Kids are growing up, all the way through graduating high school, without ever being introduced to the concept of earning, spending and saving money. Imagine what might happen if you sent your kids off to a foreign country where they don’t know the customs, or laws, and don’t speak the native language. This is like sending them off into the “real world” without teaching them the basics of responsible money management. To expect our young adults to grow up and understand how money works without ever taking the time to teach them is irrational. How can they learn something if not invited to take part in the experience and discussions about it?
Today we live in a busy world where it seems like the days are shorter and yet there are even more duties to be responsible for. Not only are parents still learning to take care of themselves, but they’re also trying to maintain the household for the rest of the family. It’s completely understandable why taking the time to talk about money might slip to the bottom of the priority list. Because the effect is not immediate, it’s easy to justify it with — “Well, they’re still young, they’ll have time to learn it eventually.” The hard truth is — if we don’t invest the time to teach them now, they are more likely to fall into the same cycle of working just to survive and maintain.
…if we don’t invest the time to teach them now, they are more likely to fall into the same cycle of working just to survive and maintain.
The good news is that it’s never too late and the transition can be as easy as starting with a shift in mindset. *The decision* to take control is all you need to start.
To shift your mindset, first realize the differences between a wealthy and a poverty mentality. A wealthy mentality is proactive in the way that we anticipate and plan for our financial futures. Versus a poverty mentality which is reactive in the way that we react to life’s events and emergencies as they happen. More importantly, a wealthy mentality includes the understanding that — no matter where you’re starting from — every single choice you make either moves you toward your financial goals or takes you further away from them.
…every single choice you make either moves you toward your financial goals or takes you further away from them.
Now that we understand why the problem exists, it’s time we do something about it. It’s going to take intentional effort, patience and discipline to instill these responsible money habits. Here are 7 steps to help you get started.
1. Realize the Importance.
Money is too important of a topic to be taught passively. Before you can convince the kids of the importance, you must first understand it for yourself. Of course money can’t buy the most important things in life like love and happiness — but the knowledge of how it works is still required to operate and live in the ‘real world.’
The sobering fact is — most schools don’t offer any curriculum to teach these necessary life skills. Once you accept this, the motivation to learn and teach at home becomes stronger because then you understand why it’s important to make it a priority. Especially when considering the growing trend of oversized student loan debt. As these kids grow into young adults and transition from high school to starting college, they innocently walk into financial aid offices and agree to these major financial obligations. These young and eager students sign off without understanding the mechanics and real implications of these loans. If not student, then maybe car or home loans. These are some of the most common financial tools available and yet many people never take the time to truly get to know what they’re signing up for.
Let’s not wait until they are 18 and graduated before trying to have “the money talk.” Start early and encourage building these responsible habits now.
2. Have the Conversation.
Now that you understand the importance of financial literacy, it’s time to communicate this to your kids. When starting your family on the path to financial success, you must first consider what type of approach to take and the values you believe in. We all have our own beliefs and feelings about money based on our personal experiences. It’s important to be open and explore these beliefs so you can be intentional when establishing your family’s new money principles. What are some of your family’s needs vs wants? More than just explaining how to spend and save wisely, you should also help them to understand how money plays into the bigger picture of everyday life.
Now, how do you get the kids to understand and care? Open communication. When children are communicated to, at their level of understanding, they can transfer this knowledge into practice and develop it as they mature. You might be surprised at how enthusiastic and supportive they can be when they feel like their opinions matter.
And it’s not like you have to have lecture style teaching moments just to have these conversations — because there are plenty of opportunities in everyday life to bring up these lessons. Organic conversations can take place when in the checkout line and they’re pleading for you to buy something for them. Instead of justifying your ‘No’ with “because I said so” or “we don’t have the money,” try to explain why that purchase isn’t in the budget or explaining what your family’s needs vs wants are. Kids like to know ‘why’, and if you have your reasons to say no, why not share them?
Taking the time to explain not only helps them understand how the budget fits into the bigger picture, but it also helps you by reaffirming your commitment out loud.
