8 Money Habits Parents Should Start Modeling Right Now
Walking the walk is tough. Here’s how to get started—and stay on your feet.
For many kids, “the talk” is a rite of passage. You know: the birds and the bees, and all the other things that parents don’t want to discuss—and kids don’t want to hear.
But what about another talk that can be equally uncomfortable?
How much money do we make? How much do we have for college? How about for an emergency?
That’s right. Having a talk about family money is something that many parents view as important but, understandably, would rather avoid. And “the talk” itself is just the beginning. Then it’s time for parents to follow their own advice, which can be even more intimidating.
But modeling good financial habits is one of the best ways to teach kids about money.
Ready to talk the talk—and then walk the walk? We spoke to nine parenting and personal finance pros. Here are eight first steps to get you started.
1. Discuss Money
Kevin Heaton, CFO at i3 Family Office Services
The most important habit to model is to discuss money. Talk about it, read about it, ask questions, discuss it. I would much prefer my 9-year-old make mistakes with her money now rather than at 29 or 39, and so we discuss it.
All of our children are bombarded with a view of hyper-reality, hyper-consumerism through social media: Instagram would have you believe that a $60,000 Birkin bag is an acceptably normal purchase, and afterward should be worn while posed on a waterfall in some exotic location, yacht framed in background. That is manufactured reality, and counter-productive if the growth of existing wealth is the goal.
Heaton recommends focusing on three main topics:
1. Work for Money
Work for Money is the start: Children who work for their money either through household duties, school achievement or other earned reward/recognition experiences value the reward. More important, it is less about the amount and more about the transaction itself, and the opportunity to discuss money in a coached, supportive environment. Start as early as possible: a child at 5 can help with small tasks for a piggy bank reward. Once a child has money, they must next understand that even if they can’t see the money it does exist. Last, they can only spend the same dollar once.
2. How Money Works
How Money Works: Earning money is not enough; the child should next understand that income and expenses are a part of having money. How much will you earn, what will you spend the money on by choice, are there set expenses you have to spend the money on to live comfortably? This is the opportunity to explain budgeting, taxes, utilities and other expenses, and plan for small ‘want-to-have’ and large ‘want-to-have’ purchases. It’s also a great time to introduce setting aside amounts for education, sport activities, or charitable gifts for the future. There will also come a time to discuss setting aside a fixed amount for investment.
3. Make Money Work for You
Make Money Work for You: Many families cover the first two points well, but never discuss borrowing and lending, stocks, investments, and asset management. They will discuss saving, but saving is not investing. To start to teach your child about investing, create a graph—for the refrigerator or in an app or spreadsheet depending upon the child’s age—and have your child pick one thing they love that has a public company association: a toy, a movie, shoes, an amusement park, a food. Then start to graph the price together—if you bought one share for $8 this day, it would be worth + or – XX this day. Begin to discuss what a share of stock is, why some are more expensive than others, how you can earn or lose money, and how one buys a share of stock. After a period of time, you may wish to pick a specific stock or fund or other investment of which the child has a keen interest to make a small investment.
All of this is important, but as with most things, effective communication—discussion about money matters—is the start.
Lucy Harris, CEO of Hello Baby Bump
When it comes to money habits and children, I believe that it is incredibly important to start early. Laying down the foundation for good money habits is essential. However, having said that, it is super important to allow your children to learn through mistakes as well.
My children get pocket money for completing chores and getting good grades. They have to put money into three different piggy banks. One is for saving, one is for spending and one is for emergencies. Getting your children into the habit of dividing up their ‘earnings’ into these three categories is teaching them early about sensible spending and habits such as always having an emergency fund.
When it comes to my children spending money, we try to talk them through their purchases. We ask them questions such as:
- Do you want it or need it?
- Is it going to serve a purpose?
- Is it going to be useful?
- Why do you want/need it?
- Is it worth the price tag?
Questions such as this get the children into a habit of analyzing their purchases to ensure that they don’t waste their money.
Of course like any child, they are going to have impulse buys. We allow the kids to make their own decisions when it comes to the impulses. Then, when they don’t have enough money for something they need or really want due to them spending their money on the impulse buy, they learn and teach themselves a lesson.
Watch your own spending habits and if your children are old enough, talk to them about the basics of the family money habits. Children learn a lot from their parents and they pick up the things you do. If you have poor spending habits yourself and your children see you, they are more than likely going to pick it up as well.
