Sometimes, you have to help loved ones learn a new skill, or else it actually becomes YOUR problem.
Teaching your kiddos about money is one of those skills.
You don’t want them to be clueless once they’re young adults and blow all their money…or make bad decisions and fall into debt.
If they fail at money, it becomes YOUR problem…just as you’re starting to enjoy more free time as an empty nester.
But the financial learning curve is long, so it’s important to start when they’re young and reinforce lessons consistently over the years.
That’s why in this week’s podcast, I share 9 crucial money lessons your kids must learn to succeed as adults.
Here’s what you’ll learn:
- The surprisingly young age when kids’ money mindsets/habits start to crystallize
- 9 crucial lessons to teach your kiddos from infant→toddler→tween→teen→young adult
- Tips for helping parents to actually make their kid internalize important money lessons
- Why giving kids decision-making control over their own budget early on will help them rapidly develop good financial judgment
- Why the most important lesson of all is to teach them how to find contentment in what they have, and how to know their self-worth is in who they are, not what they buy
What money lessons do YOU feel are most important to teach your kids? Let me know by leaving a comment when you’re done.
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Links mentioned in this episode:
- How to motivate your kid to win the national spelling bee (and excel in life)
- How to make sure the cost of college doesn’t ruin your kid’s future
- The best parenting guidance I’ve learned for raising successful children
- Why child care is so damn challenging (and what to do about it)
- Hey, rich people. Wealth management includes telling your kids how rich you are.
- Schedule a private 1:1 consultation with me
- HYW private Facebook community
Read this episode as a post:
Welcome back to another episode of the Hack Your Wealth Podcast. Today’s topic is really important because I want to talk about how to teach your kids about money.
Now that I have my own kid, it’s caused me to think a lot over the last many months, more than a year, about how to teach my own kid about money. This is no longer theoretical to me.
It has real consequences because I realize that if I don’t teach her well, it’s not just my daughter that’s going to suffer in terms of having bad money habits when she gets older.
I as a parent am also going to be paying those consequences too because I don’t want her to be a grown adult still clinging to and dependent upon her parents when she should really be standing on her own two feet.
And so, to me, I really do feel that it’s my responsibility to teach my daughter good values so that she can have good financial habits. And so that’s why it’s so important to me to teach kids from a young age about money and good values around money and it’s why I’m so excited and passionate about this topic today.
I have been reading a lot of other material from other parents and child development experts, synthesizing insights from other moms and dads that I talk to. So this episode is really my synthesizing the best practices that have resonated with me.
And I’m not claiming that the concepts I cover today are gospel truth. There are different valid ways to educate your child that can be successful, and I don’t think there’s one end-all, be-all way that is the right way.
I do think there are some wrong ways to go about it, but there isn’t necessarily a single right way.
But in this episode, I will cover the lessons and best practices that have resonated most with me because they are most aligned with my values, how I think about money as someone who wasn’t born into money and bearing in mind that my focus is financial independence and early retirement.
So that’s what today’s episode is going to be about.
Before we jump into all that though, as always, I want to invite you to join the private Hack Your Wealth Facebook group which you can access at hackyourwealth.com/fb.
It’s a way for us to connect and have a two-way dialogue. I am in there every single day. I try to respond to every single comment and question every day.
And so I really do encourage you to join. It’s a lot of good people in there who are just talking about matters related to financial independence, early retirement, tax strategies, real estate investing, side business and side hustle income, online income, career changes, and just all kinds of advice related to financial matters and personal finance.
So it’s a good group of people. I definitely encourage you to join: hackyourwealth.com/fb.
Why it’s important to teach kids about personal finance
I wanted to share some personal context before we jump in because part of the reason why I feel so passionately about teaching kids about money from a young age and why I think it’s so important is because when I look back on my own upbringing, I really didn’t have a structured framework for learning about personal finance.
I did learn a lot from my parents just by observing them and their discussions about money, which were not super frequent but enough that it affected me, and just observing their saving and spending habits. They were very frugal. They were not big spenders at all.
And that definitely shaped my own financial values that carry through even to this day. And so a lot of the financial values that I have today are shaped by those early observations I had as a young kid.
But because I didn’t have a structured framework for learning about personal finance as a kid, there were a lot of foundational lessons I just wasn’t exposed to as a result.
