How We Taught Our Teenager About Money--And You Can Too

The job of instilling good money habits and wealth-building tools into our children is no small feat. Society will pressure them into living beyond their means in every way possible. You can provide subtle, yet strong lessons which will help them establish their own money personality. This will then guide their behaviors. Remember, more is caught than taught, but you can shape their perspectives in the areas that pack the most punch. As parents, we can help them visualize a future that they have yet to truly grasp.

Be Transparent

What It Costs To Live

Keep in mind that you are not raising children, you are raising adults. You have the influence to teach them the behavioral aspects of money, the parts they can control. Opening their eyes to real-world experiences is also in your job description. Consistency of examples is key during those years. Here are some things you can discuss with your kids, depending on their age, of course:

• The true cost of a new car versus a used car
• How does compound interest work
• Bank/credit card fees
• Show them your paycheck, the before and after taxes amount
• Snapchat or picture text them line items that they may not think about--speak their language!
• Mortgage/rent. $_____
• Utilities: Electricity, gas, water, trash, phones, internet, cable
• Grocery cost vs. restaurant cost
• Transportation: gas, insurance, oil changes, upcoming tire costs, and, unexpected repairs

Involve them in your discussions about the value of any given financial decision. Schedule budget night, make decisions together, and finish with (inexpensive) entertainment of choice. Here's what His and Her Money have to say on this topic. https://www.youtube.com/watch?v=hqv3EW820hk

What It Costs To Live--Teenager Style

Since our daughter hit the teen years, we've talked about when you get "your" car. These transparent discussions about the costs involved with this freedom have happened many times, over and over. Once the dollar amounts were imprinted into her mind, we then had the negotiation of what she would be responsible for. At first, as topics were introduced to her, we got astonished reactions. One thing that was put on the table early was that in order to be able to use our car, she would be getting a job to help pay for it.  No job, no car.  

"What??!!  (_______) costs how much...???"

However, now, having a year of experience forking over cash to pay for this freedom, she cuts in with..."I know, I know" (with the bonus eye roll.) Her Dad and I are good with that! Wink!

Working Is Non-Negotiable

With the condition of the car and job being key to her freedom, our daughter applied at a local fast food restaurant and got the job! She pays us $50 a month for insurance. She made a statement to an acquaintance one day about "having to pay my insurance." We realized we had not explained that her car insurance costs more than $50. After that, she was good with the $50! If your minor child has an earned income, you can open up a Custodial Roth IRA and get them started on saving for retirement early. For more info, listen to Episode 136. Related: How To Open A Roth IRA For Your Kids And Teach Your Kids About FI We started a Roth for our daughter at age 10; when she started a pet care business. We boarded one client in our home for seven months! That year, and many since then, she filed taxes which caused her to write a (painful) check to the IRS. Annually, we show her how the Roth is performing and calculate her net worth. Her love of animals pays short and long-term! When she was younger, I cannot tell you how many household chore charts I went through. I had a dream that one day, she would just do the chores as outlined, without being reminded. She almost never did. This regularly felt like a parenting failure. Fast forward many years--her boss texted her twice this week to cover a shift and she said yes.

"Because I want the money!"

We may have lost the early battles, but perhaps we are winning the war?  You can too! Here's one family talking about how their chickens are teaching their kids some great money lessons. https://www.youtube.com/watch?v=K6HjarkCgC0

Mindset

The money messages you consciously and unconsciously send your children will influence their mindset. We all know people who stick their head in the sand and just don't deal with money. This is part of a scarcity mindset. On the flip side, there are folks who know they can figure out a solution to life's challenges, no matter what.  They move through them because they feel capable. This is an abundance mindset. What vibes are you sending your kids? Be sure that the talk around money is positive and hopeful, regardless of your situation. Be the parent you needed when you were younger and let your kids experience all of the ways money affects us. With your positive guidance, they can launch with a FI mindset! Here's Ellen Rogin discussing the importance of setting a good money mindset with your kids. https://www.youtube.com/watch?v=Hd9hcBHN77g

Teaching Financial Boundaries (The Budget!)

Modeling Choices

Budgeting is not a deal-breaker here in the FI community. Some of us do it down to the penny, others of us have a more relaxed approach, which is a beautiful thing. The takeaway is that we have to think of money as finite and impart that limitation to our kids. In our house, we use a clear plastic canister for our grocery money. Granted, if you use points on credit cards, you could still throw "Monopoly money" as the set budget for "FOOD" for that pay period to teach the lesson. If you/they decide to go drop $20-$40-$60 on one meal at a restaurant, that money is visibly gone. What's left is finite. It is what it is until the food budget is replenished. They may soon realize that the grocery store is a better option, at least early in the budgeted period. Struggling is a gift. No matter where we are on our journey, we have to design our money experiences to teach our children valuable lessons of self-sufficiency. Struggle develops character and though we may hate it at the time, it certainly shapes our money personalities. Having finite money is a blessing as a teaching tool. Getting to Financial Independence comes later!

The Value Of Time

Another way to look at the value of money is through the lens of the value of time. Vicki Robin, author of Your Money Or Your Life spoke with Brad and Jonathan on the podcast, Episode 70. One of the most profound takeaways from her book is to look at your purchases in terms of how long it takes you to earn that money. She wants to remind us that we trade hours of our lives for that money. We want to make sure we are trading our money for something worthy of that time sacrificed. When your kids earn money, encourage them to think of spending in terms of time.

