February 2024
In fact, more than 60% of parents are uncomfortable talking about money with their kids and therefore avoid having discussions around money entirely.
Our upbringing can play a large part in shaping our relationship with money and that same mindset often carries over to our kids. Some parents might even feel insecure about their current financial situation, but these talks don’t have to be scary. A healthy money mindset in the home starts by getting the whole family involved in these conversations.
Wealth Advisors Kevin Rex and Patrice Bening took the Modearn™ stage at Morton Wealth’s 2023 Investor Symposium to discuss some of the tools parents can teach kids of all ages to be financially savvy.
See below for some tips on how they can start developing a healthy relationship with money and manage their finances responsibly.
Tip #1: Start financial education early, as children begin forming money habits as early as age two.
Tip #2: Help kids (mainly between the ages of 8 and 14 years old) distinguish the difference between wants/needs and encourage delayed gratification. For example, give them the option to eat at home rather than dine out to help save up for that family trip to Disneyland.
Tip #3: Use cash instead of a credit card from time to time to help them understand the value of a dollar.
Tip #4: Introduce your teenager to an allowance. This isn’t a one size fits all model. Finding the right allowance for your child based on their needs and goals is a good opportunity for them to manage their own money.
Tip #5: Show them how to use a credit card responsibly and build their own credit. Parents can start off with a gas card and slowly introduce other spending limits once their child gets comfortable with the concept of credit.
Tip #6: Encourage transparency about financial matters and foster a safe environment at home to discuss money. A few ways to do this would be to share their 529 account statement to show activity and growth or even your paystub so they can see how much you earn, how much you contribute to your 401(k), and how much goes to taxes.
Tip #7: Try instilling the bucket approach when your child gets some birthday money or an allowance. This is a fun and easy tool to educate them about goal setting as well as helping others. The motto we like to use is “give-save-spend,” and this helps them decide how to divide what they earned.
Stay tuned for more Couchside Conversations episodes! We have topics coming up like…
- The Problem with Most Financial Advisors
- Protecting Your Family Using Insurance
- Owning a Home/Investment Property
Watch previous episodes of Couchside Conversations:
Battle of the Spouses: Financial Edition
Current Me vs. Future Me: The Modern Investor Dilemma
How's everybody doing? I'd like to introduce my colleague, Patrice Bening. I'm Kevin Rex. We are wealth advisors at Morton Wealth, obviously. And this session is talking about raising financially savvy children. Super easy, right?
Yeah, absolutely. Now.
I think to just kind of start out, if you see the way we are with our children, we love them like crazy, but this is not easy and we don't have it down perfectly. But we're going to share kind of best practices on what we strive for and things that we try to implement. But we know life is hard and it's not just about children.
For some of you out there, it's grandchildren. It's starting to have the conversations. How do we get our children involved in discussing money and not being either afraid of talking about money or having too much greed around money. So trying to break the mold of our finances, controlling us, but having more control over our money.
Well, to that point, Kevin, apparently numbers show that about 60% of us parents are very uncomfortable about talking about money to our kids. And I think a lot of that we feel inept because we might be slacking ourselves, we might not be saving enough or we might have some credit card debt and who wants to talk about that?
But it's quite the opposite. I think we really need to have open, calm discussions about money with our kids and make them understand really the value of it and the purpose behind it as well.
Yeah, I think so. There are little babies. Kids are more adolescent into all the way up to young adults. I think we're in a good stage. So Patrice has high school boys. I have nine, eight and four. And so you've kind of been through where I'm at and I'm headed to where you are.
So I'm excited to get your expertise because you have it all figured out.
Yeah, I think we're the dentist with the cavities, so that's kind of where this is going. But I think early on making sure kids understand what value is with money. So nowadays we all swipe a card or we tap this plastic little thing that seems to be magic and it pays for everything that we have.
And that's probably not relevant, if you take your kids to the store anywhere you go, because it's not really painting a picture of where that money's coming from. So using cash, especially with, let's say, 2 to 7 years old, like I think that's a great time to to do that with. If we're thinking about more of the 8 to 14 year olds, time to talk about needs versus wants.
I think some of us adults here probably struggle with a definition of needs versus wants and what's a need and what's a want. But having that conversation in that particular section as well, and then going on to the, you know, teenagers and above is really money habits and allowance and how we can talk about, you know, accounts and compound interest and all that good stuff.
When you talk about using credit cards I think about Vegas right. If all of us sat at a blackjack table and had to put cash down at the table, it's a completely different experience. But by using chips, all of a sudden, an hour later, it's not real money.