…there are plenty of opportunities in everyday life to bring up these lessons.
3. Accept the Resistance.
Let’s be honest, resistance will likely come from several angles. Mainly from the TV, internet and their peers. But not to fret because there are only a few fundamental practices to master to stay strong and build responsible habits:
1. Spending less than you earn
2. Saving for a rainy day
3. Using your income to work for you and make more money
It seems simple enough but the problem is — there are entire industries devoted to get the average person, and their kids, to ignore these basic principles. Whether from marketers trying to persuade your kid that they need the latest trend in sneakers, clothes or toys and electronics. Or from companies dangling high interest rate credit cards in front of your young adults. These temptations distract us from the common sense rules that allow us to keep and use more of our own hard-earned money. Once you accept the existence of these obstacles, then you can plan ahead to conquer them. Pressure to overspend and temptation to want instant gratification is inevitable in our society today. After you decide to take a stand against these roadblocks — then you start to build the confidence needed to overcome. Nowadays it’s easier than ever to stray away from your financial goals because they position these temptations right into the palms of our hands. Between social media and online advertising, we see these ‘wants’ and subconsciously cave in to impulse decisions which can easily sabotage our financial progress. According to research by the Federal Reserve, by the end of 2017 the debt to income ratio for households in the U.S. was nearly 1 to 1. Which basically means we are borrowing just as much as we earn. Disciplined decision-making is more important than ever to achieve your financial goals.
Pressure to overspend and temptation to want instant gratification is inevitable in our society today.
4. Create a Plan.
Preparation will be key once you’ve decided to start on the path to financial success. You can make it easier on yourself by planning ahead and setting a foundation to prepare for the expected resistance and obstacles. This way, you don’t have to spend time every month rethinking how to implement these new habits. When clear guidelines are established, the process becomes automatic and makes it easier for everybody to follow *and* be held accountable.
Financial related struggles are more common than we like to admit. The phrase “living paycheck to paycheck” doesn’t just apply to people who are short on money in between checks. It also applies to those who don’t have a plan for their money and just let it flow in and out paycheck after paycheck. Working just to pay the bills without being intentional with every dollar is reckless, and more importantly results in the loss of power. This is why our financial situations can feel out of control sometimes — because we haven’t taken the steps to take the power back. To achieve the goal of building wealth for your family starts with everyday habits now. Once your goals have been set, only then can you devise a plan to get there. You can strive for financial success all you want but if you haven’t outlined a road map to get there — then how do you know which way to go?
People tend to shy away from accepting the importance of creating a budget because they think having a budget takes away from their ability to enjoy the pleasures of their hard-earned money. Just because you have a budget, doesn’t mean you have to minimize or reduce your standard of living. Instead, it’s more about having a model to follow and being mindful about your spending habits rather than blindly spending every month. If you take the time to create a solid financial foundation (or a budget), then you’ve already done the hard part, and just to ‘stick to the plan’ is all that’s left to do.
Setting a standard budget is great for the adults, but it’s also a perfect opportunity to invite the kids to join in on the fun (evil grin). You might be surprised at how excited and helpful they can be when encouraged to add their input into household matters.
To take it a step further, you could implement a chore system and pay the kids an allowance to go above and beyond their basic responsibilities. I’m not talking about the chores like cleaning their room and clearing the table after meals, because those are non-negotiable and maybe even considered “rent” for living in the house. But we’re talking about paying them for additional duties like doing the laundry, yard work or deep cleaning the bathroom. Think about it like this: you spend money on your kids either way it goes. Might as well let them spend it on themselves, while you get a little extra help around the house and teach them a lesson at the same time. That’s what I call a WIN-WIN.
Working just to pay the bills without being intentional with every dollar is reckless, and more importantly results in the loss of power. This is why our financial situations can feel out of control sometimes…
5. Hands-On Experience.
Even if your kid is already in their transition into the adult world, it’s still never too late to help them to get familiar with basic money management concepts. If your kid is on the younger side, rather than try to give them a crash course in money 101, it would be best to introduce these concepts gradually. This gradual knowledge is best taught in the form of hands-on experience.
