10 Things I Want My Kids to Learn About Money Before They’re Adults

Here lately, I’ve been thinking more about the legacy I want to leave my kids. Maybe it’s because I’ve experienced the death of my mom and grandfather in the last year, and I’ve reflected on the many lessons they taught me.

Unfortunately, I ignored many of their lessons with regard to money and spent much of my 20s digging out of debt. I certainly don’t want my own children to repeat these mistakes, and I believe it may be harder for them to dig out.

1920s Photograph by Rennett Stowe on Flickr

With all the economic turmoil going on, I realize being fiscally responsible will be more important (and more difficult) for my children as they grow into adulthood.

Parents have always had to battle things like unrealistic media portrayals and an overall culture of consumerism. But layer on top of that the ridiculous levels of debt we’ve piled up as a country, and their future looks a little less certain.

Put another way, our kids probably won’t have the backstop we had. It’s doubtful social security will be around. Who knows where health care will wind up. Taxes are likely to be higher, and at least in the near term (meaning the next 5-10 years), things will probably cost more thanks to inflation, currency devaluation or some combination.

But it isn’t all negative. There will still be opportunities for our kids. People will still be needed to teach, to build things, to design building and bridges and roads, to provide health care and nursing and rehabilitation. To work on cars, to serve in the military, etc, etc.

However, to take advantage of those opportunities, our kids must first set themselves up for success. With all that in mind, I offer up:

10 Things I am Trying to Teach My Kids About Money Before They Reach Adulthood

1. No one owes you a thing. Too many people go through their entire lives with the expectation they are owed something. This is not the case, or at least it shouldn’t be. All you should ever expect is to be judged, compensated and respected based on your work ethic and your ability to create, inspire and hustle.

2. Debt is a cancer. Debt is a cancer on our society, on households, and on us as individuals. It saps creativity. It creates pessimism. It robs your future dollars. It limits your freedom. Avoid debt like the plague. Remember the old adage:

“He who understands interest – earns it. He who doesn’t understand interest – pays it.”

3. Save for emergencies…big emergencies. When you are young and many years from considering retirement (and not earning much), it’s tough to save money. But I have discovered no softer pillow than having money in the bank for emergencies. Aim to save about a year of your basic living expenses in a simple savings account (no risky investments here). With a one-year cushion, you’ll be able to weather storms many others will not.

4. Live simply. In 2011, life seems pretty complicated. By the time you are adults, I imagine it will be even more so. There will be new gadgets and toys and cool services and “got to haves.” The problem is, all these things compete for your earnings. I’m not advocating living like a pauper, but limit yourself to only a few of life’s luxuries.

5. Sleep on big financial decisions. When it comes time to buy a car, or a house, or book your first major vacation as a family, sleep on the plans for a couple nights. People selling you these things want you to act immediately to lock in their commission, as I would expect them to, but remember that you are the one who has to pay the bill. Some of my biggest financial regrets came because of a knee-jerk reaction. Be slow. Be methodical. Listen to your gut.

6. Protect your credit. Not because you hope to borrow money, but because you may find people extending a service to you may do so for less cost if they think you aren’t a big risk. And if those people don’t know you well, your credit score may be their only determining factor. It’s not necessarily fair, but it’s a part of life. Credit blemishes can hang around for a decade, so it’s best to avoid them in the first place.

7. Learn to do things yourself, but don’t be afraid to call in the experts. You may remember the time your dad rescued a toy from the toilet trap, saving us an expensive plumbing repair bill. Or the time I climbed up in the attic to unclog the air conditioner drain. But your dad knows his limitations, and calls in the experts when necessary. That’s what emergency savings are for.

8. Shallow people judge your things, real friends judge your character. Some of the saddest, loneliest people I’ve ever known have been surrounded by the nicest things money can buy. They often acquired these things to impress people they thought mattered, and in many cases it did – temporarily. Meaningful relationships are based on things money cannot buy: trust, respect, integrity, compassion, love.

9. Don’t trade the things you care about for a big salary. Remember what mattered to you most when you were a kid: Family, fun, dreams. These things should remain important to you as a grown-up, but often adults sacrifice these things to earn a big salary. Now, everyone has to sacrifice some to earn a living, but by learning to be content, you may be able to earn a comfortable living while still enjoying other things.