So that is how they've made their trillions of dollars. So yeah, using cash is a huge thing. Plus, kids can get used to what's a quarter, What's a nickel, what's a dime? You also brought up the grocery store. I think there's two things I hate most in this world. One, taking my kids to the grocery store and to family photos for the holidays.
Like those are the worst situations that you could ever be in. But we've all been there at the grocery store, right? You walk in and I'm not the normal shopper in the family, so I walk up and down every single aisle and every single aisle, it's I want Pop-Tarts, I want apple juice, I want whatever it might be.
And so some of the simple things that I try to do is. All right, all right, kids. First of all, I try to leave them at home if I have to, if I can. But if they're coming, it's okay. We're going in for milk, cheese and butter. So you're walking in with an idea of what you're going for.
And if they say, Hey, we want Pop-Tarts, it's No, no, no, we're coming here for milk, cheese and butter.
So having that game plan and letting them know before you walk into that situation, this is what we're going to be we're going to be doing. And I think one other thing on statistics. So kids start learning about money and setting their habits as early as age two, which seems really young. They're not understanding, but they're watching if you and your spouse are fighting or if money creates fear or anxiety or stress.
And so they're starting to pick up on the relationship we have with money that early and then as early as age seven, they truly start understanding, am I scared of money or do I want money? Because that solves all the problems and it comes from us as parents.
It's very true. We say kids are sponges, so they truly model your behavior. So whatever you think that you know, they're not seeing, they're seeing it all. So the kids are more likely to do what we do versus do what we tell them to do.
And to your point, I think rephrasing money, so let's say your you know, COVID really put people in a lot of tough financial situations. So that doesn't mean that we can't talk about it. And I think the way to say is that instead of saying we can't afford something, you can say maybe we are choosing not to spend money on this right now.
So it's really kind of shifting a little bit. Your conversation should not create fear and anxiety in a young person at an early age. The other thing I would say is delayed gratification. So we all know apple juice costs a lot of money. Put something like a trip to Disney, you know, with the entire family and get them excited about it.
In a sense that if we're all going to forgo the apple juice when we go out, that $3 is going to go into the Disney jar and then they have something that they know they can participate and be part of. And you empower them really to kind of make a really good financial decision for the future.
Yeah, the jars or the bucket approach is something that we're just starting to implement with our kids, just being old enough to understand and what we think and try to talk to them about, It's okay. You get money from grandma and grandpa for your birthday or you do chores.
But when it comes to the buckets, it's you can spend it now. You can save it for later and we need a bucket to give to charity or others that don't have what we have. And the percentages kind of change. But I think for kids, if you can spend 30 to 40% now like it's a birthday gift, they should be able to enjoy it.
But do you want a candy bar or do you want to save and eventually get a video game? Right. You don't have enough for a video game now, but if you save over time, you can get there. And then also that charity bucket. And as adults, we should be doing this as well. If we have one account where all of our money goes in and everything just kind of comes and goes, we don't have as much control versus you have an account that says Tahiti on it, and every time you get a paycheck, there's that automatic deposit.
You're not touching that account because it's for a specific purpose. I think by compartmentalizing for kids, it really helps them understand this is going to others. This is for me now and this is for me in the future.
So to that point, allowances and that can be you know, may be a touchy subject for parents, but I do think that rewarding a child for is something that, you know, maybe they take the dog for a walk and they also clean the dog's poop.
And I would say starting age six, you do a dollar a week per age. So, you know, I would say $6 a week for six year old and a $15 a week for a 15 year old. And then taking those in the buckets that you talked about. And I'd say 40% of that goes to on immediate spending, something that they just want to spend money on.
40% will go more to, you know, short term needs like maybe they want to save for a bike, you know, and then the other 20 can be split either long term, like you can talk about college, you can talk about something that is a bigger purchase or a trip. And then ten, I think it's important as parents to get kids involved in something that they're passionate about when it comes to giving.
And I know we've talked about giving here, so having a something that's close to their heart as if it's a shelter or really working with kids, other kids. I know I've tried to have my kids clean their closet and their toys, and we make a point of taking showing them that we're going to go somewhere and donate those without it.
So I'd say all those kind of play into creating good habits for the future.
Yeah, I think a couple other things too, that I'm just starting to do with my children because they're finally understanding eight and nine is looking at their 529 account or their custodial account and allowing them to kind of see, okay, when I take the money from you, from grandma, I'm not just spending it, it actually is going somewhere.
