Bringing a child into the world is one of the most exciting, fun, scary, and exhilarating experiences of a lifetime. I remember when my wife and I had our first child. We read all the “What to Expect When Expecting” books and took all the classes in advance of our son’s birth to be as prepared as we possibly could be. You never forget the day your kids are born, etched into your memory as your life changes forever… the market rallied big time, Elizabeth Dole dropped out of the 2000 Republican Presidential primary, and Andrew came into the world splotchy red, screaming, and healthy. What happened next, I remember so vividly, my wife and I returned home with our first born, took him out of the car seat in the family room, looked at each other and thought, “What the hell do we do now?”
Where do you even start with molding the next generation? It is important to give children the education and tools necessary so they may have a career they enjoy, become financially independent, and have a solid foundation to start their own family. There are not too many topics that the Bedell Frazier Financial Planning Department cares about more than helping clients educate their children or grandchildren about college planning. We are passionate about assisting the next generation get off to a strong start with financial education and independence. Our planning team is deeply invested in this topic, both professionally and personally. I have four kids, three of whom are currently attending college. Debbie has two kids, one in college and one getting ready to leave for school. Nancy has two grown kids and is now starting to help with her grandkids.
“An investment in knowledge pays the best interest.”
Benjamin Franklin
Little Buckets
One strategy that you can use to help children form healthy spending habits is a bucket strategy. We use a bucket strategy when working with clients where different spending needs are allocated to different accounts. This is the same idea but for children: little buckets! When money is received for a birthday or an allowance, they can place the money in one of three buckets: spending bucket, savings bucket, or the giving bucket. Use three separate jars so the kids can visualize. Set targets for each bucket such as 40% for spending, 40% for saving and 20% for giving. You can adjust the amounts that go into each bucket to fit your family’s values.
Spending Bucket
The spending jar can be for candy or other small Dollar items. The key learning point for children is you don’t get to spend every Dollar you earn or receive as a gift. Some of that must go into other buckets. It’s a nice introduction at an early age that your gross paycheck is not the same as your net paycheck.
Saving Bucket
This bucket requires savings to be built up over time before it can be spent, teaching some discipline to put money to the side for later with a more rewarding benefit. This bucket can be used for high-priced items like a new bike or ordering something off Amazon. This also teaches children to delay their gratification to show them it takes some time to build up what is necessary to achieve your spending goal.
Giving Bucket
This can be sharing for charitable causes to teach children that they can make an impact with those less fortunate. Let the kids donate to causes they support.
Money Teaching Ideas for Different Ages
Pre-School Age and Younger:
Discuss your upcoming meal plan and weekly grocery list. Have the kids help with any coupons for the week or any deal searching while on the grocery outing. A great job for a child in this age range is to oversee taking the receipt when paying the bill and helping check it to make sure it is correct. Even if they are not able to read the whole receipt, they can begin to identify the costs of different items.
Children learn visually at an early age, even before they can read and write. Have them draw pictures of what they want to spend their money on. A great home activity is to play store or restaurant with your kids using fake/play money; they will begin to make the link between money and services. When playing restaurant, you can promote a variety of skills by having them set the table, assist with the food, and make change for the restaurant tab.
Grade School:
As children get older, get them more involved with money interactions for themselves individually and for the family budgeting and spending. At this age, you can also begin to have them collect an allowance so that they have their “own” money to save and spend. An allowance can be for weekly spending or for doing chores around the home. An introduction to the fundamentals of investing is a good learning objective for late in grade school; get them to understand the basics of stocks, bonds, inflation, etc. You can get Mike Frazier’s book on the basics, “Investing from A to Z” here or call our office for a hardcopy.
“The best way to teach your kids about taxes is by eating 30% of their ice cream.”
Bill Murray
Middle School:
Kids start to show more independence as they transition into higher grade levels. Use this time to move from savings jars to opening bank accounts for the child’s savings. Assist the child in making their own savings deposits at the bank to help foster this growth. As their balance grows, use this time to introduce the concept of interest paid and the power of compounding growth, demonstrating at this early age how their money can start working for them. Discuss how compounding cuts both ways with credit card and other debt piling up fast-growing interest payments.