10. Start saving early. Remember those money games we used to play when you were a kid? One of them was an attempt to get you to understand one of the great financial wonders of the world: compound interest. You see, when you save money you earn interest on it. The next month you earn interest on the money you first put in, plus the interest you earned the month before. That’s right; you earn interest on interest. Now carry out that example for many years, even decades, and you can understand how some people are able to accumulate wealth. The trick is, you have to start early.

Parents, consider opening a kid’s savings account to get them started early. Our kids deposit a portion of allowance earnings every couple weeks and it has taught them a lot about the mechanics of banking – completing a deposit slip, balancing their savings register, etc.

Finally, keep in mind something your great grandfather taught your dad about finding balance. Be frugal, but remember to occasionally stop and smell the roses. Life is short, and it is meant to be enjoyed. Take an expensive vacation every now and then. Buy something of your “heart’s desire,” even if it doesn’t make sense financially. Be frugal in other areas of your life to make room for things you truly enjoy.

This post was included in the Family Finance Carnival at About.com: Kids and Money

Comments

  1. Excellent advice. I have to agree with all 10 of these items, and I’ll probably use them when teaching my son and daughter.

    I have just one issue, though. Can we stop saying social security will be “gone”? It won’t become zero. It will just be limited paying out what it’s taking in (there will always be payroll taxes) and will be less then it is now, more than likely, but it will still be there.

    • Fair enough, but my expectation is it will be greatly reduced for my generation and likely zero by the time my kids retire. Social security is, in my opinion, an unsustainable entitlement given the increase in those reaching retirement age and the lack of growth in the workforce to sustain those retirees.

  2. Hi Jason,

    I thought this would end up being the usual advice but you’ve definitely provided a fresh take on this. I love how you lead with #1 as feeling entitled is just a hop, skip and a jump away from being in debt because you “deserved” those grown up toys you bought but couldn’t afford.

    I also really loved #6 as not too many people explain how this can help you get a better deal when buying a house. People hear that they need good credit to get a loan but don’t always drill down to the next step which is the difference in loans that are offered to people with different credit levels.

    My only quibble would be the advice to save for a year of living expenses. That sounds overwhelming to most people and so they don’t do anything. Maybe there’s a way to tell people to start with a month. When you’ve got that in place, keep building it up, but start with a month. For most people, once they’ve achieved that first month, they realize they can keep on saving and they’ve developed a good habit

    Suzanne

  3. Excellent post. As personal finance bloggers (and readers) we have all this knowledge that we’ve gained, and know what we would have done if we were younger. Perfect opportunity to put that in place with our kids.

    All really good points above. I think #1 and #2 are especially salient – individual responsibility and understanding the true impact of debt are great teachings to pass on to children that could significantly impact their lives.

  4. “He who understands interest – earns it. He who doesn’t understand interest – pays it.”

    That is a lovely quote!

    I would teach my kid the power of selling over buying! eBay could be bad if you are shopping addict, but not if you are on eBay for selling!

    • I have raised 3 sons and 1 daughter ages varying 20 thru 36 years old. I agree with you absolutely and I raised my kids with this notion. For example when the designer tennis came out I let them know that we could afford to buy them, but I wasn’t going to waste that kind of money just to keep up with other kids. I instilled in them constantly they didn’t need materialistic things like that to make them the spectacuclar people they already were. When I sat them down and talked to them they understood. Until this day all 4 of them are really more frugal than I am. We had television in the family room and not in their bedrooms. This resulted in them spending more time learning to play chess or other games. They even admitted to me when they grew up they would sneak and read with a flashlight at bedtime. My final words, I was firm and explained to them they were only loaned to me by God and I was doing what I felt God would have me to do, so take it up with him. Hope this helps some, hang in there and instill in your children what I spoke about, yes, they are different, they are special and you’ll find they are much more mature than you think. It is a proud parent to have 4 decent, self-confident, of good character adults that are self-sufficient.
      I smile daily in wonder.