And they can watch the fluctuations of it. They like to see actually what's happening. They see the number, they get excited about it. And so just showing them that it's not disappearing, we're putting it in an account that's going to grow for you in the future. This bucket is for college or this bucket is for, you know, higher education.
And so they really are getting used to kind of seeing those numbers. Those accounts don't have specific investments. But once my kids have cell phones, they own Apple. I'd love to put Apple in their cell phone. They can get used to kind of tracking the ticker symbol, seeing the updates. And so really just getting them used to now the delayed gratification, this money is for future.
This is for growth. This is for other reasons. So showing them that and then also shopping now has become, you don't do it in person very often. Every one of us just goes online. You need new paper towels, you order it. And so trying to bring them into that conversation. So we're sitting on the couch watching TV and I'm ordering something from Amazon looking over and saying, Hey, this is what I'm doing, and this is the thought process I go through.
I had something just on Monday, my son's Gatorade water bottle broke and he's like, Dad, I need a new one. So we went on, I went to buy it and one was $9, two was $13, and just created a silly conversation of like, do you need to? Because if you need to, it's going to be better to buy them both together.
But if you only need one, even though you're getting a discount on the second, if you don't need it, you don't need it. So we had that, you know, fun little banter. But he ultimately got to because I didn't want the other ones getting a broken or lost soon anyways. But it was just like he understood more than I thought he would.
Well, I love the fact that you're sharing the 529 statements with your kids that No, I not I'm not being sarcastic.
Look how little we've saved.
Well, you should talk to your financial advisor about that. But I would say that even, you know, taken further, I'd say once the kids can have a part time job or job, period. What's really interesting is they make $327. They think they can buy a Tesla and hire private chefs for their house because they're so rich right now.
But it's really, you know, for that particular for adolescents is taking, you know, your paycheck and understanding, you know, what gross and what's net and where do taxes play into that. And then they're going to have a big time reality check. But if we don't do that with them, they will have a distorted view of what money represents and how it can be used.
And then taking your net and then we can split into the buckets that we've talked before and, you know, figuring out like what? What can it go now and then what can we do for, for later.
You talk about apple juice, right, And you go to dinner and kids just want everything like being transparent. Show them the bill. This is what, apple juice. I don't know where you go. It's not $3 anymore, but it's like they don't even understand when they order it how much it costs.
And so showing them the bill, we just went to Chick-Fil-A and for five of us, it's $60. Like that's a big number for them. And they're like, wow, Every time we go, that's what can you get for $60? And they start thinking through and dreaming through all this stuff. So would you rather make a sandwich at home or go to Chick-Fil-A.
Because if you make a sandwich at home, maybe we can save or do other things. So again, that transparency opening up and I love the paycheck. And you've shared with me in the past that like even showing your boys, hey, this is what our paycheck is, this is where money goes. So taxes, insurance, 401(k) and then we all probably remember our first paycheck where you're like, I make three, ten, $15 an hour, whatever it was, I work 10 hours.
You're like, man, I have $100. You get it? And it's $60. What just happened? So as soon as we can kind of start understanding that just because you make a certain amount doesn't mean you keep a certain amount. And just because you keep a certain amount doesn't mean you should spend a certain amount. So I love that transparency that you've implemented of let's just show what happens when we get our paycheck and where everything's going.
And I would say now you have the money. What do you do with it? I spent most of my prior career in banking, so I actually when when Priscilla was here, I, I, I remember the books where clients would come to the bank and made a deposit and I would initial and stamp their passbook. So their savings passbook is really cute.
So they used to do that. They had kids savings accounts back then. We did exactly that. But thank goodness for technology. There's a lot of ways you can have an account with your child right now as early as eight. A lot of the, let's say, Capital One, Schwab, Fidelity, even they offer minor type accounts, custodial accounts where you are with your child on that account, you have full visibility but allows you to empower your child to kind of have access to a certain amount of money.
And at the same time, you can have a savings account and then we can show them this is how much money you can have here, so you can buy ice cream. And if my kids pay for gas and then, you know, the other bucket is for saving for something for later. But I think understanding where when do I start?
Because that's probably I did not do that when my kids were eight. And I just you know, I'm saving in their 529. But I think if you want to kind of figuring out once they make once they have an allowance, it's the best way to have kids, have a real feel for what money is. And if they spend their allowance, don't give them a loan.
