Your Kids Financial Success Is A Matter Of Choice

I don’t have kids myself. Maybe one day, but for now I’m more of the cool uncle. It’s a role I'll relish once my niece and nephew are actually old enough to be worth hanging out with.

I’m not the type of person who wants to spend his free time with a toddler. Sue me.

Personal tangents aside, I’ve given a lot of thought to setting your kids up for financial success. My parents got a lot right in the way they raised me to understand money.

Sure, a lot of it I picked up on my own or they claim I intuitively understood. But as a parent, you have a ton of influence over your kids’ development and their understanding of the world.

I hope you want to do everything within your power to help them succeed financially. Here are a few tips.

Your Kids Need Money To Understand Money

I want to get the more controversial topics out of the way right upfront. Money management can only be learned in the abstract for so long. Like Mike Tyson said, “everybody has a plan until they get punched in the mouth.”

Life is, unfortunately, going to punch your kids in the mouth at some point. Maybe even literally (but hopefully not). If they’ve never actually managed money for themselves when that happens, they’ll fall.

It’s only by managing their own money when the stakes are low that they’ll learn the skills necessary to punch life right back.

Practice Managing Money Makes Perfect

Most people fall into one of two camps when it comes to giving their kids an allowance. They either roll over and buy their kids whatever they want, or they refuse to give an allowance because “they need to learn you have to work for your money! Allowances make you soft! If you millennials hadn’t gotten allowances we’d be living on Jupiter!”

Alright, those are the polar extremes, but the point holds. The concept of an allowance is divisive among parents.

Hear me out though: there’s a middle ground. You can, and you should, give your kids an allowance. And maybe it’s my inner child coming out, but this shouldn’t be tied to “chores.”

An allowance isn’t about teaching your kids the value of hard work. An allowance is about teaching your kids how to handle money.

You shouldn’t give them free rein of their own purse, and you shouldn’t give them so much that they don’t have to worry about managing it.

Instead, set a few rules for how they need to divvy up their money, and what they’ll need to buy with it. Be reasonable, but firm. Remember they don’t have any bills, so it’s not out of line to say they have to save 40 or even 50 percent of their allowance.

Younger kids may want candy or toys, older kids may want… Candy or toys. Kids don’t change all that much, I guess.

The Value Of A Dollar Is Hard To Teach

Once your kids are old enough, they can start working. This is where chores can start to come into play.

Eventually, your kids will be old enough to go out into the world and get part-time jobs, and that’s a fantastic way for them to learn the value of a dollar and hard work.

But before they’re old enough to do that, they can work for you.

If they’ve been getting an allowance for a few years, they may be realizing they would like more toys. And that takes more money.

I don’t believe you should get rid of the allowance, but at this point, you can start supplementing it with chores. These should be reasonable and age-appropriate.

While the mental image of a baby driving a lawnmower might be adorable, that’s dangerous. Don’t do that.

As your kids progress in age, you can increase the complexity and intensity of their chores, provided you increase the compensation to match.

You should also probably have a few things you expect of your kids “because they’re a member of the family,” like keeping their room clean or weekly dish duty.

The exact nature and value of various chores are up to you, but make it fair.

Your Kids Need To See Good Money Behaviors

Even if you’re diligent about giving and regulating your child’s allowance, they aren’t going to get money management on their own.

You’ll need to show them. Your kids learn a ton from watching and listening to you. Probably more than you even realize.

The ways you talk about or ignore money will stick with your kids well into their adult lives. Most people never shake the money scripts they develop from watching their parents.

For something that permanent, it’s pretty important that you do your best to get it right.

Talk To Them About Your Finances

Talking to your kids about your own money is one of the best ways you can teach them. Seriously.

You’ll want to make it age-appropriate and tailor it to your kids' personality. A four-year-old doesn’t need to know about asset allocation inside your brokerage account. You may not be comfortable telling your 15 year old how much you make in a year because you know he’ll tell all his friends.

But that doesn’t have to stop you from explaining the money management principles you follow to your kids. They’ll start to understand it a lot earlier than you may think.

When you’re paying your monthly bills is the perfect time to explain to your 6-year old that everything costs money, and that’s why you go to work every day.

Similarly, you can talk to your 11-year-old about saving up for big purchases and thinking them through when he decides he wants a new video game console for Christmas.

You can also talk to them about how you save for retirement or build an emergency fund, or all the other practical things you do with your money day in and day out.

They’ll absorb and internalize a good chunk of it, so keep talking.

Practice What You Preach

Kids are smart. They can tell when you’re just telling them something because you think it’s what they should do, but you don’t actually do it yourself.

“Do as I say, not as I do” doesn’t work as a motto. As soon as your kid is independent, they’re going to start doing as you did and not as you said.

So one of the best ways to set your kids up for financial success is to set yourself up for financial success.

If you find yourself giving financial advice or directives to your children that you don’t follow in your own life, take a second. Ask why you’re giving advice you aren’t implementing. Either it’s bad advice and you shouldn’t give it, or it’s great advice and you should be living it.

Practice what you preach, and let your kids see the fruits of your labor. When you save up and make a big purchase, celebrate.

Explain to your kids that you’ve been setting money aside for 8 months to finally get the new 60 inch TV you wanted. Or that you’ve been planning this vacation since your last one.

Your Kids Need To Be Financially Literate

Financial literacy doesn’t happen automatically. Most adults are lacking in this department, so it doesn’t make much sense to assume kids will get it.

But financial literacy is so important. Without a strong knowledge base, it’s nearly impossible to make the kinds of financial decisions we actually want to make.

Finances are complicated and confusing. Often times, what seems like the right decision right now ends up hurting us in the long run, and a decision that hurts us now works out in our favor.

If you don’t teach your kids how to make those types of decisions, chances are very low they’ll learn on their own.

Create Realistic Financial Boundaries

You have to set reasonable limits on your kids’ finances, both spending and saving.

While they don’t really have to “live within their means,” they should still understand the concept and how to apply it.

If their allowance is $20 a month and they want a $30 toy, they can’t spend their full $20 every single month. When they master this concept with the little things, it will help them with the big purchases that can wreck a budget.

Understanding this principle is what allowed me to avoid racking up expensive student loans to go to a college I couldn’t afford.

It’s your job as a parent to impose these limits on your child’s finances before the world imposes them for you.

Set reasonable targets for saving, giving, and maybe even investing (you can open a Custodial Roth IRA for any child with earned income!). And make sure your kids stick to those targets.

Teach Good Choices and Financial Patience

Patience is the name of the game when it comes to building wealth. You have to weigh each decision carefully, and the higher the sticker price the more important that you think it over. Teaching your children patience with money will greatly improve their lives.

This flies in the face of our natural wiring as humans. We want to follow our gut and stay out of danger. Most importantly, when we want something, we want it now. Like right now.

If you can instill sound decision making and patience in your children, they’ll be much more likely to be financially successful adults.

Practice by weighing the pros and cons of various decisions with them, shopping for cheaper alternatives and doing all the other prudent financial keys you’d do before making a big purchase.

One of those keys is going to be patience. Teach your children to wait for the things they want and save up for them. That way, they know they can afford them and actually want them.

Nothing feels worse than the buyers’ remorse that comes when you blow way too much of your savings on something that you didn’t want anyway.

Conclusion

Setting your kids up for financial success isn’t about paying for their college or giving them a massive trust fund.

It’s about teaching them the nitty-gritty, day-to-day actions and decisions they’ll need to be financially successful adults.

Not sure you’ve mastered those concepts yourself? It’s never too late to start! Feel free to explore the blog to deepen your financial knowledge.

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