Talking With Your Kids About Money – Episode 033

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have our co-host and bestselling financial author, Kim Butler, with us. Welcome, Kim. Thank you, Todd. We’ve been looking forward to talking about talking with your kids about money today. Super. This is another listener-based question. So a listener sent us this question and we decided to make a show about it. So we encourage all of you to keep asking those questions because we’ll keep providing

[00:48] those answers. So the big thing is, first of all, is what age do you start having financial conversations with your kids? Well, I think it can happen early on. As soon as a kid starts to ask for things at stores, then they can begin to get the idea of money and what money can do for them and how it can help them, how they can even work for it. So I’m guessing two or three years old is when that starts to happen. And there’s a great book that I want to recommend to everybody that got me going a little bit when the question was asked about talking with the kids, because my kids are in college. I was trying to remember back, gosh, what did we do when they were little? And this book had some fabulous suggestions.

[01:38] It’s called The Opposite of Spoiled. And the subtitle is Raising Kids Who Are Grounded, Generous, and Smart About Money. I love that. Opposite of Spoiled. It’s by Ron Lieber, L-I-E-B-E-R. And we’ll have a link to it in the show notes. And one of the things that it talked about is the idea of allowance. And everybody always has questions about allowance. And there were some great suggestions for how to handle it. And I’m going to say they came from both sides of the political aisle, because you had a whole bunch of people weighing in on Ron’s Facebook page. He’s actually a columnist. So he had a lot of people giving him lots of suggestions. And a lot of people felt that the allowance environment should be something earned.

[02:28] And then a lot of other people felt that the allowance environment should be something deserved. So depending on how you want to look at that, the idea was to be able to provide your children some money that they could then make decisions about. So I think that can happen as early as two or three years old. You know, here’s we’re going to the grocery store. They want the little penny candy. Well, here’s a dime. Now you get to choose. Do you want to keep some of it later, maybe get a bigger candy or spend some of it now, maybe get a toy and candy, et cetera, et cetera. So I think the earlier the better. Well, and if you look at the buying power of that market segment, look at the TV shows, look at the movies, look at the video games.

[03:14] That’s a segment of the population that obviously marketers are targeting. And I think they’re doing two things. One, they realize that, you know, even the young groups of people have buying power, but two, they’re conditioning them on how to react to marketing so that they become consistent, controllable consumers. Absolutely. And if we can help our kids be aware of the marketing messages, then they’ll be less susceptible and they’ll make their own decisions based on their own values around money. Some of which of course are family guided and others of which they’re developing their own. So to me, the value is in recognizing some of those marketing messages and also in helping children understand the concept of delayed gratification,

[04:07] because it is something that all adults need to deal with. And the sooner a child learns that the better. In fact, I believe there’s even some studies that show that children that have learned the idea of delayed gratification do better in school and in other areas because they’re able to see the bigger picture, if you will, and understand that delaying things can actually get me better results sometimes. Absolutely. Now we talked about the age of the starting the allowance and things like that. What about exposing children to the finances of the household as far as what’s going on? What, how should we do that? Yeah, that’s a great question as well. So to me, children are curious and they are going to pick up on it.

[04:54] And again, as early as possible, you want to have age appropriate discussions. It is so sad to me that families don’t talk about money. I mean, I, I’m close to 50 and have parents in their seventies. And there is still a particular set of our family that really, really struggles having a conversation about money. I don’t know why it’s so emotional, but it sure seems to be. And it definitely comes from the past when money was a complete taboo subject, but I just don’t think that serves us well these days. So my recommendation would be that you start conversations, you know, probably around 10 or 12 years old with your kids about the household finances. Now they don’t necessarily need to know how much income you earn.

[05:41] They don’t necessarily need to know how much the house is worth those types of questions. They do need to understand that it’s a private conversation, that you’re having it amongst family members. And it’s not really to be shared with friends, but they’re going to find it out. I mean, a kid can pop onto Zillow these days and figure out how much the house is worth. That’s not a tough thing to do. So again, age appropriately and not easy if you’ve got mixed ages, but maybe you go on a date night with your kids and have a conversation about money. Let them bring their questions to you and then try to answer them in ways that are appropriate. Maybe it’s a percentage or maybe it’s a range or something like that.

