Sense and Cents: Money Matters for Kids

Parents want their children to grow up to be financially healthy. We all have a money script, or a default mode in the ways we interact with and use money. Often our money patterns are ignored, inherited, imbibed or intentional (or a combination of all these). When ignored, we live in a constant state of money denial about our responsibilities and are banking on hope. If inherited, our money patterns follow our parents’ actions (for good or bad). If imbibed, we follow the herd and can become the pawns of commercial culture. Intentionality with money will look different and will lead to financial health and balance. Through intentionality, parents hope to guide their children into becoming an economically self-sustaining adult. Here are a few ideas to help your kids develop money intentionality.

Earn. 

As a start, showing kids that money is a byproduct of producing something or serving others. Producing and serving are the exchange of time, creativity, and effort for income. Earning income through work can help form a respect for money because the kids begin to respect their time, creativity, and problem solving. Kids also begin to realize money as connected to purpose and doing good unto others while providing a way to pay for needs and wants.  

Taxes. 

To earn income is to also pay taxes. Teaching kids to fill out tax forms like the W-4 and pay taxes makes them aware of their responsibilities in society (Social Security, paying for roads, schools, etc.). If you are a business owner, reach out to your CPA and ask about the possibility of hiring your kids to perform work (lawn maintenance, cleaning services, advertising, etc.). They may be allowed to earn up to the standard deduction or about $12,000/year tax free.

Save and Invest. 

A result of earning is also an opportunity to learn delayed gratification for near term goals and long term goals – reserving paying one’s future self. Saving for a near term goal helps focus on an achievable experience, consumer good, or learn the value of savings for an emergency. If you want to open a conversation with kids about investing, simply show them the power of compounding interest. Bottom line, it takes a lot less money to have more money in the long run by starting to invest early. Long term wealth can be grown through savings and investment.  

Generosity. 

If parents are aiming for balance and healthy money habits, teaching the joys of generosity acts as a way to focus the kids on others in need. Generosity is a gateway toward humility, any of us could be in the situation we are helping with, and compassion for our struggling neighbor. 

Enjoy. 

All healthy spending is constrained – either by law (taxes) or by choice (saving, giving, investing). Once kids have earned, paid taxes, saved and invested, and been generous, it’s time to spend! Spending after other responsibilities and goals have been attended should be enjoyable. Teaching kids to spend freely within constraints is healthy.  

Two final ways that you can help your kids understand and use money well include teaching them about credit and opening up to them about your experiences.

Build Credit. 

Rule #1 is to pay off any credit card monthly. Rule #2, see #1. Be sure to talk with them about when they are allowed to use the credit card and how it works. Credit cards should be treated with care, but also offer advantages like redeemable points. They offer many protections over debit cards including: purchase protection for packages that arrive damaged or are stolen, luggage protection, and even some types of travel insurance for trip cancellation or interruption for events outside your control. 

If you have good credit, consider adding your high schooler as an authorized user on your credit card. They will benefit by attaching to your good payment history, your FICO score, and long credit history, which will benefit them when seeking their own credit. This can impact the rates they borrow at in the future for all manner of things from cars to houses. Once the kids are employed and have secured their own credit cards, parents can simply remove the kids as authorized users.

Vulnerability. 

Share with your kids the worst money mistakes you’ve made. Talk to them about how these missteps made you feel and how long it took to correct them. They know you are not perfect, but being vulnerable allows you to connect with them and gives them a chance to avoid your errors.

Teaching kids about money is more than financial literacy; it’s about the habits of heart and mind around our desires, passions, considerations for others, and our responsibilities. When we form a healthy relationship with money, it can allow us to experience the pain of paying taxes, delayed gratification of setting aside for something fun, the joys of giving, and the freedom to invest for the future. This range of healthy patterns with money can provide economic security, and a sense of self worth and purpose for your kids. 

What are you waiting for, get intentional!

By: Jason K. Branning, CFP®, RICP®

Disclaimer:

The information provided in this report is for informational purposes and should not be considered a recommendation or solicitation to purchase or sell any particular security or investment strategy. Investments are not insured, subject to market risk, including the loss of principal. Investment strategies described may not be suitable for all investors. Equities are subject to market risk meaning that stock prices in general may decline over short or extended periods. The information contained does not consider any investor’s investment objectives, particular needs, or financial situation. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate. Information in this presentation has been obtained from sources believed to be reliable but cannot be guaranteed. Additional information is available upon request.