For example, I really didn’t learn about the power of compounding and compound interest when I was a kid. I didn’t learn about credit and credit scores.
Perhaps most importantly, I didn’t learn some important mindset lessons around how to appreciate and feel contentment with what you have so you don’t feel a sense of comparison with your friends or peers who may seem to have more than you because that’s what you see on social media, that they seem to be living this glamorous life, and how come you’re not living that glamorous life? And how come you don’t have the things that they have? When in reality, a lot of that stuff is just an image.
And so I think these are the kinds of things that are really important to teach kids at age-appropriate times in a structured way. And I think parents who are really thoughtful about how to structure those learnings for their kids will equip them with really good personal finance habits and mindsets.
And those will translate for the rest of their life. They will pay dividends for the rest of their life and get them set on a right footing by the time they leave for college, so they don’t do dumb things in college.
Nor are they left in the dark for years after they graduate as they try to get up to speed on basic concepts in personal finance.
So that’s why I feel it’s so important to teach kids about personal finance and money management in a structured and holistic way starting from a young age.
When to start teaching kids about personal finance
So, how young is appropriate to start introducing concepts around money?
Well, the literature says children start comprehending basic concepts around money as early as age three. Concepts around spending because they start observing that you have to spend money to buy things. They start seeing how you spend, literally.
They start picking up basic cues around saving if they see you saving or talking about saving. They see how you talk about money with your spouse, family, your parents even.
I read an academic research study a few years back where the conclusion was that a lot of important money habits and mindsets for kids are crystallized by seven, just from observing their parents, peers, and others, and the behaviors and habit reinforcements that they are exposed to.
Kids are like little video camera recorders. Everything you do is setting an example for them and they’re learning from it. And that example can be healthy and lead to good habits, or it could be not as healthy.
So when it comes to teaching kids about personal finance, I think there’s roughly four phases in a kid’s development where different lessons apply.
Phase one being toddler to tween, so roughly age two to age eight or nine. Second phase being the tween to teen years, so roughly age eight or nine to age 13 or so.
The teenage years from age 13 to 17 or 18. And then the college to college graduation years, which is basically age 18 to 22, roughly.
Phase 1: Toddlers to Tweens
So in phase one, during the toddler to tween years, the main lesson I think to emphasize to your kid that you really want them to internalize is how to delay gratification.
The lesson that you don’t always get what you want right away. You may have to wait to buy it. Maybe sometimes you just don’t get it, full stop.
Because the ability to control your desires and impulses is one of the most critical life skills a young person can develop. There are many studies that show your ability for self-control to delay gratification is one of the most powerful predictors of success when you grow up and how successful you will be as an adult.
So it’s really important to teach kids from a young age that for the things you really want in life, they may be things you need to save up and wait for to buy. This sets a foundation for everything in the future, their entire outlook on money, from saving and investing to credit and borrowing.
Now, some people suggest that to reinforce that saving muscle from the beginning, you can use a clear jar, not a piggy bank, because with a clear jar, you can actually see paper bills and coins building up in front of your eyes as you put them in.
Whereas in a piggy bank, you can’t actually see the money once you put it in, so it can be a little bit out of sight, out of mind.
And as they put money into the clear jar, you can talk to them about it and reinforce those habits and even help them think about it as a little game where you try to save as much as possible, as fast as possible.
Every time some money gets saved in the jar, you teach your kid to count it to see how much there is now, how much it’s grown since last time, how much is left before your kid reaches any goal they’ve set for themselves, and how much longer it’ll take to reach that goal if she keeps saving diligently.
And that can help build motivation for your kid and help them learn core skills around saving and how to be patient and delay gratification.
But a kid who is that young, at that age, it might be hard for them to get excited in the abstract about putting savings in a clear jar. So you can help your child set goals, like using the money to buy a new toy they want to make the reward payoff for saving very concrete.
Namely, that you work hard, you save up, and when you’ve done a good job, you get rewarded for it. You get to buy the toy you want.
That also has the positive effect of teaching them about goal setting and setting milestones to fulfill their goals.
Now, when they’re just starting out learning this behavior, if they’re goal is to buy a toy or something, you just want to make sure the reward isn’t so expensive it will take a really long time to reach that goal.
You don’t want them to have to be saving for a year before they can get it. Otherwise, they might lose interest.
