Money is a funny thing. It affects us all and yet no one walks about it, very little education is provided in schools, and many people find themselves in financial confusion, if not mountains of debt. Financial health is just like anything else, you need lots of exposure to good information and plenty of practice to stay on the right track.
The first book I remember reading about personal finances was called Smart Women Finish Rich by David Bach. I was fresh out of university with a student loan, a car loan, my first full-time job, and it was all new to me. I learned a lot and generalised some of the lessons into my daily money choices. Many years later, after I'd moved to New Zealand, I took Te Wānanga o Aotearoa's free money management course, which I highly recommend. There I learned more basics and changed some of my habits related to a new stage of life: young children and reduced time and energy to generate income. There are heaps of people writing amazing financial blogs, some of my favourites are The Happy Saver (New Zealand), Money can buy me Happiness (New Zealand), Mr. Money Mustache (US), and Canadian Couch Potato. Keeping up with these blogs helps remind me that I can always be doing something smarter.
With these resources, Jack and I have got a handle on our debt, we're sorting out our mortgage, and we're thinking about how it might look to one day retire. I find the whole F.I.R.E. (Financial Independence and Early Retirement) idea utterly fascinating and theoretically appealing, but that is the topic for another day.
Today, like most days, the topic is kids. At 8 and 6, I thought it was time we get a plan in place to help Dan and Sadie start learning about money. I read some books, read some blogs, and worked out a plan. Lots of people have lots of different ideas about kids and money, which confused me until I realised the starting place is to figure out your own money values and the lessons you want to impart to your children.
Here are my guiding money values (for now, things are always evolving):
- Money is a tool. Money is a means for meeting needs and providing choices. Money itself isn't the goal, but can help achieve your goals.
- Keeping your money is just as important as parting with it. We all know someone who is so miserly that relationships are damaged by an imbalanced focus on thrift and fairness as opposed to experience and equity. We also know people that can't seem to stop spending, struggling to distinguish between things they need and things they want or seeking material possessions to find elusive happiness. Perhaps you can see some of your own financial personality reflected here.
- Money comes from creativity and contribution. In myself and my children, I aim to grow an entrepreneurial spirit, inspiration, and hard work. No one gets paid for stuff that's gotta be done anyway.
- Let it go. This one isn't a money value exactly, but more specific to teaching about money. As with all things parenting, the most difficult thing is to provide the knowledge and skills, then trust you've done a good job and let the kids take it from there. The kids will most certainly make different choices to you and might even make mistakes, but that's part of the process. Step away, let it go, you've done your bit.
Earning your keep
Based on these values, I've made a plan for supporting the kids in their journey to learn about money. In our family, there's an expectation to take care of yourself (no cash for brushing your teeth or making your own bed), help out around the house (everyone does dishes and cleans toilets), and contribute to the daily flow (making dinner and unloading the groceries), none of which is related to financial compensation. One of my tick boxes of parenting success will be sending my kids out into this world ready to be the best flatmates ever. So, in our house, jobs need to be done as a matter of course. If you live here, you're part of the team. That said, part of my job as a parent is to provide information about finances and the opportunity to have money to practice with and that means the kids get some money to learn with.
Here's how those values played out in the plan:
Up until 7 years old, kids get $2 per week with no restrictions on spending.
Rationale: For young children, it's about exposure. Kids need to know that money is out there. They need to understand trading, giving, and loss (i.e., when it's gone, it's gone).
Young children won't generally understand the value of money. For example, when my children were young, they enjoyed collecting coins, but traded them based on the picture, the unusual shape, or combination of coloured metals used. Similarly, you may have heard about a child who was convinced to purchase something from a wily older sibling for much more than it was worth. Jack likes to play a game with the kids called Would You Rather Have... He proposes a hypothetical choice between receiving two different birthday presents and they must choose. For example, would you rather have a book or a kayak? A coveted colour of crayon or a surfboard? A backpack or a pair of shoes? A trip to Fiji or a piano? The kids never consider the monetary value of the items! Even Dan who recently turned 9 chose Pokemon cards over a new bicycle in a non-hypothetical game of Would You Rather Have...
We didn't consider how to support our children to learn about money until Sadie was 6 and already able to write. She's expected to track her balance in a little notebook, adding when she's paid and subtracting when she spends. I wouldn't ask a child to do this until they are competent in writing numbers and excited about math. (Math is fun!)
When the kids turn 8, money goes into save, spend, and share.
Rationale: The save, spend, share system is commonly used to introduce children to money. Kids are given a set amount into each category and use the money accordingly. For save, the kids choose a long-term savings goal and keep saving until they get there. Spend money can be used on anything at anytime. Share is used for giving to a charity, friends in need, or other noble cause. My children's financial personalities are already shining through with one extreme saver and one extreme sharer. I hope using this structure will help them develop a more balanced view and healthy financial habits.
At our house each week, Dan is given $2 for save, $2 for spend, and $1 for share. Gift money is usually divided into similar percentages, with the flexibility to put larger chunks towards a savings goal. Most experts talking about kids and money recommend dealing with cash as its more tangible, but that doesn't seem quite right to me. In our digital world, part of financial education needs to include the less concrete digital transactions, too. As a compromise, Dan's save funds are transferred into his electronic bank account.
In New Zealand, we use ASB's Clever Kash system to support his learning. Clever Kash is a plastic yellow elephant with a screen on his belly that interfaces with online banking to display the balance of his savings account. Dan still needs to go to the bank to deposit or withdraw money and makes cash purchases as he doesn't have an EFTPOS or debit card yet. When we first considered opening the account, Dan wasn't so sure about handing his money over to the bank and asked the not-so-patient teller a lot of questions. I thought he'd be fascinated to learn about interest, but for Dan, the most vital information was that he would not be able to withdraw the exact same coins he deposited. When he found out, he quickly went through and took out his five cent coins, notable for the image of a tuatara, New Zealand's famous mini dinosaur. He must have imagined the bank would be a lot like Gringotts with an individual room for each person's money. With the documents completed, he excitedly dumped the contents of his piggy bank into the coin counter and was relieved to see the balance calculated was the same as he had counted out.
Dan also has a notebook he uses to track his money. There's a column for save, spend, and share, and a column for total as that's very interesting to him. He loves math, but he doesn't like updating the book. Hmmm.
To be determined. I'm not sure at which age, but the plan will change again. Up until now, we are giving the kids some money each week to facilitate finance lessons. Some time soon, the kids will earn money from outside the home and a new system will emerge. The kids will need their own EFTPOS or debit cards, we'll introduce budgeting, investments, an emergency fund, and big savings like a car, a house, university, travel, and retirement. Jack and I will need to go back to our money values and figure out how we can support the kids through the next phase in their financial literacy.
It's taken me a long time to hit publish on this post as things are evolving. I'm keen to hear how other parents are supporting their children's financial education or what worked for you growing up.