Let them struggle for the entire month. If that's the case and and figure it out, that's that's really the best way to to start that.
And it's great I often get asked about credit so how do we start building credit for our children and grandchildren and how do we teach them to use credit responsibly? Because, you know, most of us in here at some point probably had a situation with a credit card where you just keep spending and you necessarily don't have the money to just pay it off every single month.
So what have you done with your boys to either build credit or explain to them what credit is?
So credit is tricky. We all know as adults that there's good credit and bad credit. And how to explain that to a child that, you know what what the difference between the two. But if you if you owned real estate, that's the first place to start where you you know, you say we've got this roof above our head.
How much do you think this roof cost? You know, not the roof, but the entire establishment and how do we get here? So I personally, you know, went back and shared the story of of saving for a down payment and how, you know, this is how many decades ago, which again, is not possible today. But 20 plus years ago $20,000 was a doable down payment for a house.
And that house bought us a 250,000. I mean, the down payment bought us a $250,000 home. So understanding that, but bringing it current, let's say you have nine, ten, 11, 12 year old, a teenager, you can get credit cards like my husband and I have a discover and we don't really use it for anything except for our oldest is driving and he uses it for gas and they're authorized users on both boys are authorized users on our cards.
And as long as we make the payments on time, their credit is actually being built. So that's wonderful. And then once they turn 18 and they're students, they're student credit cards, they can go. So not a regular credit card, but really a designated student credit card. And if they're not a student, you can get a secured credit card.
And that's backed up by some type of account. Literally, if if you put $500 down, they'll have a $500 credit limit. So both really safe ways to establish credit. And then from there is how to use that and explain you make a purchase, you can pay it at the end of the month. And if you don't have the money to do that, you have to pay a minimum and the rest is going to accrue interest.
Yeah, I think a lot of us, we use credit cards because we want to get the points. There's a reason why credit card companies, they don't they're not in the business of giving cash back or sending you on a nice vacation. The reality of it is most of us not here in this room because we're all financially responsible.
00:17:12:29 - 00:17:31:03
Speaker 1
Most people will end up spending more money than they can afford. Or they say, Hey, I'll pay it off later, and then something comes up just to get the points. And credit card companies make interest. I think making sure that our older children understand that. So if something seems really good, there's probably a reason behind it and it can be really good and we can take advantage advantage of it.
00:17:31:03 - 00:17:50:07
Speaker 1
If, like you said, you spend a certain amount each month, you pay it off, you're getting points, you're building credit, all that's great. But trying to avoid that pitfall of having credit card debt because that's one of the number one ways people, you know, financially struggle and set themselves back five, ten, 20 years financially, just trying to dig out of that hole.
00:17:50:09 - 00:18:19:15
Speaker 2
And then take it a step further is something that I'm thinking about right now. But student loans and there's a lot of buzz in the headlines around that nowadays, but I would think is being cognizant and having those discussions with your with your student, your child about as a family, even how to approach that particular part of the college process just because you got into a great school, if there is a, you know, $250,000 price tag at the end of the four years, is that really the best choice for you?
00:18:19:15 - 00:18:33:10
Speaker 2
So understanding how money works for you, compounding interest, both sides, you know how you're talking about getting an apple share and let that go and all at the same time, you can also make the payments that will potentially financially cripple you for for a while.
00:18:33:12 - 00:18:51:12
Speaker 1
Yes, I think kind of in wrapping up a little bit, it just comes down to having those conversations starting at a very young age. Some of us, our kids are older. You feel like you've missed the boat. You haven't. They're watching our habits. Bring them in the discussion, showing them accounts, showing them bills, trying to talk through what's the value of what you're purchasing.
00:18:51:14 - 00:19:05:16
Speaker 1
That to me, I feel like will set kids in a really nice direction to think through. Okay, do I need this or do I want this? It's okay to spend money on what it's like. It's not, Hey, if you don't need it, don't buy it. It's just am I willing to spend that money to get the value for what I'm getting?
00:19:05:16 - 00:19:11:17
Speaker 1
And so I think the conversations, having those discussions are really what's going to set our kids on the right path.
Financial education is not being taught in schools. I many times, you know, it used to be when you had checks that you can put all these things on it. And one of it said, I can't be out of money. I still have checks. So it's kind of, you know, that kind of mindset can get you into trouble. And debit cards and making sure that they understand the debit cards attached to a finite amount of funds and, you can't just keep swiping it until you have no end to that.
So it is really transparency conversations, the more the better in a calm, happy way.