[06:24] I know one family that brought in a whole bunch of beans and the, and the father said, okay, here’s the beans that equal our household income. And then he pulled a section away. Here’s the beans that equal the absolute must have expenses. Here’s the beans that equal the probably want to do it, are going to do it on occasion type expenses, and here’s what’s leftover you all can help us choose. For example, do we build a pool or do we go on vacation for three years in a row because those two might be equal in price. So there are some things that you can do that way without getting down to the nitty gritty. But as your children get into the upper teens, I think it’s super critical that they start to understand the grocery bill and the cost of rent or mortgage,

[07:15] the cost of running the car, the more they know, the more that we’re able to teach them about the financial aspects of the house, the better they’re going to do when they get out on their own. Now, how about teaching them and starting them on savings? Absolutely. That’s got to come as early as possible as well. So I know families that have three jars and when the birthday checks come and the Christmas checks come and possibly even the allowance or money paid for chores for work or however you’re doing that, that it gets split up between saving, spending, and giving away. I know other families that involve the kids in their annual giving check decision. So, okay, the family is going to give this much money.

[08:02] Uh, how much would you guys like to give to a charity of your choice, maybe, or let’s pull, pull all the money and decide amongst our family, which charities we do give. So you’ve got not only the saving discussion going on, but you’ve got the charitable or giving discussion going on. And it depends how important this is to your families. For some it’s not, and that’s certainly fine, but the savings to me is absolutely important. And I would encourage every child to see the value of saving money. And in the early years, it’s saving to spend. In other words, you’re saving up to candy bar costs for a toy, or you’re saving up to small toys for a larger toy or something like that in the later years, it should be saving for a down payment on a car as an example.

[08:53] Um, a lot of kids are even asked to save for some of their own college costs or their clothing or that kind of thing. And I just love involving the kids in their own decisions so that they get the ramifications of, okay, if you want to buy this pair of jeans, that’s 200 bucks, then that’s the only pair of jeans you’re going to have. If instead you want to spend your money on a couple pair of $30 jeans and have money left over for a shirt, then that’s fine. You know, some parents may not feel that’s appropriate because then their kids aren’t dressed properly at school. But, um, to me it’s the, uh, the getting of consequences, the matching of their decisions to the consequences that they get from those decisions.

[09:38] And I think the earlier we can do that, the better. It can also be beneficial to the parents if you’re in a situation where you can set up a family business as well, isn’t it? Absolutely. I love to be able to pay kids for work done in the business, uh, begin to let them see the value of earning money and again, making their own decisions as early as possible. Even if it’s on the little minimal things, the quicker that kids can actually see the results of work, see the benefit of earning money and then see how far that money goes. And it’s very interesting actually to watch where they choose to spend their own dollars. We’ve reached a period in time where student loan debt has now surpassed credit card debt in this country.

[10:32] So there is definitely a problem. If it’s not already here, it’s coming. So what type of conversation should we be having with our children and how should we be changing our attitudes to try to change this trend? Well, the student loan debt is definitely a scary environment because you’ve got these 18, 19 year olds signing off on a document that they absolutely do not understand. And so to me, prior to that 15, 16, 17 years old, you need to start teaching them about things like amortization schedules, interest rates, debt as a concept and also building assets as a concept and income versus debt. You know, if there’s a child that’s just super interested in going into business or becoming a professional of some sort, like a doctor or a lawyer

[11:25] or what have you, then maybe that’s a good decision to take on some debt. But if you have a child that’s not clear on what direction they want to go, or maybe they really want to do a third world country service work or some type of job where the income is just not going to warrant the debt, that needs to be a discussion. And that’s tough when you’re 16, 17, 18 years old. I mean, the kids don’t really know the answers either, but you can still have the discussion and plant the seeds and then most importantly, help them understand their alternatives. One of the things I talked with our daughter about is, okay, if we’re going to do this for school, that’s fine, but I want you to know that I’d be willing to write that same check to send you overseas for an entire

[12:11] year to do service work or to have you learn a bunch of entrepreneurial things and try out that environment because it’s not right for every child to go to college. Now in time, Kaylee ended up deciding to go to school because that’s really what she wanted to do. And she understood what she was doing, but it’s not appropriate for every kid. Some kids need a couple of years before they go to college. Some kids maybe would do better at a trade school or what have you. So I think both as parents and as teenagers, we have to make a conscious decision to go to school and be fully aware of the costs, not only short-term, but long-term. And again, this is an area where opportunity costs play a role.