For sure, they can build up endurance for saving for longer periods of time, over time. But it’s like exercising a muscle. At first, they won’t have much muscle around delayed gratification, so you have to help them exercise that muscle in baby steps.
And you want to set them up for success so they get a dopamine rush when they achieve their goal, and then they’re motivated to do it again and again.
So in the early stages, you probably want to set very short term goals so they just get into the habit of saving into their jar until they hit the goal, then they can go spend it on the thing they want to buy.
If the thing they want to buy is really expensive, and maybe you actually approve of buying it as a parent, maybe it’s a good learning toy or a Kindle or something like that, then in that case, you can make the goal about saving up maybe just half the amount and then you as a parent match the other half, or something like that.
You can get creative about this because you’re just trying to introduce basic good habits at this early stage. It isn’t really about hitting a specific dollar amount. You just want to get them in the habit of saving up to buy the things they want and delaying gratification to accomplish that.
So that’s, I think, the most important lesson from the toddler to tween years.
Phase 2: Tweens to Teens
When your kid reaches the tween to teen years, so age eight or nine to age 13 or so, here I think the main lessons you’re trying to teach are really around the importance of budgeting, the link between earning money and saving money, and the concept of making choices that have opportunity costs.
So again, budgeting, earning versus saving, and opportunity costs. To me, those are the three major lessons you want to impart during the tween to teen years.
For the first area around budgeting, unlike the toddler and elementary school stage where the main lesson you were trying to teach was basics around delayed gratification, during the tween years, you’re really trying to extend that lesson a step further by introducing more advanced concepts around budgeting.
And so the idea here is that there is a finite pool of money you have or that the family has, and you have to make real choices about how much you can buy and what you can afford because once that budget has run out, there is no more. You can’t buy more stuff after that.
This is related to the savings jar lesson and goal setting lesson you introduced to them when they were younger, but it helps them to start thinking more holistically about the entire budget or pot of money rather than just saving for one-off goals.
Because ultimately, the savings jar isn’t about saving up for one toy and then you get a refill and then do it again. It’s about developing judgment around how to make your savings sufficient to cover all the things you want to buy.
So to that end, at this stage, it can be educational to help explain to your kid how you personally make some day-to-day budgeting and spending decisions as a parent.
For example, you could explain why you choose to buy the generic house brand of bread at the grocery store rather than the name brand bread – because to you, it tastes the same.
Or why you choose to buy whole fruit over pre-packaged fruit because it’s the same product, and by skinning and cutting your own fruit, you can save a lot of money over time.
Or you can explain why you buy some supplies like toilet paper or soap in bulk because it’s cheaper per unit and it’s not perishable.
If your kid asks to buy something, you might ask them to justify why they really need it. Ask them to see if they can find a cheaper version or explain to them why you should buy it elsewhere because it’s cheaper there instead.
Just get them into the habit of thinking about needs versus wants. And start to teach them about how to evaluate different types of products that have different prices.
I think that’s the key lesson you want to teach them around budgeting: that there’s a finite pot of money, that you’re trying to allocate that money for all the things you want to buy, not just one-off things, and that you should start to exercise judgment around how you spend so that you can make those dollars last longer.
Second lesson I mentioned during the tween years is to teach the link between earning and saving.
Now, I’ve written some previous blog posts about this which I will link to in the show notes for this episode, but the basic idea is that you want to teach your kids that money is earned and not just handed out.
A lot of parents give their kids allowances. There’s nothing wrong with that per se. But I personally think a more powerful way to teach kids about money is to not just give an allowance, but actually pay your kids for doing work.
You want to teach them how to earn money, not develop the expectation of getting an entitlement. And they’re old enough by this point to start doing some light work and chores to start earning money and understanding what it means to earn money.
One easy way to do this is to pay them for doing house chores – cleaning their room, doing dishes, taking out the trash, mowing the grass.
Some parents make their kids do chores as an expectation for just being a family member. And that’s perfectly fine as well. And then some of those parents will also give allowances separately.
But I think it’s actually better to link the two. Make them do the work and then pay them for it, so they see the link between their labor and wages.
Maybe you make the chores optional for pay, or maybe you make them mandatory. That’s up to you.
But I think the powerful lesson is linking work to compensation because that is what will help them internalize that you earn money for work. You don’t just get money as an entitlement.
And by doing that, you also make it easier to link lessons about earning to lessons about budgeting.