  5. Excellent post Jason. Like most, the majority of this advice was passed on to me, but I failed to appreciate it. As a consequence I’m learning the error of my ways the hard way. You’ve articulated the points very nicely and I will be keep them at the tip of my mind to pass on to my kinds. Hopefully I’ll do a better job at ensuring they learn the concepts.

    Once again thanks, excellent post!

  6. I couldn’t agree more with point 9. I’ve known a few people who have forgotten how to have hobbies and fun in their spare time because they’ve gotten lost in the ‘big salary’ mentality.

    Great article. Thanks.

  7. Very nice and concise! There’s lots of confusion about money and the love of money and the having and not having and envy and whatnot. Turns out it’s handy to have here in this life. In fact,it’s pretty hard get anything done without it. :) Good read!

  8. This should be mandatory reading for all new parents, and all graduating seniors, and pretty much anyone else who wasn’t raised with this knowledge being drilled into them on a daily basis. Well written!

  9. Truly enjoyed reading this today and will definitely be sharing this with my kids. So much of life involves staying balanced, using common sense and really thinking through the consequences of our actions. You have definitely applied these to the financial world. I especially like #8 (Shallow people judge your things, real friends judge your character.) and could name countless examples of it throughout my life. Great lessons for kids!

  10. Great article! I love the part about debt being a cancer because I completely agree. The sooner you get rid of debt, the more options that you have, and the better off you will be. Keep up the great posts! Look forward to reading more.

  11. Absolutely wonderful advice. I’m a teenager, and I’ve been following rules like these for about 8 years. As a result, I’m doing quite well in the money department. My friends and I sometimes discuss money, and I’m always quite shocked to hear them brag about having $60 in the bank.

  12. This goes along with your “no one owes you a thing” point …I find it amazing how a lot of people in my age group think that they “deserve” this or that. I always hear, “well he got this job so I should be able to get that too” or “she has an iPhone 4 so I can buy one too.” And that isn’t 12 year-olds talking either …this is people in their mid to late 20s. The only thing they deserve is a smack upside the head.

    This is a great list. I wish I followed them better than I do. The only one I think I do really well at is to live simply. That’s a start I suppose.

  13. Thank you! This site continues to amaze me. I have watched friends of the family triple mortgage themselves to pay for their children’s cars and cell phones (their children are ages 26, 24, and 20 years old), and I shudder to think what those “kids” are going to do when they finally have to support themselves… Good for you for helping your kids learn to be independent and for sharing these tips!

  14. Great one :)
    Try to explain the concept of having “enough”… not too little, certainly not too much, but just “enough”…. once that concept is in, the rest is a cinch! :)

    I put things on my “want list” for 6 months…. the list hangs inside the kitchen cupboard… often times, in six months, I no longer have a need for the item, have found one free, been given one, or found it on sale. Has saved a lot of money over the years…. and about 1 out of 3 have just been crossed off!

    • I like that strategy. I do something similar with Amazon.com. I’ll put things in my wishlist and then intentionally “forget” about it for a few weeks. When I go back in I ask myself, “Why did I want that?” Every now and then something makes the cut and I order it if the price is right.

      Obviously, there is a danger to my strategy in that online buying can cause one to be more impulsive than an offline wish list.

  15. Wonderful post! I so wish I had learned these things when I was growing up and I am determined to instill these values in mine.

    Thank you for such a great summary of the important aspects of financial responsibility!

  16. All excellent things that was ingrained into me growing up by my own dad, my own personal financial hero. I couldn’t agree more with “no one owes you anything”. I started work at fifteen, bought my own car, paid for my own cell phone, and although I only paid for part of my college tuition, I was initially expected to pay for it all my own. Not that my parents’ didn’t want to help me, but they helped by offering free room and board as long as I was going to school/working. Plus all the emotional support! My sister in law is the exact opposite. My in-laws have always taken care of her and now she is 21, with my 3 year old niece, back living at home and paying for absolutely nothing. My in laws pay for everything for her and my niece and lend her money whenever she wants, and she just expects everything to be handed to her on a silver platter and gets angry when my mother in law suggests she pay $150 a month for rent and food…it really kind of disgusts me.