High School:
Fashion is going to become much more important to many kids as they traverse the four years of high school. Have your kids save for some of the clothes and accessories they wish to purchase. You can also set price targets for items they need, like jeans or shoes; mom and dad may pay for a base amount, but if they want a fancy brand name, consider having them pay the difference. Between lunch money, school supplies, and time with friends, an allowance can disappear quickly at this age. Now would be a good time to assist them in designing a budget to focus on their needs and wants.
With them turning the age where they will begin driving and all the costs associated with that, high school is a great time to teach about credit cards. Understanding how credit scores work will benefit them the rest of their lives. When they get to college, they will be inundated with credit card offers, start now so they know the basics before they leave home to live on their own. They may also start working while in high school so you can discuss the joys of paying taxes.
College:
When going through the college application process, make sure you discuss which schools you can afford and others where they might have to take out loans if they want to attend. Be upfront with what you can and cannot afford before they get their heart set on a certain school. It is always good to have kids pay for some portion of their education or consider taking out small loans, so they have “some skin in the game.” While away at college, they will be charged with most of their spending decisions, having a shared credit card with a low spending limit, or a pre-paid debit card would be helpful on a daily basis and for any emergencies while away from home for the first time.
Other Helpful Tips
Let Them Earn It
Children will not fully grasp the concept of money until they have their own. Providing an allowance is a great way to teach about putting in time and effort to earn some rewards. Create a chore list with some basic chores that are “required” to be a contributing member of the family and some other more challenging tasks that will be worth monetary compensation. Determine the amount that they receive for each chore, with amounts varying based on the task. Helping kids make the connection between work and reward is a powerful lesson that you can share.
“The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.”
Thornton T. Munger
Let Them Make Money Mistakes
If a child spends too much of their money on a new toy and then they can’t afford another item they want, is that a bad outcome? Don’t bail them out of this mistake. Let them learn that life is about tradeoffs. Sometimes getting one thing in life, means you don’t get the other right away. Same goes if your older child wants to explore trading stocks on a site like Robinhood with a small amount of money. One of my kids thought they were a genius with their stock picks, getting more and more aggressive as the Market churned higher. Eventually, the Market turned against him, leading to a painful life lesson, that lesson was better taught to him in his early 20s rather than later in life.
They Are Watching You
Kids learn by watching at any age, be the best example you can be. If children see you always stressed out about money and spending like crazy, they are going to assume that’s how it should be. Be a positive role model when it comes to spending and saving. Discuss with kids how you are saving and what you are saving for. You don’t have to give them all the details of your financial house, but discussing how, at the family level, you look at saving can have a tremendous impact.
Keep the Conversation Going
A 2022 T. Rowe Price survey titled Parents, Kids & Money found 37% of parents said they don’t like to talk with their children about money, with many expressing embarrassment about the topic. We want to remove emotions from interactions with money. Help kids treat money as a tool without any judgment, it shouldn’t be associated with negativity. Learning and growing is a never-ending process, continue to talk about the importance of saving and budgeting with children and grandchildren for as long as possible. Small conversations become lifelong lessons.
As they get older, new financial responsibilities will create new questions that will need guidance, such as buying a car, a down payment for a home, and filing tax returns. By being involved in the conversation at the onset, you will be more likely to be a resource they turn to when questions come up down the road.
Children are going to learn about money one way or another. You have a great opportunity to teach them important life lessons along the way so that they have a healthy relationship with money: spending, saving and giving. No matter the age of the children in your life, now is a great time to start the conversation. We are here to help. These tips give you a place to start the dialogue. Our Financial Planning team at Bedell Frazier is here to assist by guiding and being a valuable resource along the way. Don’t hesitate to reach out if you or the child in your life has a question or concern. We are here for your family, every step of the way.