Maybe your kid wants to buy, for example, a new video game, or a new toy or plush doll or phone app.
You can teach them that if you want to buy these discretionary items, you have to use the money you earned. And you have to budget for it, which reinforces, of course, the lessons you taught them when they were younger.
And that brings me to the third main lesson during the tween years, which is that spending choices your kids make have real opportunity costs.
This is linked to the budgeting lesson I mentioned a moment ago, but what you want to teach them is that when they buy one thing, it means they cannot buy another thing because that budget is limited.
So if they want to buy the new video game, they may not have enough leftover to buy the new pair of shoes.
You want to teach them how to evaluate decisions and make choices, knowing there are opportunity costs, because this also reinforces good budgeting skills, the idea that you have a finite pool of money and you have to make that money last for all the things you want to buy.
You can’t use that money and buy a really expensive one thing and then expect that budget is going to get filled up again, magically, to buy the other things you want.
And so this concept of really exposing them to opportunity costs and this idea that when you buy one thing, it means that something else is given up, is really important to helping them continue to develop judgment about money.
Phase 3: Teens
So then during the teen years, ages 13 to 18, there are several lessons I think are important to impress upon your kid during these very formative years.
One area is that I think you should continue to reinforce the lessons of earning, budgeting, and saving, and then extend them further.
Short term vs. long term
During the teenage years, when they’re 13, 14, 15 years old, I think it’s important to teach them how to set longer term goals than simply buying a new video game they were saving for the last month.
You want to start teaching them the important lesson that when you keep spending continuously on a short term basis, you’re actually paying an opportunity cost by giving up bigger things longer term, even if you don’t feel you’re giving those things up day to day.
So maybe buying the video game every other month, they’re sacrificing the new phone or laptop or bike they want, which would take a year to save up for.
You want them to start developing judgment and the ability to distinguish between short versus long term and how the choices they make in saving in the short term actually allow them to afford bigger and more valuable things in the long term.
Because this ability to set short versus long term goals and make critical judgments and decisions about which one to pursue and how pursuing one may mean giving up the other is just a more complex version of delayed gratification.
And the older they get, the more important it is for them to develop judgment around why it’s important to invest and save for the long term, because most of the really good benefits and rewards and payoffs in life go to people who work very hard for a long time and can sacrifice and invest for the long term, and then get an amazing payout at the end.
So you want to start teaching and introducing those concepts during those teenage years.
I also think it’s important to start making your teenager budget all of their income for everything during this period of their life when they’re teenagers. Everything they want to buy, no matter how big or small.
Because by doing that, you’re teaching them how to do financial planning while it’s still relatively safe because you’re taking care of them.
You want them to internalize the cost of every single thing they buy, so they don’t take for granted buying anything using other people’s money.
You know how it is, right?
When you use other people’s money, you’re just more likely to succumb to things like impulse purchases that you may want but you don’t need, like name brand clothes or makeup or a new phone or whatever.
Whereas if you have skin in the game, you’re just more likely to really think critically about whether you need it at all and what you need it for.
One really clever way I have seen this done is for a parent to teach their kid that they will pay for generic brand clothes for their kid to keep them warm and looking presentable…because that is, after all, one of your responsibilities as a parent: to clothe your kid.
But if the kid wants the name brand clothes, they have to earn and budget for it and pay the difference.
Likewise, as a parent, you will pay for lunch at the school cafeteria each month. But if they want to go out and eat with friends at the burger joint, they have to pay the difference.
Or as a parent, you agree to pay for swim class because it’s good for their health and exercise and also an important life skill to know how to swim. But if they want to take the guitar class or the ballet class or whatever, then maybe they have to contribute a percentage and maybe you match part of it.
Whatever flavor you choose, the clever thing I like about this approach is that, as a parent, you agree to pay for the basics. You agree to pay for what they NEED.
But then if they want the more expensive version, the brand name or whatever, for the things they want that go above and beyond what they need, they’re responsible for.
And they have to use the money they’ve earned and saved and budgeted to decide what they want to spend that money on.
And they have to live with the consequences of the opportunity costs they face when they make one choice versus another.
The point is that you want them to have skin in the game.
I also heard about this tip, which I think is a good idea, which is to encourage your kid to wait at least a day or two to buy anything over, say, $20 or $30, because it’ll probably still be available tomorrow.