• If they get 50 cents for sweeping the kitchen floor, then that $2 toy means sweeping the kitchen four times. They decide if it's worth it.
• If your teenager earns $800 a month, they have to decide if it's worth it to buy the new iPhone.

My daughter was the cell phone example. Before she started her job we had many discussions about her earnings. She made it known that a new phone was what she wanted to save for. She made her case on why her old phone was a piece of junk. When she walked out with the phone of her choice, of her work, she beamed with pride. She had accomplished what she had set out to do. That moment will forever give her a sense of pride tied to her first job outside the home.

Shopping Experiment

My daughter and I butted heads on back to school shopping every single year. A few years ago, I decided to take a different approach. This mom needed to disengage--to let go. I designed a teachable moment with cold hard cash. When handing over the big bills, I encouraged her with something like "I don't mind if you get one piece of clothing or bags full. How you spend this money is completely up to you. Do you want to go to the mall or the thrift store?" I had practiced being neutral with my body language, facial expression, tone, everything. Be ready for "the mall." If so, bite your tongue and head there. Continue to bite your tongue, if needed. The end game is what value they feel at the end of the trip. Not much needs to be said. It was "their" money and the lesson will teach itself, one way or another. She chose the thrift store--on half-price day. Parenting win! In all the years up to that point, I paid. She had no skin in the game. How could she feel the money leaving her if I was the one paying? She couldn't. Empowering her with the cash and shutting my mouth has resolved this and now we love shopping together! This idea was echoed in the Facebook group. One of our members gives their child a set amount of money each month for their expenses. They are then required to pay for their own clothes, school events, etc. Anything left over is theirs to spend. Check out the full thread here. Here's a video explaining how to teach budgeting to your teen. https://www.youtube.com/watch?v=4AKGooMqYMg

Letting The Lesson Unfold On Its Own

Some of her favorite clothing items were found that day. She was thrilled that when she had purchased every item that she truly wanted, she still had plenty of cash to spend on other things, or save, as I had made that part of the agreement. I told her how genuinely proud I was of her and then I shut up. What if they chose the mall and the lesson wasn't learned? Be patient mom and dad, keep teaching, keep talking. More than likely as your kids mature--slowly, ever so slowly. You will see how their foundation truly shakes out. Nothing is guaranteed, but remember, we have 18 years with them for a reason. This empowering type of experience can be done with even the smallest of children when applied towards something that means the most to them at that age. Cold hard cash is pretty powerful, and when it's gone, it's gone. Do it for the grocery store, throwing a party, gifts, a vacation, or whatever has significant meaning to your child. Make a game out of it--how far under budget can we get? What should we do with the leftover money? Be sure to emphasize the positives of living within boundaries.

Show Them The Power Of Long-Term Investing

Long-Term Thinking

Budgeting and finite boundaries teaches them the value of money. However, another way to truly dig into their souls is through delayed gratification and sacrifice which equates to long-term thinking. Imagine if your parents had helped you set a long-term savings goal for something. Unfortunately, most of us grew up and money was a day-to-day interaction. For most of us, neither we nor our parents thought about it in a long-term sense. If they did, they didn't share. Once you have the work ethic solidified, along comes paying yourself first. Having meaningful parent-led experiences such as empowered shopping helps shape who they are becoming.

Opportunity Cost

Opportunity cost is defined as "the loss of potential gain from other alternatives when one alternative is chosen." Basically, a decision you make on how to spend your dollar means that you decide not to spend that same dollar on something else. ChooseFI's Brad Barrett helped with explaining opportunity cost in this article from fiology.com.

“Money is finite. There is not an infinite supply. That’s something a lot of people have trouble remembering these days. In a time when crazy mortgages, car loans, student loans, and credit cards make you believe anyone can purchase anything at any time with no consequences, it’s easy to forget that money has limits.” --Dave Ramsey

As you approach purchases of any kind, discuss the opportunity cost with your children. Explain, "If we spend $__ on ____, then we cannot put that money towards ________." Which do they want more?

How Do You Teach Kids To Save?

Goals, Matching What They Save, And The Long Run

• Kids need a why, just like we do. Typically, kids are not going to save money for the fun of it. Get creative with family goals, check out this article from Big Life Journal for some ideas.
• Let them play with an investment calculator to show them the power of delayed gratification. This was a family night activity for us. She was blown away!
• At 16, have them get their own debit card and teach them how to log on and see their behaviors in black and white.
• Talk about purchases you see other people making and talk through the topic. What opportunity cost could you imagine for someone else?
• Expose that where you end up is all about the millions of choices along the way.
• Show the college savings (if there are any) and the tuition cost of college. Get them saving now for that specific expense. Skin in the game!
• For the teenagers out there, take a walk through the baby section. My daughter's chin hit the floor when she saw one package of diapers for $32.00. I went on to give dollar figures for one child in daycare which blew her mind even more, but that is a whole other discussion. You get where I'm going!

You Can Influence

So, be the parent you needed when you were younger and let your kids experience all of the ways money affects us. With your positive guidance, and continuous discussions and examples, they can launch with a FI mindset! Related Articles:

• How To Get Your Kids On The FI Bandwagon
• How Kids Can Make Money And Get A Financial Jump Start
• How To Ask To Ask Your Family To Give Kids Money For Gifts