Introducing Finances To Your Children

The Budgeting Series

*NOTE: This is part 6 of a series on budgeting.*

If you have missed the previous articles in this series, I encourage you to read them before moving forward – they are in linear order for the reader’s sake:

You can read any of them as stand-alone articles, but for the full effect, they are each designed to build off of each other.

Life is a large gulf for kids to navigate – and finances are no different; they need guidance

Being a parent isn’t for the coward or faint of heart when done correctly; it takes investment, time, and massive amounts of energy – and even that isn’t a guarantee they will grow up to be productive citizens. In all of the years I’ve been talking with other parents – and been one myself, I’ve seen so many who suffer from heartache as their kids became addicts, derelicts, and wayward prodigals.

What’s more, the same can be said about kids and finances, too; and when we reflect on this a bit, it makes sense. After all, 73% of Americans do not follow a budget – and that defunct operating mode is passed on to children. (And for the love of all that is financial, don’t listen to the expert in the article, who says not following a budget is ok – what the heck is a “financial therapist” anyway??)

The American Psychological Association reports that kids, when aware of financial stress, can become anxious, feel guilt for needing things, and even feel things are their fault. PBS reports that children who grow up poor have a harder time climbing out of that poverty in adulthood. Bloom Advisors discusses ways to set your kids up for financial success, and let’s be honest for a minute: when we aren’t taught (or learn bad behavior through omission), we carry that through our adulthood – for good and bad. And I contend a lack of financial education is a bad habit at best and a debilitating addiction at worst.

Tips and Tricks to Introduce Finances

Tips and tricks can be essential, and that includes finances, too

Kids are sponges; they pick up on everything – the good, the bad, and the ugly. Many Americans have poor finance habits that are passed on to their kids, carried into their adulthood, and often haunt them their whole life – only to pass that along to the next generation – and so the financial woes continue on in perpetuity.

Here at The Wealthy Ironworker, we feel it’s prudent to provide tips and tricks to help those in the skilled trades (this advice is prudent for ANY parent) and provide sound financial principles for their children. We all talk about wanting better for our children – let’s put some action behind those words, shall we?

Practice sound finance principles as parents

Failure to plan is planning to fail. Show your kids by doing

This should come as no surprise; statistically speaking, kids model what they see. And if 73% of adults are not operating with budgets, then what is the likely outcome for their kids?

You got it – they are probably not going to budget, either. And one of the ramifications of that is passing on bad habits. What’s more, for the most part, you don’t simply pass on a bad habit – it’s often exponentially increased. You aren’t just not passing down budgeting ignorance – you’re children probably won’t be good money managers, either. There are numerous reasons why this is the case – which we won’t get into in this article – but one of them is due to poor financial education passed on from parents.

Because what you pass on has huge significance, it’s prudent for you, the parent, to shore up your own financial house by budgeting – and then model it for your children. Trust me in this – your kids will thank you later.

Chores, not allowances for growth in finances

Chores – not allowances – instill a work ethic and mimics real-life

Wise are the parents who think this over and implement chores over allowances – and the reasons are important. For starters, allowances are the money equivalent of a participation trophy; you get rewarded for just existing. For the feelers out there, this comes more naturally, but the world will not be as compassionate; indeed, real life rewards hard work – not merely existing. Life is tough; better that you prepare your children accordingly.

Second, it incentivizes NOT doing anything; instead, it would be far better to reward work via chores, building a work ethic as opposed to entitlement.

Third, it builds a consistency many lack in today’s workforce. Imagine your kids grow up with a stellar work ethic and a robust understanding of financial principles – how much better off will they be?

This world is competitive – and is becoming more so every day. With the advancements in technology, policy, and work ahead of them, why would you not want to remove at least one obstacle for them?

Chores – not allowances – are a far better way to build up your kids and their financial prowess.

Practice budgets for finances

Practice budgets are a great way to introduce your children to financial education

When age-appropriate, parents can implement structuring practice budgets, giving kids the opportunity to pay bills with the money they get (again, with money they have earned through chores and not given just for existing). They get the chance to experience a slice of life like adults do.

And before someone objects that this takes away from their childhood, I’d offer it’s worse to throw them out into the world with no training at all – which, consequently, is what scores of parents do in this country, anyway. I’ll only ask if we actually believe our kids are better off today with no financial practice. You already know the answer.

Better for them to establish sound financial principles – and in this case, mock budgets – than to allow them to grow up with little to no financial education.

Think about it for a second; having your kids practice paying bills, understanding what they are, when they need to be paid, and how much – not to mention the lack of money to potentially pay bills due to a cash crunch – goes A LONG WAY to setting your kids on solid financial footing.

Nothing – and I mean nothing – beats experience.

Spend, save, give

Teach your kids to be generous and compassionate through budgeting

As part of practicing budgets, you should also be seeking to raise compassionate children as well; and this particular line item is one we have implemented with our own children. Once our kids complete one of their chore charts, they get $3.00 (they are young btw). And for that $3.00, they get to spend $1.00, save $1.00, and give $1.00. We have been doing this for years now; there is nothing like continued repetition to build healthy habits.