  17. Hey Jason! I’ve just read your post about How To Not Suck At Everything, and i can only say: Thank you so much! That article made me get mine spirit at peace again, You see, I’m from Brazil, and for a long time I’ve been telling myself that I’m not good at a single thing that i do, when that’s not true, i can see clearly now that many people love me because of the many qualities i have. For quiet a time, I’ve been envolved in action sports, like skateboarding, surfing and bmxing, because i can relate to those people that pratice those sports in a much deeper way than with any other person, and i always told myself: “YOU SUCK, GO HOME KID” but it’s definetly not like that, and it will never be, I’m grateful for even being able to pratice those sports, if even the slightest heart problem appeared, i was done with everything, your article had a very good timing too, because i just started a clothing company for Urban/BMX clothing, and i need that hunger to go forward and be succesful, so, thank you Jason! If i may say, you should write a book about it, you definetly got yourself a reader. THANK YOU.

  18. I think the kids should learn how to earn their money and appreciate the money they have so they don’t waste more money on it when they grow up.

  19. Your kids will establish good life habits more by modeling your behavior than they will listening to anyone telling them what they should do!!!!! If you want to teach them these ten things, your family must live them while talking about them.

    Kids also learn by trying things and failing once in a while. Give your kids a goodly allowance (they should earn some of it) and let them budget for and buy their own things. This way they can get to practice delayed gratification, get to learn to make the good choices.

    When ever our kids wanted to stop on the way home for a burger, we’d ask them if they were going to pay for it out of their savings. It usually wasn’t that important to them. We also let them make their own school lunches with family purchased food, or buy hot lunches out of their allowance. Multiply these kinds of day-to-day decision making choices over many years and they will learn what it means to manage money, and that it doesn’t grow on trees.

  20. I disagree with the part about debt. There is good debt and bad debt. Debt can be a powerful tool for leveraging investments.

  21. I agree with #2 about debt for consumers for most things except your primary residence which most people could not afford without a mortgage. Most other debt is a drag on your personal financial performance. But for business and investing the proper analysis can create powerful positive leverage. Read more at my blog http://bit.ly/9EXYTY

  22. Okay, I stopped at #1 because it made me SO happy. As far as I’m concerned 1-10 could read NO ONE OWES YOU A THING. I’m constantly amazed at how many of my friends and acquaintances don’t believe this. As a child of an immigrant single mother I learned this lesson very, very early and quickly.

    Okay, now I’ll read the rest of the points. Thank you for GETTING IT!

  23. I saw a few other comments mention prepaid and I think it is def the best way to go if you are thinking of getting your kid a cell phone – to me its the only way a parent, rather a contract/company, are in control. If you do decide to put your kids on a prepaid network, I really advise doing the work because while the deals can be great, you need to also make sure the network itself is a good one and that the phone options work for both parent and child. I’m a prepaid customer myself so it was no-brainer that with my daughter turning 13 during December and me promising her a phone, I would naturally bring her onto my network, but with a few less options. First off, I have an unlimited use plan and I felt she didn’t need that kind of option so instead of paying the $45 I pay, I pay $30 a month for her so its a combinded $75 with Straight Talk. She has 1,000 minutes and texts and while some might think that is too many, I find she has been very responsible with it so far and I don’t think she can burn through it in one month – either way, the monthly renewal will not kick in till the next month so there is a def way to add some parental control. The phone itself is the BEST way to exert some control because while my daughter LOVES my Samsung Smart Phone, there was no way I was going to get her a $200+ phone at her age and I was lucky that company I chose had some better priced options. You can’t let the kid dictate the terms is how I feel.

  24. Great tips. Not that I ma ever going to have kids though. I really do fear for the world that we are leaving them. re debt – it seems to be the normal thing now and is encouraged by society every single day.

  25. @ I Was A Successful Dad: Awesome advice. Kids should learn this stuff by really living it, not by learning “about” it from lectures. They often won’t believe it until the feel the goodness of the advice firsthand.

    Frugal Dad: I would say that your #10 is really #1. Being able to control money, divert it into savings, investing, consumption at will is critical. And the earlier you do this, the wealthier you’ll be. It’s amazing how quickly the years slip by. A year earlier or later at the beginning doesn’t seem like such a big deal, but you add a few of them up and by the time you’re in middle age or close to retirement you may have saved up regrets instead of money.

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