Adulting with Dollars: Tips to teach children about money
When is the last time you used algebra to find “x”? When is the last time you looked at your credit card bill and wondered, “Oh, my. What did I do?” While students tackle a variety of subjects during school, personal finance isn’t part of the coursework for most. Young adults leave their parents’ protective bubble at 18 (or 21… or 25…) and begin stumbling their way through adulting. Diplomas are received after four (or five…) years from a university of choice and, shortly thereafter, the aspiring adult receives a big fat bill with his or her name on it. At this point, it’s appropriate to wonder, “Why did no one teach me about money?” Quora may already have the answer to the question…
Question: “Is it rude to talk about money?”
Answer: “Yes, but you should anyway.”
I believe that answer says it all. A lot of us may feel like it’s uncomfortable or rude to discuss money, but for your sake and for your children’s sake, you must become comfortable with talking about money within your family. Yes, that includes your children! In order to do so effectively, I believe that we need to first understand and have a healthy perspective on money. So let’s first set aside our savings (if we have any…), our student loans (yes, please), and our Visa (all three of them) for a moment and look at what money is objectively and ask ourselves, “What is money?”
What is Money?
1. Medium of Exchange
Money, at its essence, is a medium of exchange. Whether you’re a Native American from centuries past trading shells for goods or going on Coinbase to trade U.S. Dollars for Bitcoin, you are using one good as a medium of exchange for another good. You don’t have to have any seashells or cryptocurrency to see how naturally money comes to humans. Money comes so naturally that kids from a young age will quickly form their own currencies.
Get a few kids gathered in a group and soon enough a free market where goods are exchanged will emerge: Pokémon cards get traded amongst children and snacks at the lunch table are bartered to and fro. Let’s take a potentially haunting trip back to childhood and examine an exchange.
You’re seven years old and sitting at the lunchroom table enjoying the Lunchables that mom packed you. You’ve slurped down your Capri-Sun and devoured every morsel of your ham, cheese, and cracker mixture when you realize all that’s left is your Reese’s Peanut Butter Cup. You’re not in the mood for Reese’s because the hypothetical you doesn’t seem to have a soul, so you ask around if anyone wants to trade. Everyone is, of course, eager to trade. Let’s examine your options from willing traders:
· Roger has green grapes
· Amy has Toast Chee, whatever that is
· Todd has Nutty Bars, what a sucker
· You play coy with Todd and finally negotiate to get his Nutty Bars today and tomorrow. Everyone leaves happy except for Roger who’s left munching on sour grapes.
Why Does this Matter?
Every time you make a purchase or show up to work to make some money you are participating in the market. At work you are trading your time and skills for money. You later use that money on purchases for yourself and your family. You likely complete multiple transactions daily, but don’t do so unthinkingly! Every transaction is an opportunity to explain to your child what is being exchanged and the value that each party is receiving in the transaction. You could explain what it means to use dollars versus a credit card to buy groceries or how you think about the value of paying for a flight versus driving. Has your child ever asked, “Why does mommy have to go to work?” Take some time to explain why you choose to go to work. It may sound silly, but your child is a sponge that is looking for guidance from you. Being open about small financial transactions will lead to greater comfort between you and your children to discuss more meaningful topics as they mature.
2. Relative from Person to Person
“Too many people spend money they earned..to buy things they don't want..to impress people that they don't like.” --Will Rogers
No. 6 by Mark Rothko
Somebody paid $186 million in 2014 for the painting above. I’m not sure if I’d part with $186 for it, would you? The point is that value varies from person-to-person. You may feel that $15 on a bottle of Trader Joe’s finest Oregonian Pinot Noir is a stretch, while Charles Koch auctions off 20,000 bottles of his collection for $21.9 million. It would take nearly 55 years of drinking a bottle of wine every day to get through 20,000 bottles of wine. Why would anyone accumulate that much wine? Because money is relative. Maybe Charles is an aspiring oenophile. Maybe Charles is a smart investor and bought the wine at a good price because he knew he could wait and let it age to sell it later at a premium. Maybe Charles has a large ego and a vast wine collection helps fill the void. Charles Koch, a man with a net worth of $60.5BN, likely doesn’t bat an eyelash while creating such a collection. Meanwhile, someone else living off of a few dollars a day may think that both you and Charles are rich because you can even think of affording wine.
Why does it matter?
There is a purpose behind every purchase. Take the time to explain the logic behind your purchasing choices to your child. Do you ever go on vacation with your family? Explain why you choose to spend money on a trip instead of on more stuff. Do you typically cook at home or dine out? There’s a good argument for either option! Take the time to talk through the logic of each with your child. Whether you realize it or not, what you’re actually explaining to your child is what you value.