And they’ll probably be more cool-headed after having had a day or two to think about whether they really want it, considering the opportunity cost. Or whether they’ll come to decide they actually would rather save and invest that money on second thought instead.
Since you’re trying to teach your kid about saving and budgeting still at this stage, you should also give them more tools for earning money. Plus, as a teenager, there’s a lot more options that open up to you to earn money.
They’re going to have free time, breaks from school. They’re going to have summer and winter breaks and things like that.
So to help them earn more money and build more confidence in earning their own money, maybe you can help them find a job.
Teach them how to apply for a job as a babysitter or a dog walker or lawn mower or server at a restaurant, bagger at a grocery store, assuming they’re old enough to do these types of work, of course.
Personally, I think working at a restaurant is perhaps one of the best ways to learn a lot in a very short amount of time about interpersonal skills and customer service and patience and human nature and character and all these skills you’re really going to need and will be really important to your success in the professional world.
You can actually learn a lot of those skills just by being a server at a restaurant. Not the most glamorous job, not the most fun job, but one that can impart some really important lessons.
And so that’s just something to think about potentially to nudge your kid to try for a summer or winter or whatever.
I think at this age, it’s also potentially a good opportunity to teach your kid entrepreneurial skills and teach them how to make money as an entrepreneur, whether in person or online.
Maybe you can teach them how to make something and sell it on Etsy or how to help local businesses build a website or troubleshoot computers.
In this way, they can use their own skills they’ve developed to sell those to other people who may need those skills or services.
And so you can even teach them a little bit of entrepreneurial skills in the process.
The point is to start showing them how to go out into the world and make their own money rather than just sticking to chores at home where you are the sole provider of compensation or income they may earn.
So that’s the first lesson for the teenage years around continuing to reinforce and extend lessons around earning, budgeting, and saving.
The second lesson that is important to introduce during these years is around compound interest, investing for the future, investing for the long term.
And the idea here is that the more you save earlier, the faster your money will grow from compound interest.
Up until now, all the money lessons we’ve talked about for the toddler years and tween years have really been around short term goals.
You want to buy the new video game. You want to buy the new shoes or new dress. Then you have to save up for it, budget for it.
But once they’re teenagers, you want to start teaching them about how to save and invest for the long term, as I mentioned earlier.
This means introducing the concept of compound interest, which is perhaps the most important personal finance lesson for anyone to internalize.
Because if they can really internalize the importance and power of compound interest, then it will very naturally and very likely snap good behaviors into place around things like saving, budgeting, opportunity cost, judgment, all the stuff we’ve already mentioned.
To really teach compound interest properly, you’ll also have to start introducing lessons around interest rates, inflation, taxes even – also all good things to teach your child because those are things they’re going to have to know sooner or later anyway.
Now, because it’s really hard to internalize abstract ideas still at that age, it’s helpful to show them lessons for compound interest using concrete examples.
Show them how continuous saving and compounding starts to snowball, and how just by starting a little bit earlier, even just one year earlier, how much difference that can make on the backend.
So if you start regularly saving X dollars per month when you’re 20, then you’ll have, say, $1 million by the time you’re 50. Whereas if you start saving when you’re 30, 10 years later, maybe you’ll only have $500k. You get the idea.
To really reinforce this lesson, I think it helps to help them paint the picture with concrete numbers.
Maybe expose them to a calculator online or an Excel spreadsheet that they can play around with their own numbers and really see the dramatic swings in outcomes just by starting to save and invest a bit earlier.
Because that really is the heart of it, right? That’s the heart of the lesson around compound interest: that starting a bit earlier makes huge differences on the backend.
To really reinforce compound learning further, I think it can also help to give your kid an interest-bearing bank account. You can get pretty good interest rates, especially if you’re using an online-only bank account.
Or even open a brokerage account with a securities firm to get them exposed to investing during their teenage years since that’s where they’re really going to get exposed to lessons around compound interest.
And that way, they can actually get some direct experience with how compound growth works in the context of the stock market.
So that’s compound interest.
Saving for college
The third lesson I think that’s really important to impart to teenagers is ideas around getting them to save for college.
First, of course, you have to make them want to go to college first. So I think it’s important to emphasize how much more college graduates earn over their lifetime compared to people who didn’t go to college and how many more opportunities are open to college graduates versus people who only have a high school diploma.