To become fiscally responsible adults, they will need to be comfortable with the idea of earning, spending and saving money. The sooner we get them familiar with these practices, the easier it will be when it really matters and it comes time for them to make decisions for themselves. To verbally teach them is the first step, but allowing them to go through the motions and gain experience is how real knowledge is acquired. Guiding them through these simple choices will help them build the confidence to make their own decisions in the future as they grow to become teens and eventually adults.
To give them this hands-on experience, you can incorporate practice into regular life with the decisions you make every day — you don’t have to go out of your way or find extra time to allow for it.
For example, when they get a birthday check from grandma or save up enough holiday cash, this is a great time to go to the bank and open a savings account and start the conversation about earning interest and savings goals. Or if they have their eyes set on something they want to buy, patiently explain how having discipline to save will allow them to buy things with their own money. Maybe you’re planning to buy a big ticket item like a new TV or computer, take them with you and show how you shop around for the best deal. Explain how and why taking the time to make price comparisons is a responsible money habit. Or the next time you’re planning to buy a car, this can lead to discussions about monthly payments and interest rate vs principle.
We go through life experiencing our fair share of financial transactions, every one of them is a teachable moment.
To verbally teach them is the first step, but allowing them to go through the motions and gain experience is how real knowledge is acquired.
6. Role Model.
We can ‘talk the talk’ all day but when it comes down to it, kids model after what they see. When a child sees the examples of an adult — especially their parent — they will pick up these habits and these behaviors could last a lifetime. Research by behavior experts David Whitebread and Sue Bingham from the University of Cambridge tells us that our money habits are formed by the age of 7. This doesn’t mean that they are doomed if they haven’t picked up any good habits yet, but it does mean that it will take intentional effort to instill these positive habits to set them on the right path.
Some parents might feel anxious to accept the responsibility of being the money role model because they’re not so confident about how they’ve handled their own finances up to this point. Or maybe hesitant because they feel like don’t know enough to steer their kids in the right direction. You’re not alone. But realize what you DO have that can put your kids in a better position: Experience. Even if less than ideal, this experience can help steer them in the right direction going forward.
The good news is, even if you’re still working to get your own financial picture in order, you can still show them what being financially responsible looks like. Regardless of your current situation, you can always make the switch to embody a wealth mentality and model it. You could even take it a step further by being upfront with your kid and let them know about your current situation. If it’s less than ideal, share your goals and plans to change it for the better and explain why this is important. If you’re open with your journey, they can see an example of how to conquer and overcome.
…even if you’re still working to get your own financial picture in order, you can still show them what being financially responsible looks like.
7. Be Patient and Consistent.
Like learning a new language, developing good financial habits should be an immersive and repetitive process. Realize that change doesn’t happen overnight, and probably not even over a few weeks. It’ll take patience and discipline to teach something like responsible money habits. Honestly, even with our guidance they still might struggle but not to be discouraged! Simply understand that it will be a development process just like learning any other basic life skill. If you’ve already learned the hard way by making uninformed financial decisions — take the time to pass on these valuable lessons, so they won’t have to make the same mistakes. By teaching basic money skills while they’re younger and building on this understanding as they grow older, they will develop a deep understanding of the importance of financial responsibility.
If you’ve already learned the hard way by making uninformed financial decisions — take the time to pass on these valuable lessons, so they won’t have to make the same mistakes.
The basic rules to achieve financial success — and ultimately build legacy wealth for your family — are no secret. These fundamental principles have been around for centuries and now more than ever, this information is freely available. If you wish to be successful, you must put yourself in the position to learn these principles and apply them. Yes — it will require disciplined focus and intentional effort but don’t let that stop you from striving for all that you desire. Don’t be afraid to step outside of your comfort zone and break the cycle that has been holding us hostage for generations. The problem of financial illiteracy has been ignored for way too long and it’s about time we do something about it.
“Wealth, abundance, financial freedom and serenity requires a journey to travel. Prepare well.” — Rob Wilson