the people that are successful with price matching and using coupons. The people that I know that do that, they were taught that at a very young age.
I think when I was growing up, my parents used coupons, but like I was never taught that. So then my wife, you know, early on in our marriage, I quickly got fired from being able to go to the grocery store. I came home with like a $15 box of strawberries that was like this big. I just had the list and I walked around the store and grabbed what was on the list I wasn't paying attention to, you know, what was on sale or price matching or even using coupons.
So instilling those types of habits early on are extremely important. The delayed gratification part, that's a little bit more difficult. That's like teaching somebody when you get a paycheck, pay yourself first, set money aside, you know, for savings first. So how would you go about instilling some of those habits?
Yeah. So with my children, we have a three bucket approach or like a three jar or something. We don't have the jars, but I know some parents will actually put them. It's money that you want to spend, money you want to save and then money you want to give away. And those are really for all of us. You make money, you get your paycheck.
Those are really your options. So go spend it, put it in a bank or an investment account, or give it away to those that need it. And I try to talk to my children, you know, prior to their birthday or prior to an event where they're going to come into some money and say, okay, if you get some money, what do you what do you want to do with it?
What do you other things right now that would just make your life so happy? Or are there things that you know, maybe you can't buy because you won't have enough money? But if you save and whether it be next birthday or Christmas or something, you add those together and all of a sudden you have enough to get a better present and it's, children are brilliant.
Your little girl is so, so adorable and smart beyond her years. They understand and can comprehend so much more than we think. And so it's not talking to them as little kids. It's almost talking to them as, hey, you're running your own little business. This is your own financial, you know, book. What do you want to do with it?
And I think, again, that third bucket, the giveaway bucket is so important from a very young age of, you know, all of us live with what we have. And you touched on it. If you save first, if you give away first, you're going to make do with what's left. If you spend what you have, and then at the end, it's okay.
What do I have left to save or give away? Typically, it's not going to be very much, if anything at all.
Yeah you're going to that nice dinner before that paycheck comes in.
Exactly. You get paid tomorrow, you're going to spend whatever's in the bank account today.
You know, it took me back to thinking when I was in college, you know, we are at least in a generation that was used to using physical dollar bills. I think money habits are extremely more difficult to teach now because we're not using physical dollars. Everybody's just swiping a card. So it's not as transparent. But when I was on the golf team at San Diego State, one of the guys on my team, his name is Scott Piercey.
Scott's had a successful career on the PGA Tour, but every day Scott would reach into his envelope and he would pull out two $5 bills. And that's what he had to use for lunch that day. And so he used the envelope approach. I did not. I just had an ATM card from my bank and I would swipe it and I felt like Scott was so much better with money because he used that on the envelope or bucket approach.
Where I did not. So it's interesting.
I mean, why is Vegas so successful? If you told me to sit there and put a $20 bill down every time they dealt a blackjack in the stress and anxiety. But after an hour, those chips just become chips. Right? And you can put three of them out there and you're not comprehending quickly enough that I just put 1600 dollars on the table.
So touching, feeling and spending cash is a huge lesson, especially for children tapping that card. It's you don't really want them to get into that habit, although that's what they're going to be doing. You know, they'll be tapping their phones, but them giving the money man, $20 or $40 and then getting change back that exchange of goods again, them comprehending, I want this candy bar.
I give you money, you give me the candy bar and whatever change is left over. And then ask them, what did you get back? What is a quarter? What is a dime? What is a nickel? How much is it worth? So that math, that understanding of what this money is, whether they end up using it again, because we're not going to have physical cash probably too much longer.
But it's so important for them to be able to learn in that way. So your buddy was on the right track.
Yeah. Having those conversations around needs and wants and optionality, like, okay, you can buy that today, but if you had a choice to save that, would you build up and wait to save for something later? Obviously the price matching using coupons, the delayed gratification is extremely important to teach anybody. Beyond that, we talked about a couple of other things that are important, like saving first, maybe setting aside money towards, you know, saving for a car or a house or retirement, setting aside money for charitable giving. What about credit? How do we help our kids and our clients’ kids set themselves up so that way they've got established credit as an adult and they're not having to rely on the system because when you're 22 years old and you don't have any credit, life's a little bit more challenging.
It is, try to get an apartment or even go, now you don't pay for your phone, you finance your phone like everything now is based off having credit. So one of the best gifts we can give our children is to build that credit from a young age. Really, the best way is to have them come on as authorized users on your credit card.
I don't believe you can have a credit card until you're 18. And so in having them come on to your credit card or get one that has a $250 limit and let them use it, you know, obviously, this is as the kids get a little bit older, but let them swipe it, look at or go over the statement on a monthly basis with them, what did you spend your money on? Was it food? Was it toys? Was it shoes? And allowing them to kind of see their spending habits. But as they're doing that, when they turn 18, if they've had credit for ten years and they want to go get an apartment, you know, you don't have to cosign for them, they can get their own phone. It is a huge gift and a huge advantage for them to have that at that age.
I think that's a really good point, because then at the end of the year, you could take that 12 month credit card statement and they could see how much money was spent over the course of a year. And it could be on ancillary things like, you know, eating lunch out at Jersey Mike's or going somewhere else, and then being able to see that total value amount at the end of the year.
And then you can teach them about, hey, if you made a lunch at home instead of spending that money and you then took that to invest it, here's what it could be worth. Those are some things that could help with that.
Right, you spend $100 at Starbucks. Would you rather have that or would you rather go to Magic Mountain? Do you want an experience or do you want that drink every day? And that goes back to what you keep saying, the delayed gratification. You see Starbucks on every corner, you think you want it, and we do that still as adults.
But to work on those habits at a young ages is really huge. And, you know, one other thing you can do is you can link that credit card to something like Mint and they'll track it for you. They'll spit out what exactly is going on. They give you updates. What a cool way to help our kids start doing that from a young age and not have to figure it out when they're 25, 30, 35 like most Americans end up having to do.
Kevin, thanks for joining us today. I know that you're pushing out a lot of content, education, you know, for people with kids to help teach them about money. So we're really excited to see some of the stuff that you come up with down the line. So thank you for joining us.
I appreciate it. Loved being here, thanks.
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