What does this do?

First off, we build consistency; they spend, save, and give. Habits – good, bad, and ugly – are built up over time, and the consistency we establish in doing this will produce dividends long term.

Second, it reinforces the importance of saving. Far too many people have a positive view of, but a negative habit in, actually saving money. I suspect this is one of the reasons people are so reluctant to budget; they intuitively know they should be saving but lack the discipline it takes to really dial things in to do so. By practicing saving money early on, we are reinforcing its importance to our children.

Third, we intentionally build compassion in our kids by making them give $1.00. By now, I can hear someone say, “You’re making them give away 1/3 of their money!” The importance right now isn’t the percent/amount; it’s the discipline of making it important. At the moment, we are just using $1.00 for ease. When they are older, however, it’s likely they will give away less of a percent but more money overall – and that’s okay. It’s more important we build financially prudent and compassionate adults; society needs it more than most are willing to admit.

Increased freedom, increased responsibility

With age comes increased freedom – but it needs to be balanced with increased responsibility

This website notes that the ages 8 – 14 is a crucial time to establish sound, foundational principles in your children. Perhaps even more important is as your children age and their freedom increases, so too should their responsibility. THIS. IS. HUGE.

The reason(s) are many, but we’ll focus on a few.

First, current culture talks about the freedom citizens (including children) have but hardly discusses responsibility. The outcome of this thought process is staggering; many adults have grown up to shun most if not all forms of responsibility – and at the same time, demand their “freedoms” ad nauseam. This has far-reaching consequences, ones we haven’t seen the complete fallout from yet. Better that you give your kids freedom – including financial freedom – that is commensurate with the level of financial responsibility they should have.

Second, in comparison to the above, if you implement this principle and increase their responsibility with freedom, you are building financial understanding in a more comprehensive way.

How?

Because in a real-life scenario, your money in (freedom to spend) and money out (responsibility) is a continual process; it’s not a one-and-done like many kids seemed geared to understand. By increasing the level of responsibility you give to your kids, you are allowing them to get a more comprehensive picture of actual finances in the real world. They can begin to increase their savings – and you can help by investing in a savings account like Acorns Early. And when they get older, they have the financial underpinnings to use it wisely.

Third – if you have read the previous articles before this one – you will have some understanding of avoiding lifestyle inflation by implementing this.

For those who are not familiar with or have not read the article (I encourage you to read them all), lifestyle inflation is where the more money you make, the more money you spend. Usually, when people get more money from a raise, overtime, or reduction in bills, they automatically increase their spending. Whether they make $4,000 a month or $10,000, they live essentially paycheck to paycheck because they have succumbed to lifestyle inflation.

So by increasing responsibility with freedom, your kids get a vigorous understanding of what it takes to pay their bills, save excess money, and not fall into the trap of spending every single penny you bring in – and even money you don’t. The main goal is to shun lifestyle inflation and dive headfirst into savings inflation instead.

Lastly, by increasing your kids’ financial responsibility in league with their freedom, you are teaching them to stay out of D.E.B.T. (Don’t Ever Borrow That). Money.com indicates that the amount of non-mortgage debt Americans hold is $21,800. The average amount of credit card debt Americans carry is $7,951, and the Education Data Initiative reports that 45.3 million Americans have an average of $37,338 balance for federal student loan debt.

What does that mean? Simple: Debt – excluding mortgages – has captured and enslaved millions of Americans. Do you want that for your kids? Do you want that for yourself (it’s probable you, in fact, DO indeed have debt)? IF this explains you, would it not be prudent to teach your kids and help them to learn from your failures, keeping them in the financial black?

You know the answer already, don’t you?

Results of educational finances

What are the results of implementing the above?

As we implement the above and introduce budgeting to your children, what can we expect to see as a result? What is likely to be the trajectory for your children, their future, and their long-term success?

First, we would do well to note that while the above constitutes a great blueprint and plan to implement, it IS NOT a guarantee for success. Despite your best intentions, you could have a child that lives in squalor. Your child has their own personality, their own goals, and their own likes/dislikes.

Secondly, however, should you implement the above, you will have taken steps to ensure your kids have a solid footing when it comes to finances and budgeting. Having a foundation made of rock is far better than no foundation at all.

Third, your kids will be far more prepared than millions of their counterparts; when adulthood is upon them, they will have a tremendous leg up on others. We shouldn’t discount this, either; given the competitiveness driven by technology the world experiences, any additional weapon in the arsenal is a welcome one.

Lastly, should all things come together, you will have established a sound financial doctrine that, with continued use and implementation, can be generational. You may never know the positive ramifications of your intentionality with your children – leaving a legacy and setting up your progeny for many years, decades, or centuries to come.

Is there anything wrong with that?

**IF I have missed something you, the reader, believe should be included, feel free to drop me a line and let me know – I am always looking to improve things for the good of all**

Lastly,

If you have missed the previous articles in this series, you can find them below in the order they are meant to be read:

*NOTE: This is part 6 of a series on budgeting.*

Introducing Finances To Your Children

The Budgeting Series