Children and Finances

[kccougar]

An earlier post got me to thinking - how involved are your children in your family's finances?

Our kids are young, but getting older, and to this point we have not specifically involved them in discussions about the family finances. I know some families that do get their kids involved so they know exactly what it takes to run a household. On the other hand, my wife and I often discuss money matters while we're doing other things, and the kids are around, so they may have some idea of our financial situation - one time for fun we did ask the two boys (10 and 12 at the time) to tell us what they thought our financial situation was on a scale of 1 to 10, 1 being very poor and 10 being very rich. That was interesting.

Is there value to be had by making children aware of household costs?

One thing I have done with respect to childrens' finances - and I got this from a past Bishop of mine who I think has done very well raising his children - we give each of our children a weekly allowance equal to $0.25 for each year of age. From that they obviously pay their tithing, then we ask them how much of it they would like to save. Until they are 12, we will match their savings 300%. From 12 to 14, we match 200%, and from 14 to 16, we match 100%. They are then free to do what they like with the rest of the money.

I've used a little reverse psychology with them, because they love to see how much it "pains" me to cough up $30 when they save $10. Of course, a couple summers ago, my oldest was 11 and he got a job mowing a couple lawns. A few times it actually did pain me to match his savings.

[thesaint258]

My parents didn't really involve us at all and gave us very little allowance. When talking with my dad a few years ago, he said that a friend's parents would give them the money for stuff like clothes, play money, etc. when they were kids. He wished he had done that with us because the parents helped his friend really learn to budget properly. I turned out alright, but I think it would have been good for me (and especially for a couple of my siblings) to learn those lessons earlier with supervision rather than learning them on our own.

[UtahDan]

Interestingly, my recollection is that while my dad did a fair amount of grousing about money that we weren't really involved at all in their finances. And since they always sacrificed to make sure we had nice things, I think there was an assumption (that may have lasted well into adulthood for some of us) that they were a bottomless well and no one ever really believed that money was an issue for them.

I know that until I had kids, a mortgage, etc that I didn't truly appreciate how expensive everything they had done for us was and how significant it must have been in their budget.

[mUUser]

We struggle with this too.

We're well above average income-wise, and the older kids know it. I take every oppty to share the "expense" side of the ledger with them, but have resisted sharing the "income" side....although I'm not sure why.

I hope to get a few ideas on this topic from the comments on this thread, cause I'm reasonbly certain our financial education with our kids are outside the mainstream of thought.

[kccougar]

We struggle with this too.

We're well above average income-wise, and the older kids know it. I take every oppty to share the "expense" side of the ledger with them, but have resisted sharing the "income" side....although I'm not sure why.

Last Sunday we went to tithing settlement and as we were getting in the car to go home my 11-yr old saw my donation record so he now knows exactly how much I make, though I don't think he has a real good grasp on what the number means in real life.

[TripletDaddy]

I am not sure it is necessary to involve your children directly in YOUR personal finances.

But it is critical that kids get exposure to realistic budgetary experiences....when they are really young, having them manage their allowance and learn to budget and forecast simple expenses is a good start. By the time they are in HS, they need a much more involved tutelage. A 16 or 17 year old should have a better grasp on finances than simply being able to stretch his weekly allowance over 7 days.

Kids should start to understand how a checkbook works (balancing one, for example), basics of time value of money/interest, how credit works, the basics of a credit score, different types of basic home loans, realistic living expenses for your particular geographic area, etc. There is no reason why a teen can't have a personal savings account...let them receive a bank statement, for example. It is an important exercise.

Parents that shield their children from these things are actually handicapping their children, not saving them.

I don't see any particular need for children to know that their parents are loaded or are struggling.

[fusnik]

We are as good at teaching our children financial literacy as we are at teaching our kids about sex. Most of us don't do a great job with personal finance regardless the amount of money made. Some things we should do? Teach kids about budgeting, how to properly use credit cards (rewards programs), how to open multiple accounts with different firms, how to properly identify risk, how to reduce taxes, the stuff we learn as adults usually the hard way. Our kids should be engrained with ways on how to be financially smart, its as immportant as breathing.

[Moliere]

Kids should start to understand how a checkbook works (balancing one, for example), basics of time value of money/interest, how credit works, the basics of a credit score, different types of basic home loans, realistic living expenses for your particular geographic area, etc. There is no reason why a teen can't have a personal savings account...let them receive a bank statement, for example. It is an important exercise.

The problem is that a lot of parents don't even know how to do some of this stuff so how are they supposed to teach their kids?

