When I was working an hospitality job, some wealthy customers came one day, and their daughter had just lost her tooth. I asked her if she was expecting a shiny coin from the tooth fairy. The mother replied “money is not very important for us, the tooth fairy brings a nail polish, or a small toy”. Fair enough, I thought. And then it got me thinking. This kid doesn’t know anything about money.
She probably doesn’t have an allowance, because “money is not important in this family”. Everything falls off from the sky, stuff you want, stuff you need. She didn’t seem spoiled and was actually a very sweet kid. But what about learning about money? Her parents were expats, living the high life in Guatemala. They drove a shiny SUV, had bodyguards, maids, baby sitters 24/7. The kid attended a private school where tuition rivals that of US prep schools, and would surely be shipped to an Ivy League college 10 years from now.
With no financial education, how do you suddenly manage a rent, a food budget, your clothes or entertainment spending?
I met another 25 year old boy after that, who was not allowed by daddy to have cash. He had a credit card to swipe, and daddy took care of the balance. But the dad was so controlling he wanted to know exactly where the money went, hence the card only system. How do you know the value of things if you don’t realize their cost? Swiping a card is different from earning the money and making the balance payments, or paying cash for stuff.
Whether you are a trust fund kid who had millions poured over on the day you turned 21, after a financially sheltered life, or a middle class kid who never had an allowance because your parents couldn’t afford one, if you haven’t learned about money in your childhood, chances are your are bound for financial disaster.
Why are parents not in charge of their kids’ financial education?
No money. When you have not enough money, and struggle to pay your bills, it can be hard to talk to your kids about money. You don’t know how to deal with it yourself, and dug a whole so deep you probably would have to step down from your parental pedestal and admit your mistakes to your kids. Shame, guilt, avoidance, it can go on for years.
Too much money. You have a problem we all would love to have. But by pretending money doesn’t exist, you aren’t making your kids a favor either. They will never learn the true cost of things, the value of hard work, the delayed gratification…
School should do it. Parents have a tendency to assume that because kids go to school, they learn about life. Be it financial or sexual education, they don’t. The same way you can’t blame them for coming back home pregnant at 14 if you never told them what a condom was, you can’t expect them to learn about financial literacy at school.
What can you do?
The best you can do for your children, in all areas and not only money, is prepare them for real life. That is the main reason behind unschooling, a form of homeschooling that doesn’t follow a strict academic program and lets the kids learn for themselves by experimenting in real life setting.
Introduce money as soon as possible. From the moment you can count, you can count money. You can play shopkeeper or introduce an allowance and learn to spend and save.
Do tasks according to the kid’s age. Go to the supermarket and study prices, calculate the cost of a recipe or how long Junior will need to save for an action figure.
Encourage entrepreneurship. I saw a Ted talk about a kid who convinced his parents to lend him $100 to create an iPhone app. We all have different personalities, I know I hated selling lottery tickets because I was shy, but I thrived as a piano teacher. Not once did my parents prevent me to do something that went towards entrepreneurship.
Set some rules. If you haven’t noticed, I am quite the independent spirit. It may have helped that from age 12 or so, my parents started talking about ‘’when I would leave home’’ and ‘’when I would live on my own’’. Progressively, they went from providing everything to just food and shelter. I had to pay for fun and clothes (they would sometimes give me the price of a supermarket clothe and I had to put the rest to get the cool stuff). By age 17 I was out living on my own and paying for my 5 years of college. My parents always said that they would pay for tuition if it was expensive and I was a stellar student. If I hadn’t got a full ride through business school I know they would have paid because they valued education and wanted no door closed because of money. But they wanted me to try on my own first. Whatever your rules below your roof, own them. Allowances can be adjusted for good grades, or performing some basic chores for example.
Communicate. Kids feel things. If there isn’t enough money, they will know you are worried. If you buy a $2,000 purse and refuse to let them go on a field trip because of money, they will need answers. Make sure you explain properly what is going on, why you can’t pay for this or that when all the other kids have it, it is better than leaving a kid wondering.
On a related subject, check out Shannon’s post Children and money, don’t turn it into a taboo topic on The Heavy Purse.