I am not a money genius. I’ve racked up credit card debt (then painfully slowly paid it off), failed to save as much as I know I’m supposed to and regularly forget to add my daily latte (OK, and croissant) into my budget. I could be worse off, true, but the point is, I want my son to be more than “could be worse” — I want him to be a money genius. So where’s a financial dummy like me to start?
Well, for starters, by talking to Beth Kobliner, The New York Times best-selling author of Get a Financial Life — and now the forthcoming Make Your Kid a Money Genius.
SheKnows: What is the No. 1 mistake parents make with their kids regarding financial literacy?
Beth Kobliner: Silence. Did you know parents would rather talk about sex or drugs than explain how credit cards work or why saving money is a good thing — or any other money topic, for that matter? Parents who avoid the subject are missing out on the key years when kids start to absorb ideas and habits about money. By age 3, they can understand simple money concepts like value (that’s why we have to pay for it) and exchange (I give them the plastic, they give us the cookies). By 7, a lot of the financial habits they’ll carry through life are already set.
SK: Should you tell your child about your salary/the state of your finances? Why or why not?
BK: These are two different questions, really. As far as your salary goes: no. Your kids don’t need to know exactly how much you make, mostly because they won’t know what to do with the number (except maybe tell their third-grade teacher). Instead, give your kid a sense of where your family falls compared to the rest of the country — the median income for families with kids in the U.S. is about $65,000.
Letting your kid know that “we earn more than what many families earn” or saying “we need to stick to a budget because we earn less than many families” gives some context. As for your financial situation: it depends on the age of your kid. If you lose your job, say, you might reassure a younger kid that you’ll still have food and a place to live, “but we need to cut back on clothes spending and buying apps.” For a high schooler, it’s appropriate to say, “We are still going to send you to college, but I’ve looked at the financial aid offerings, and we’ll need to make decisions together.”
SK: How do you give your child some incentive to save?
BK: What has your kid been asking you for over the last week? (Day? Minute?) A trip to Claire’s? A new LEGO set? A new Shopkins? Now is your chance to say (in a calm indoor voice), “OK, you can save up for that.” Whether it’s from the allowance you give your little one(s) [see question below] or from birthday/holiday money from Grandma, having them save for something they want (and perhaps offering some matching money, like 50 cents for each dollar) is a great way to make savings happen.
SK: How do you figure out a reasonable allowance?
BK: So many people prattle on and on about the “right” way to do allowance. So I looked at a bunch of studies. The answer: You don’t need to give allowance to give your kids good money skills. In fact, there’s no clear answer on whether giving allowance is an undeniably smart move.
What is smart? Be clear and consistent with whatever rules you set up with your kids about money. Don’t yell one day, “OMG, you are spoiled, and I will never buy you a (fill-in-the-blank) again!” And then the next day feel sorry for your little sweetie pie and bring that same thing home as a surprise after work! Better not to make any big pronouncements than to make them and go back on them!
Two more pieces of advice: Use cash. There are lots of super-cool-sounding ways to give kids money: allowance apps, debit cards — you name it. But work out of MIT (smart enough for you?) found that people were willing to spend roughly twice as much when they paid with plastic than with dollars! Cash makes that moment at the register more real.
Also, don’t give allowance in exchange for your kid doing household chores. It should be part of her “job” of being in the family.