Here’s an example of how a typical conversation about money goes in my house: My six-year-old son, Joseph, was recently given $20 by a relative for his birthday. “Wow, I could buy a lot of jelly beans and Yu-Gi-Oh! cards with this!” he said excitedly. “When can I go shopping?” My reaction: “It’s his birthday money, he can do what he wants with it.” But my husband, Joe, disagreed: “He just had a party and got lots of presents. That money needs to go in the bank.”
“But it’s his money,” I countered. “Shouldn’t he be able to do what he wants with it?” Joe lowered his voice. “Do you really want to pass your terrible spending habits onto him?” I raised mine. “Do you really want him to be as financially fanatical as you are?”
Admittedly, I don’t know the first thing about saving money. I see nothing wrong with my impulse purchases, and I rely on Joe to keep us afloat in terms of organizing mortgage and bill payments. And while he can balance a spreadsheet and has some savvy investing skills, he hates parting ways with money — even for necessities. (He wears those free sunglasses they send you when you order contact lenses online, instead of buying a proper pair.)
We certainly don’t want to upset or confuse our kids with our bickering, and we also want them to have more balanced attitudes than we do. So we turned to the experts — Globe & Mail personal finance columnist Rob Carrick, and money-savvy parents — to help us find the right approach.
Lessons in value
Olga Geryluk, a Toronto mom of three, noticed that because she was paying for most purchases with a debit or credit card, her kids didn’t seem to understand that actual money was exchanging hands. “When they started asking if they could take our cards into a store and get whatever they wanted, we realized we needed to start teaching the kids more about what money really means,” she says.
Geryluk and her husband began by letting the kids handle coins and bills and explaining what they were worth and what kinds of things each could buy. They also discussed what it would take to work for that money at home. “For example, we told the kids that if they wanted to earn paper money, they would need to do something big, like wash the car,” says Geryluk.
Tara Marshall* from Toronto says she and her husband often initiate family discussions about the value of experiences (like day trips, museum visits or vacations) versus the accumulation of “stuff” with their six-year-old twins, Robert and Catherine. “Talking to the kids about the idea that some items, like bubble blowers, have less value than books, has affected how they make spending choices,” says Marshall. The twins might sometimes forgo a cheaper item in favour of saving up for something more valuable; for example, now they’ll often pick an experience or a toy off of their wish list to save for, instead of buying something cheap at the dollar store. (But not always. They’re kids! Marshall says that Robert in particular often opts for the instant gratification because it’s simply part of his personality.)
Money of their own
Joe and I agree on giving the kids an allowance, but not on how we can use it as a teaching tool. Carrick told me that allowance is indeed an integral part of financial education, and that we should start sooner rather than later. “You can’t learn about money if you don’t have any,” he says.
Carrick suggests kids should be allowed a certain percentage for spending (some families employ a system where their children can spend a third, save a third and donate a third to charity) and great care should be taken with the money that is being saved. “I suggest opening a bank account as soon as your child can read and write,” says Carrick. Spending money can be kept at home in a piggy bank to give kids a tactile experience, but what’s in the bank can be used to teach kids about the way it adds up when it’s saved. You can use online banking sites to make sure your kids understand that the money exists somewhere.
Good advice. Too often, we see Joseph’s loonies and toonies scattered around his room because he decided to use them as pirate treasure. Our five-year-old daughter, Maia, fills her little purses with coins and small bills, and then leaves them at the park.
Spending versus saving
Recently, Joseph informed us that he was going to start saving up for the Lego Death Star. It’s the ultimate set. It’s also five-hundred dollars.
“No way,” my husband said automatically. “You are never going to be allowed to spend that much money on Lego; it’s just going to end up broken and lost.” I disagreed. If he managed to save up all that money, who were we to control what he spent it on? “He shouldn’t spend it at all. He should just keep saving until he finds something of real value,” said Joe. “But to a six-year-old, nothing is more valuable than the Death Star,” I countered. We were at a stalemate once again.
“You have to let kids learn some stuff on their own,” says Carrick. “You can set guidelines and give examples, but you cannot rewire their brains. You may need to let your kids spend some money on useless things in order to figure out that if they spend money on useless things, they won’t be able to save for what they really want.” And, he adds, our son is clearly already exhibiting signs of being a natural saver; we’re probably not going to have problems encouraging him to delay gratification when it comes to money (hurray!).
Still, there’s a problem: Allowing him to spend all he saves does not teach him other important things about money, such as donating to charity, and it’s certainly not a balanced approach. We decided to sit down with him and explain that even if he saved all his allowances and asked for money or gift cards for Christmas and on birthdays, it would still take about two years to make his Death Star dream come true. He thought about it and decided he wasn’t that interested, and now he’s freely spending half of his allowance (on junk, admittedly, but Joe has been forced to concede that a little autonomy is an important part of growing up) and saving half in a bank account. And every month, we take turns choosing a charity to support and the kids each take some money out of the bank to contribute.
Communication is key
Ultimately, we need to model the right behaviours to teach our children good financial habits, says Carrick. Marshall is a pro at this. “The kids see me categorizing our spending on an Excel spreadsheet and we talk about budgeting and tracking where your money goes, and how it’s a good way to keep yourself in check when spending gets too high,” she says. She and her husband involve the kids in trips to the bank, too. “They come with us when we talk to our financial advisor about Registered Education Savings Plans, and although they don’t stay with us through the entire meeting (they’d rather watch the TV in the lobby), they understand that we’re there arranging savings for their university education.”
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She’s got it right, says Carrick. “You need to show that you’re comfortable and competent with money, and that it’s not a forbidden topic or source of shame.”
What this means for Joe and me is first setting aside time to face our own issues — my lack of planning and forethought and his anti-spending hang-ups — head on. When we’re able to have rational discussions with each other, then we’ll start including our kids in the conversations, too.
*Names have been changed
A version of this article appeared in our November 2013 issue with the headline “Money Talks.”