[12:51] Not only do you have the X amount of dollars that you’re sending to the school to account for, but the fact that you now cannot invest those dollars and they are with an opportunity cost for the rest of the adult’s lifetime. One could even argue that they are with an opportunity cost for the rest of that child’s lifetime. You measure opportunity costs from say age 20 to age 80 or something. You get some pretty big numbers. That’s truly what school costs, not just the amount of money that you’re writing to the university or the college. Not sure that the child’s going to understand that, but you as the parent sure do want to understand that. I think many times the children assume in the financial arena, whether

[13:34] they’re looking at a car or signing up for a credit card, or maybe it’s just a cash account for stereos or whatever, that if they are approved, then they must be able to make the payment. Otherwise they wouldn’t have been approved. And it’s really the other way around. And a lot of times they don’t figure that out until they get to the cashflow situation where it gets pretty serious. And when you’re young and don’t understand a lot about finances, a lot of people can make some pretty bad decisions. You know, we even have seen teen suicides over credit card debt and things like that, because they just haven’t been exposed to these conversations. Absolutely. It is a sad thing. What does happen when people get in a position where they’re out

[14:30] of control with their money. And that’s why you want to begin those conversations as early as you can, again, age appropriately. And, you know, reach out to us. If you have questions, read books that are out there. There’s a lot of material that’s out there, but having the conversations is probably one of the most important things, getting your children involved earlier and also encouraging them to take some steps on their own. As soon as they’re 18, they’re able to own a life insurance contract. They’re able to own an investment account, own a savings account, obviously own a checking account, use a debit card, possibly even be cosigned with a credit card and have a really low limit so that

[15:10] they can start to learn about what credit is. And some kids are going to be really interested in the discussion, others not so much. So you can back off a little bit or apply a little bit more info as it’s appropriate. But one of the things that we are trying to do in our work is encourage clients to talk with their children about money and whether the client is 30 or 70 and the child is 30 or 50 or 18 that the conversations are happening. So whatever you can do to bring that to the table, it’s always a fun thing to just pop on the web and look up, you know, 10 questions you can ask your parents about money or what have you. And lay that out on the table and have a great family discussion around it.

[15:54] That’ll be more valuable than anything. One final question will put you on the spot here. If there’s a major problem, say that maybe there’s a loss of a job, maybe there’s a foreclosure, maybe there’s a bankruptcy. Again, you know, how and when do you bring kids into that conversation? Yep. It’s a tough question and I’m sure there’s a couple of different schools of thought, but my response is the sooner the better. And maybe not all of the details need to be spilled out. And again, on an age appropriate level, involve your kids in the discussion. I know a family that had to make a major house move because of a financial situation and they just laid it out the best that they could as honestly as they could, as simply as they could to the

[16:44] children and the kids got involved and they really rallied around the parents. I think a lot of times we try to protect our children from that type of stress, but we need to remember that the kids are pretty resilient and can actually benefit from the discussion as well as contribute to the solution. So when we can involve them again on an age appropriate level and on a maybe big picture level, not specific details, they can help us through that and then they’ll help themselves through it as well. They are more afraid of not knowing than they are afraid of whatever it is that you think they might not want to know. So I think they’re better off knowing rather than having it be quiet. Well, I think they’re extremely perceptive so they know that

[17:31] something is wrong and they’re going to fill in the blank of what is wrong, maybe incorrectly, maybe even thinking it’s something that they’re doing that’s causing the problem. So by at least by exposing the real problem and having that discussion, you let them know what’s going on so that they’re not making those assumptions that it has something to do with them. Absolutely. Perfectly said. Kids are very, very perceptive and they’re going to fill in the blanks if you don’t do it for them. So we best be having the conversations. Well, Kim, did you bring our listeners something today? We do have an ebook. In fact, this would be a great thing to share with children. It’s fairly easily written.

[18:12] It’s short and we would welcome you sharing this with your children, whether they’re literal kids or adult children. And it is available at partners. Number four, prosperity.com slash ebook. It’s a free download. There are 60 pages. It’s a couple hours on an audio version as well. If that’s easier for you and we welcome you to download it, share it, print it out, give it to as many people as could benefit from it. And that’s partners. Number four, prosperity.com slash ebook. Super. Well, this is No BS Money Guy, Todd Strobel for the prosperity podcast. Once again, thank you, Kim Butler and listeners. Keep those questions coming. Thank you for listening to the prosperity podcast to take control

[19:00] of your money and have it work for you. Visit us at partners for prosperity.com. If you liked this episode, make sure you subscribe and leave a review.