I’m sure you can recite off some of the famous money sayings that we all likely heard growing up. “A penny saved is a penny earned” was one. “Money doesn’t grow on trees” is another one I can recall hearing as a youngster. Childhood is that impressionable period in our lives where we soak up information like a sponge. My parents did an amazing job of raising two boys who went on to be successful men and understood the importance of finance. As a millennial parent raising two Generation Z daughters, I want them to be armed with even more financial knowledge than even I had growing up. So with the technology overload that is their daily life, how do you work in these same important money lessons that many of us had growing up?
Family Dinner Finance Talk
A few months ago, we started what has turned out to be a very fun time on Sunday mornings. We call it “Family Finance Breakfast Chat” and the girls get to pick the money topics that we discuss that day. As you can imagine, this was not an initial hit, especially with the teenage daughter who responded with a plethora of eye-rolls. But as time went on, she started to ask some questions too and seems to be appreciative of the lectures and rants I sometimes go on with certain topics.
We discuss a variety of things including taxes, stocks, mutual funds, and even student loans. One Sunday, we charted out an entire scenario for the 9-year-old as she was planning on what she would do with the income from her first job. She loves to repeat back her understanding of the discussion to make sure she is grasping it. It was a very detailed and realistic example of how you would take a beginning paycheck and spread the limited resources to pay back a potential student loan, a car loan, and buy your first house at the same time. Make it fun for them. We often draw pictures, basic graphs and use round numbers to keep it on their level. Don’t use acronyms and explain difficult concepts such as dividend reinvestment plans using easy to grasp terminology. Let them ask questions and stay engaged.
Make Them Part of the Solution
In our household, there are no taboo topics when it comes to finance. They understand the economic theory of limited resources and how that impacts household spending. Now that doesn’t mean they don’t ask for things that are unreasonable at times and we are still working to get the oldest daughter on a path of consistent chores related to a monthly allowance. But it’s a work in progress and they are part of that process.
Sharing a really good idea we gleaned from William Bernstein’s “The Four Pillars of Investing”, we’re planning to turn over the quarterly review of their college brokerage accounts back to the girls. I can’t think of a better exercise than engaging with them to understand the various mutual funds and ETFs that they own and how these have either lost or gained money over time. And nothing gets me more excited than helping them understand how the dividends are paid out and then re-invested to compound those gains over time. I had to laugh as we were reviewing one of the ETFs one of the youngest daughters owns. She was appalled to learn that it had McDonald’s holdings in the portfolio as she has sworn off that restaurant from her own personal list of approved eateries. I had to explain the rest of the portfolio holdings to talk her down from the “sell” cliff she had quickly found herself on. She took comfort in seeing Nike and Disney as part of the Top 10 holdings and decided to hang on to the ETF after all.
Help them Understand Major Pitfalls
I can vividly recall my first week on a college campus and the bombardment of offers from credit card companies eager to sign up unsuspecting new freshman. Luckily I had been warned of the perils of opening a credit card with limited income streams in your late teens. This same lesson will be engrained with my kids before they ever leave for school. Nothing could be worse than watching helplessly as your children struggle through a high interest rate credit card, car loan, a payday loan, or other financial mistake that they had no idea how to handle.
Student loans have become a necessary evil for many college aged students in an effort to obtain the increasingly expensive college education. Unfortunately, we see many students pile on expenses to cover their lifestyle until the balance becomes unaffordable for the entry-level job awaiting them on the other side of graduation. The earlier they can understand how loans in general work and how to balance a basic budget, the better prepared they can be to make these life decisions.
Bring it Home
Kids are going to grow up and they will eventually be able to make their own decisions, even financial ones. Equipping them with the tools and knowledge they need to handle their financial matters is some of the best time you can spend with your children. It will pay dividends in their future well-being in more ways than you can imagine. And you might just have some fun with it at the same time.
–The Fiscal Savant–
*Disclaimer-The information contained within is the opinion of the editor and should not be construed as financial advice. Enjoy our articles for what they are and consult with financial professionals for tax and investment advice. We may be long or short in any of the companies discussed in any article.