If you told your child that someone purchased the painting No. 6 for $186 million, feel free to chuckle together, but also take the time to go into how it may be an investment for the purchaser. Examine purchases from a different perspective. Ultimately, what you’re explaining are the relative value of purchases as well as the strategy behind investments. If none of the above makes sense, think about how a $2 increase to your child’s allowance would impact them. How would you feel if your boss offered you a $2 raise?
3. Powerful Tool
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. --Ayn Rand”
I believe that money is the second greatest discovery of mankind, second only to fire. Oddly enough, money + fire may be the worst invention of all-time, but I digress.
Let’s talk about banks – America’s favorite villain since 2008. But rather than focusing on how the greed of a few failed many, let’s looks at how money has the power to create wealth. George Bailey from the Christmas favorite, It’s A Wonderful Life, runs Bailey Brothers’ Building and Loan. In 1929 when the stock market crashes, everyone rushes in to collect their money in fear that it’s gone! George rushes to the bank to try to explain to all of his customers how money really works.
Just a casual Wednesday in your house, right?
George explains that the money wasn’t sitting in a bank waiting for people to come back and retrieve it. The money was being put to work! It was being invested to build homes, which would create far more wealth for not just the bank, but for the community, other companies, and people as well (e.g. home owners, real estate agents, home builders, gardeners, manufacturers, etc.)
Why does this matter?
There are two types of ways that we use money:
1. Money is spent
2. Money is invested
The difference between a wealthy person and a poor person is that the wealthy invest most of their money while the poor spend most of their money. Please do not get confused and think that I’m talking about putting money into your 401(K) or creating an emergency fund. I’m talking about being consciously aware of the impact of every dollar that you use.
Spending gives us immediate benefits while investing provides us with long-term benefits that we cannot presently enjoy. To demonstrate, let me give you a few examples of how you can think about this across all aspects of life:
· Juanita decides to invest 3% of her monthly income in stocks (Money spent or money invested?)
· Mitch chooses a $12 salmon salad over an $8 burger with fries (Money spent or money invested?)
· Andrew buys his wife an orchid for $20 (Money spent or money invested?)
· Susan buys her daughter a new book each month that costs roughly $10 (Money spent or money invested?)
It seems pretty obvious that Juanita is choosing to invest money, but what about Mitch, Andrew, and Patricia? From my perspective, all of these could be viewed as an investment. Mitch is foregoing the burger and fries and choosing his health, Andrew is making a small investment in the relationship with his wife, and Patricia is investing in her daughter’s education. Every person in this example is giving up some money and pleasure in the short term in the hopes that one day they’ll have money for retirement, a beach bod, a happy wife (and a happy life), or a successful daughter.
The key lesson here is that wealthy people focus on the long-term impact of how they spend their money and their time. You already are a terrific investor in one aspect of your life. You’re investing your time in your mind to become a more skilled parent. While investing in your child may come naturally, the key to living a wealthy life is to invest your money and your time wisely across all areas of life.
How do I begin a money conversation with my child?
A practical way of tangibly teaching your kids about money is to use their allowance or gift money as a teaching experience for the future. One way to do that is to set up three different piggy banks or money jars for your child: one to save, one to spend, and one to give. Before your child gets that first dollar bill, you can talk to your child about what money is, why it is important, and why setting aside money in this way can set them up for success. Instilling these values in your kids early on will help them do the same when they get older.
Summing things up..
The purpose of this article is to develop a new perspective in how you think about money. As a society, we must stop viewing money as a problem or “the root of all evil,” and begin seeing it as a tool that empowers us and the world to do amazing things. I believe that if you make this subtle mental change and begin sharing your thoughts with children through ongoing discussion, then you will have taken an important step in setting your child up to be money-wise. I don’t think you need much convincing on the benefits of being money-wise, but should you need additional resources, please check out a few of the options below.
Adulting can be hard, but you’re far wiser than you know. Share that wisdom with your children and they will thrive.
If you’d like to learn more about personal finance, here are a few places to start:
For the person with some debt to pay down…
· Dave Ramsey Show (Podcast)
· The Total Money Makeover by Dave Ramsey
For the person who is debt-free (or nearly debt-free) and wants to take the next step…
· I Will Teach You to Be Rich by Ramit Sethi
· Unshakeable: Your Financial Freedom Playbook by Tony Robbins (Yes, Tony Robbins)
For the person who doesn’t need to learn themselves, but needs help teaching their kids…
· Make Your Kid a Money Genius by Beth Kobliner
Note: I have read or listened to all of these at some point except for I Will Teach You To Be Rich, but I kept it on the list as it is frequently recommended.
About the Author: Brett is the husband of Sara Botto. He studied Finance and Economics at the University of Georgia and became passionate about personal finance after taking a class in high school. He began his career in investment banking, but when he’s outside of the office he usually has his face buried in a dish at a local restaurant with Sara or buried in a book.