Make it a point to emphasize this whenever they come across other people working in different jobs or fields they encounter.
If, for example, they admire their friend’s dad who designs virtual reality video games, then explain to them, “Look how much education you need to get to that level.”
If they remark about how the server at the restaurant was rude to them, then that’s also a good teaching moment that “Hey, if you don’t want to be working a stressful job like that where you’re busting your tail day in, day out and living off tips,” then you really need to emphasize getting a good education.
And actually, bonus points if they themselves have worked as a server at a restaurant, as I alluded to earlier, that will also just give them a very visceral learning, a visceral lesson on the importance of getting a good education because that really will shape a lot of their career path and work experience in the future.
Once you get them to internalize the importance of going to college in the first place, then you should show them how much it costs. It’ll probably be the biggest dollar number they’ve ever seen.
But it’s important to start having those conversations with them before too long, certainly once they’re in high school. And be honest about how much you can realistically contribute to their college expenses.
Personally, I think you should encourage your kid to shoot for the stars when they apply to college and not let money cloud their decisions on where to apply.
Treat paying for college as a separate issue.
But also make sure you have honest conversations about how expensive college is and how they should be thinking about ways they can save for their own college education, given that they see how important it is to get a college education.
So perhaps when they save money as part of their budget for things they want to buy, maybe you could ask them to always put a percentage of their savings into a college fund, which you’d tell them maybe you’ll match at some percentage. Maybe you’ll match them dollar for dollar, whatever you want.
The only thing I advise is that if you plan to cover them for college, if you plan to pay for college, don’t tell them in advance because I just don’t think they will appreciate the implications of it, that it’s such a huge gift to get an all-expenses paid college education.
They certainly won’t appreciate it intrinsically. They may even take it for granted.
And the last thing you want is for them to think that your paying for their college is some kind of entitlement.
Even if you’re rich, you don’t want them to take it for granted and think that it’s something they’re entitled to. Because having an entitlement mindset for anything is just a really bad idea.
I encourage also that if you have a 529 plan saved up for them, don’t tell them you have it. That can be a gift on the backend.
I actually think that is perhaps a better way to pay it off for them – after they’ve worked hard for it, had to sweat a little bit, and think about how much they’ll have to work and save to pay it back.
And maybe you do a matching arrangement, again, where they pay some and you pay some, or you just choose to pay it off in full. That’s your choice.
But I think the important part is you want to make sure you impart the right lesson. That’s why I think it’s better to just not tell them in advance if you do plan to pay their entire college education cost or you have a big 529 plan that can do so.
But regardless of whether it’s about strengthening their skills around budgeting, saving and spending and opportunity costs, or whether it’s around compound interest or around college expenses, I think perhaps the most important thing, hard thing to teach your kid during these teenage years, but is critical, is simply around being happy with what you have.
Because your kid at this stage is going to get exposed to social media, like Instagram or Snap or whatever is the major app when they become teenagers.
Whether you forbid them from having a phone or not, they’re going to find a way to get on these social media apps and they’re going to see photos of friends who live these seemingly glamorous lives with name brand clothes and shoes and gear and gadgets, cars even.
And it’s very easy to think, “Why don’t I have this?” and start comparing yourself to peers, as I mentioned earlier.
And that kind of thinking is really poisonous because it can lead to self-esteem issues, insecurities about money if left unaddressed.
So you want to make sure you teach them, again, in a very structured way to confront this head-on.
And I think it’s going to be most severe during these teenage years. And so you want to make sure you talk to them directly about this.
I don’t know any hack around this. I believe you just have to spend quality time with them. Make them feel very loved and supported and close to you.
I’ve been having conversations with my wife about how we would handle this for our own daughter when she becomes a teenager and inevitably starts to feel that kind of comparison with her peers. How would we handle that?
If we can’t afford, or more likely, we don’t want to pay for the expensive meal out at a restaurant that her friend posted on social media or the expensive shoes her friend bought or dress or makeup or whatever, how would we help her feel assured of herself and not lose self-esteem over that or feel any insecurity from that?
I think it’s hard. The current approach my wife and I have thought about is just spending a lot of time with our daughter.
Maybe we don’t pay for the expensive restaurant meal her friend took an Instagram picture of, but maybe my wife will spend a lot of time making a lunch for my daughter and making it look really pretty and really plated.