2. Set a Budget
Alexandra Fung, CEO of Upparent
As a mom of three kids (ages 12, 10 and 2) and co-founder of parenting website Upparent.com, I have had ample opportunity and reason to consider how to best model and support good money habits to my children—and am always looking to learn more! Some tips that have worked well for our family include:
- Don’t be afraid to talk with your children about your household budget, and how you decide where and how to allocate resources based on your family’s finances and values. For example, if we are considering whether or not to enroll one of our older kids in an extracurricular activity, we are open with them about how it would fit into our monthly budget, and how it compares to other monthly expenses, so they begin to understand the process we undergo to decide whether any particular expense is worthwhile for our family.
- Discuss and agree on budget limits for certain expenses, such as gifts, to teach an appreciation for thoughtful and deliberate buying habits.
- Set personal limits on fun or extra expenses (such as fancy coffee!), to make it clear that even small purchases add up, and need to be accounted for in a budget.
- Create a shopping list before heading to the store (or online), to avoid unnecessary impulse purchases.
Paul Moyer, founder of Saving Freak
Budgeting is the most important tool we try to teach our kids. All of their money goes into a jar marked work. Before they can spend that money it gets split into three different jars marked give, save, and spend. 10 percent of everything they work for goes into give, 20 percent into save, and they are allowed to spend the rest as they please.
Our oldest is 10 and it is so ingrained in him now that he rushes to move money from the work jar to the other jars just so he can know how much he has to spend. He’s also pleased that his savings is getting bigger so that he can buy a car once he turns 16.
3. Earn Money
Monica Lam, blogger at Lucky Mojito
Let kids earn their money. Our kids do not get allowances. They know that money has a value and if you do something like chores or other form of work, you earn money. This teaches kids that time has value and should be spent wisely. By saving money or investing it, you are giving yourself the freedom to do more things.
Use a save, spend, donate money jar to teach money basics. Just because your kids are young, it doesn’t mean they can’t grasp money concepts. To make it easier to visualize we have three money jars. When our daughter, who is 5, earns some money helping around the house, we let her put her money into the jars she wants. She can either save her money for the future, spend it on something now, or donate it. She loves animals so she has chosen to donate money to the ASPCA.
Deborah L. Meyer, owner of WorthyNest
Don’t spoil. Even if you have the financial resources available, resist the urge to say yes to every request. Before you know it, your teen will be a young adult. Relying on your economic handouts will hurt, rather than help him later in life. Engage in an honest conversation with your teen about wants versus needs.
Have your teen get some financial skin in the game. If your daughter insists on purchasing something she does not need, decide on a dollar amount or percentage that she must contribute from her own funds.
Encourage part-time employment. It is rare for your child to become an olympian or professional athlete. Extra-curricular activities are great for fostering teamwork and self-confidence, but they do not pay the bills as an adult. In fact, select sports teams and one-on-one lessons are costly. It is quite possible for your teen to work part-time and participate in one extra-curricular activity per quarter. Part-time employment fosters responsibility, and earnings can be saved or applied to living expenses such as gas, entertainment, and meals out with friends.
4. Save Money
Caroline Vencil, founder at Caroline Vencil
I think the most important skill parents can share with their kids is showing them that saving comes before spending. It’s easy to see parents spending money as kids, but to have a conversation about savings and how important it is is even more important. Growing up, I remember going with my parents to open my first bank account at 8 years old. The idea of making constant deposits and watching that money grow was exciting to me. I’m very thankful that I was taught about savings early on in my life.
Deborah L. Meyer, owner of WorthyNest
Match it. If you have the financial means, offer to match your child’s savings in a Roth IRA. The beauty of a Roth IRA is that you never have to withdraw from it during your lifetime. Earnings grow tax-free and are great savings vehicles for young people.
5. Compare Prices
Monica Lam, blogger at Lucky Mojito
It’s important to teach your kids that you don’t need to buy everything new or at new prices. Our kids have more toys and clothes than they need because we’ve scored great deals at thrift stores, second hand shops, and at retail stores. Our kids have learned it’s important to compare prices and by doing so they can either save more money or get more things because they are at cheaper prices.
Monica Lam, blogger at Lucky Mojito
My kids are ages 2 and 5. My husband and I speak about finances in front of them all the time because we want them to feel comfortable with money and have a better understanding as they get older.
We teach our kids the importance of negotiating. To do this we go with them to garage sales and flea markets. They see us both buy and sell items. Negotiation is a skill that can save you hundreds if not thousands of dollars. This applies when buying a car or house, choosing banks based on fees and interest rates, and even hiring contractors.