[jxncoog]

Last year we were making a much needed move into a larger home. My wife and I spoke often and openly in front of the children regarding the financial ramifications and potential sacrifices. This caused some genuine concern among our 9 & 11 year old boys. They were saying things like, why should we move out of this house if it's going to be so much more expensive.
So, for FHE one evening, I brought home a large white board and showed them the math regarding our budgets. We talked about how much things cost, where they could help, and about a few things we could really improve on. It made a big difference in their opinion of the new house.
We do give allowance, and they mow lawns also. They save their summer money to chip in for their ski pass. I hope they are understanding it, I've taught them more than my parents ever taught me.

Incidentally, last summer I was helping the in-laws with their garden. The older 2 boys were taking turns mowing her lawn (for money). The 5 year old was helping pick rocks from the garden.
He says, "Grandma, how much will I get paid for this?"
She said, "Oh I don't know maybe a few dollars, how much do you think I should pay you?"
He quickly responded, "20 dollars!"
She replied, "I don't know Dave, that's a lot of money, I am only paying your brothers $5 dollars a piece to mow the whole yard."
Again, quick on his feet, he answered, "Yeah, but they are taking turns mowing the lawn, but I've been working on this the whole time."
He gets it!

[Pheidippides]

I was reminded of this thread Sunday night. SHW and I were discussing finances around the dinner table, and specifically how awesome it was that we have been able to put a major dent in our student loans.

Nikugirl, who is 9, asked me what student loans were. So we talked about how law school was really expensive - like having to buy a brand new car every year just to set foot in the door - and you pay for that with loans sometimes. And how interest and the time value of money works. And how compounding works. And why it is that she never sees me pay for things in cash. And why i always use credit cards to pay for everything. And the importance of paying off balances every month.

And then she asked the million-dollar question: how do I get interest? Seems like money for doing almost nothing.

So then we talked about investing, and she became quite taken with the idea of owning part of a company. As fate would have it, I just happen to have a small amount I was planning to invest in stocks anyway. So we are going to sit down on Thursday night and buy a few shares of a company together. Then she can track it and see how we do, help me decide on the proxy, etc. It will e a great experience.

She of course chose Disney as the company. So on Friday she can tell her friends that we are something like a one five hundred millionth owner of it.

[mUUser]

Since I last posted, we decided to answer any questions our kids had about our financial situation. Our oldest was curious so we shared with her. She was surprised.

Our #2 has told us she doesn't want to know yet. #3 wouldn't get it even if we laid it out on a spreadsheet for him. Too young still.

Looking back, I can see my concern over the matter was for naught.

[filsdepac]

Echoing ddd's thoughts, I think it is very important to teach them about finances in general. I vividly remember my dad teaching me about buying a house and what a mortgage is. We moved when I was almost 8 and he busted out his yellow legal pad and showed, mostly through pictures, what a downpayment was and how one pays it off over time.

I also remember him showing me how to look up stock prices in the newspaper, what a useless exercise that turned out to be!

[Lost Student]

I just remembered how my dad taught me about loans, interest, etc. I was about 10 or 11 and wanted to buy a Sega GameGear. I convinced my parents to loan me the money, which would be paid back, plus interest, through withholding allowance from me.

We drew up a spreadsheet (this is also how my dad taught me how to use spreadsheets) that showed the amortization schedule. I think it took about 18 months to pay for the thing (I think my allowance was relatively small compared to some of my friends). I believe my dad charged something like 8%. By the time I finally paid it off, I had long-since tired of playing it. Lesson learned.

[PaloAltoCougar]

Echoing ddd's thoughts, I think it is very important to teach them about finances in general. I vividly remember my dad teaching me about buying a house and what a mortgage is. We moved when I was almost 8 and he busted out his yellow legal pad and showed, mostly through pictures, what a downpayment was and how one pays it off over time.

I also remember him showing me how to look up stock prices in the newspaper, what a useless exercise that turned out to be!

Yeah, but isn't he the same guy that put your modest savings in the Strong Technology Fund shortly after you went on your mish and approximately one hour before the dot.com bubble burst?

Still, I'm really glad you remember those kind of teaching moments. I live in fear of a Daddy Dearest book.

[PaloAltoCougar]

...She of course chose Disney as the company. So on Friday she can tell her friends that we are something like a one five hundred millionth owner of it.

LOL. I had a discussion with my younger son (when he was eight or so) about his savings and, with my reluctant approval, he bought a few shares in each of Disney, McDonald's and Mattel or some other toymaker. This was around 2000 which was not a fortuitous time to invest. I think he learned was saddened not so much by the loss of equity but by the realization that dividends weren't paid in the form of Disney tickets, Big Macs or Rock 'Em Sock 'Em Robots.