Maybe we don’t spend on the expensive brand name handbag or shoes, but we spend time teaching our daughter how to assemble a really great fashionable look using clothes that don’t cost a ton.
I don’t necessarily have the exact answer right now, but I think investing time with her is going to be a big part of the answer, and helping her see that her self-worth is in who she is, not in what she has.
It’s in what she does, not in what she buys.
And that happiness and appreciation is so much more about mindset and outlook than about how much you can afford.
That’s one reason why so many rich people can still be so unhappy or paranoid or suspicious of others, feel isolated from friends and family, even though earning money past a certain fairly achievable threshold is proven again and again in study after study to not commensurately increase happiness once you earn past a certain threshold.
So that’s a key reason why I think it’s so important to teach them about the distinction between needs versus wants during these teenage years especially, but really as early as possible.
Because you want to make sure they have a strong sense of who they are, self-confidence and appreciation and contentment, so that inevitably, when they get exposed to peers who seem to have more glamorous lives and seem to have more than they have, which may very well not be true in reality, they don’t feel any kind of diminishment in their own self-esteem or self-confidence.
Phase 4: College Years
So, moving to the last stage before full adulthood, during the college years and young adult stage, 18 to 22 roughly, I think the main lesson to impart upon your kid is around credit scores and developing a healthy attitude toward how debt works and good kinds of debt versus bad kinds of debt.
Now, some people may disagree with the idea of giving a child, a young adult, a credit card at this age because it is very easy to get into credit card debt if you have not developed a mental model or judgment about the pitfalls of credit.
And it can take a long time to fix your credit if you ruin it.
A really long time, like seven plus years.
It can prevent you from really important goals in your adult life, like buying a car or house, or even in some cases, getting a job because sometimes employers will actually check your credit before extending you a job offer.
So you definitely want to teach your kid good credit habits without them doing something stupid and tanking their credit.
But I personally believe it is a good valuable lesson and worth it to introduce giving your kid a credit card when they are in those late teen, early 20 years. Low credit limit, no fee, low interest rate if possible.
But you want to get them to start responsibly using credit because you need time to build a credit score, and when you just start out as a college student, your credit score is going to be pretty crappy.
But not too long after you graduate, you may actually need credit for real to buy a car or even buy home or whatever the things in life you want to pursue that may require credit.
And you need a track record for that. You need a credit score for that. And a credit card is a really good way to start building your credit if you can do it responsibly.
And that’s just the trick. You have to teach your kid how to use a credit card in a responsible way and teach them that you should only use a credit card when you pay the balance off full every month.
You don’t want them, obviously, to be paying off credit card debt after they graduate at the same time they’re trying to pay off student loans. That would be pretty overwhelming for any new college graduate.
And so I think it’s really important during the college years to introduce credit cards to them, to teach them about credit, and to teach them how to use a credit card responsibly because that’s going to carry through for the rest of their adult life.
Not just for credit cards, but for any kind of debt, whether it’s home equity debt or a personal loan, car loan, mortgage, or whatever.
You have to know how to incur debt responsibly and how being responsible about debt can actually make your credit profile, credit score, much stronger, just as being irresponsible about debt can tank your credit score.
And realistically over a lifetime, you’re going to have to encounter credit and debt in some aspects of your life.
So it’s important to develop a foundation on how to use credit responsibly before you reach those really big milestones in life.
So those are the four major life stages where I think it’s important to teach kids about money. Again, toddlers to tweens, tweens to teens, teenage years, and then college years.
The lessons around delaying gratification during the toddler years.
During the tween years, the importance of budgeting and linking earning to saving, the concept of opportunity costs.
During the teenage years, lessons around reinforcing earning, budgeting, and saving, lessons around compound interest, and lessons around college expenses.
And finally, in the college years, lessons around credit and credit scores.
I hope that makes sense.
That’s currently where my thinking is when it comes to teaching kids about money.
And again, it’s synthesizing a lot of things that I’ve been reading and conversations that I’ve been having.
And I’d love to also hear your thoughts.
What are your philosophies and what are your disagreements or agreements that you have about teaching your own kids about money after you’ve heard the framework I’ve laid out in today’s episode?
I’d love to hear from you. Please leave a comment in the show notes page, and let’s have a conversation about it.
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Related: be sure to also check out our post on: How to make sure the cost of college doesn’t ruin your kid’s future