7. Practice Patience
Kath Gilbert, blogger at The Life Spotters
My top tip is to write down potential purchases in a wish list on your phone (or notebook if you prefer) and also to allow a measured cooling off period. My son, in particular, is very impulsive and switches between hobbies and passions faster than I can get my purse out—we saw he was making a habit of wasting his money on things that he quickly lost interest in. I started modelling patience by choosing not to purchase something until I’d given myself time to think about it, and making a note of the item I’d seen to refer back to later. I created a list for myself and one for each child.
Now if anybody sees something they want we make a note of it and allow at least 2 weeks to see if it’s still the ‘must have thing’ we originally deemed it to be. (So far so good—yesterday my son went through his list and crossed off nearly everything on it!)
8. Live Frugally
Jonathan Huang, aka Mr. Centsible
As a brand new father, I get to contemplate all the time on how I’m going to raise financially savvy kids. I think the overarching concept that I go back to is that, as parents, it’s important to lead by example. If you live a life of luxury, say having house cleaners come biweekly, or eat out a couple of times a week, or buy things in the store without hesitation…these are all things kids will pick up on and think are normal. This could teach bad financial habits by thinking these actions don’t have consequences if they are not discussed beforehand.
To me, this means that parents may need to consider sacrificing their lifestyle a little bit in order to not instill a sense of luxury or entitlement in their kids. This means that even if the parents have the financial means to live a certain lifestyle, it may be beneficial for their kids to not live that lifestyle. If kids live their childhood without realizing the value of money, they could be in for a rude awakening when they graduate into young adults.
Whether they realize it or not, parents and other role models pass financial lessons to their kids. To instill healthy habits, model sound personal finance. The youngsters in your life will take note—and walk away with the gift of financial literacy to last a lifetime.
Alexandra Fung is the co-founder and CEO of Upparent.com, a unique new website that makes it easy for parents to discover and share recommendations with one another about local things to do, places to go and products to try as a family. Family and community have long been central to Alex’s life, and after graduating from the University of Notre Dame and NYU School of Law, she served as an advocate for children and families in the nonprofit sector for many years before helping to launch Upparent. Originally from Southern California, Alex currently lives with her husband and three kids in the suburbs of Chicago
Kath Gilbert is a writer, mother and debt survivor. She blogs about life-design, money and adventure at The Life Spotters.
Lucy Harris is a mother and the CEO of Hello Baby Bump.
Kevin Heaton is a CFO who understands the cycles of wealth, the dynamics of family change and resultant behaviors. His expertise is in developing and implementing focused tactics to protect and manage private assets through the objective application of information tools, infrastructure support and investment strategies. Mr. Heaton is the founder and principal of i3, LLC, a Family Office Private Asset Management firm, and has grown the organization into a team of professionals who provide clients with access to relevant information to make informed decisions, the infrastructure (team and tools), to actively manage their assets and investment opportunities (directly or through managed funds) to (re)invest their capital. As an accomplished speaker and presenter, Kevin’s talks give in-depth analyses of his own experiences in family office asset management and makes even the most complex asset strategies clear with concrete action plans.
Jonathan Huang is the founder of Mr. Centsible, a blog with the tagline “Your Sensible Guide to Personal Finance.” It’s a blog dedicated to helping millennials understand personal finance and reach financial freedom.
Monica Lam is a personal finance blogger at Lucky Mojito. She and her family paid off over $33k in credit card debt and built a net worth of 6 figures and growing. She shares her best money making and saving tips so others can do the same.
Deborah L. Meyer, CPA/PFS and CFP®, is a fee-only financial planner and author of Redefining Family Wealth: A Parent’s Guide to Purposeful Living. Deborah is the owner of WorthyNest®, an independent advisory firm dedicated to helping parents build wealth. She is Saint Louis University’s School of Business 2019 Distinguished Young Alumni and a recipient of the 2018 AICPA Standing Ovation Award for Personal Financial Planning. Deborah has been featured in The Wall Street Journal, Forbes, Yahoo! Finance and CNN Business and is a regular contributor to Kiplinger. Outside of work, Deborah spends time with her husband Bryan and three sons.
Paul Moyer is the owner and founder of Saving Freak. He has been writing and teaching others about personal finance since 2007.
Caroline Vencil is a money-saving expert, especially when it comes to her family of 6 living on one low income. She is a master of living on a tight budget and still having a full life. Her passion is to teach other women how to make their money work for them and to take charge of their own financial lives.
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