This post is sponsored by Lexington Law.
As a former higher education administrator and now consultant for organizations who have younger employees; I’ve seen firsthand the impact of poor financial decisions. As a young professional trying to navigate this whole “adulting” thing it can be tough and not knowing what to ask or who to ask can be embarrassing. My husband and I were fortunate to grow up with parents who instilled financial literacy in our homes, but many others are not as lucky. We both feel strongly about providing this type of education to our kids as we’ve seen the benefits and the downside of not being “ready” in the real world.
Unfortunately, decisions that we make when we’re just starting out can impact many things throughout our lives. I’ve seen twenty somethings with huge credit card debt not be able to rent apartments, others with student debt so high they were on a strict Ramen diet for months at a time, and much worse.
With two kids (6 and 9) we’ve tried several ways to talk to our kids about money. While we’re by no means perfect, we’re slowly making progress. Our son (6) used to think that 100 pennies was better than a dollar bill and our daughter (9) thought you rounded down when an item was between dollar amounts. For a doll priced at $9.99, she would assume it was $9 and insist she had another dollar to spend. Through our conversations and suggestions below, we were able to help them understand that money is finite. It’s not something you can just get more of and you have to work hard to understand how your financial choices can impact your future.
Talk in terms they understand.
While the concept of budgeting and credit scores is something that’s even difficult for adults to grasp, it can be like speaking another language to a child. When we talk above their ability to understand, it’s hard to make progress (or for them even to listen).
For example, when you’re trying to explain credit cards (what my daughter used to think was a magical card), you can use a report card analogy. By using this analogy you’re providing something that they can relate to and makes it easier to understand.
To do this, you have to make a connection between grades (report card/tests) and the “grades” (credit score) that we’re given by credit bureaus. You can explain how having poor grades can limit your options and how having a poor credit score can do the same. They might not be able to live where they want, buy a car, or do something else they might be excited about. This example can change based on the age of your child. For my kids, a poor grade or not doing their best may lead us to not get a celebratory ice cream cone.
Practical examples of how we save money.
Even with hypothetical examples they can understand, it’s also good to give them more practical, hands on experiences. What something costs, how much you save, and even what $5 looks like in change; makes zero sense to kids without an example. I use everyday decisions to bring in solid examples of budgeting and saving in action.
I’m a huge fan of packing lunches for busy days out versus stopping for fast food and bringing reusable water bottles to refill. When our kids ask to go through a drive through, I explain why we pack lunches, how much those prepacked lunches cost versus the cost of a kids meal. I take that one step further and associate this concept with an item they want (a small pack of Pokemon cards versus a tin of cards).
And during our regular trips to the grocery store, I talk to them about the brand and food choices we make. Why we choose a generic item versus name brand or why we’re skipping an item that’s not on sale. After both of these scenarios, we talk about where the money we save from making these choices went (camp, sports, afterschool activities). These small conversations have helped my kids better understand why we make the choices we make.
Reward good financial choices.
Growing up my husband’s parents would match the amount he chose to donate or put in his bank account to save. If he donated $10 to the SPCA, they would also donate $10. If he put half of his birthday money in the bank, they matched that amount. This was a great incentive for him to save and to give back to the community. We started doing the same thing with our kids and they’re able to see how their money is making an impact.
Show them actually what happens.
My daughter lost most of her teeth in a relatively short period of time and combining that with some birthday money; she had a small bit of cash. We talked to her about opening up a back account, what that meant, and how this can incrementally help her money grow. Since she mainly went with us through the drive through, we made it a point to take her inside the bank and learn how to fill out deposit forms. She took her money, helped with the form, and then handed it to the bank teller. She was part of the process from start to finish. In school, she also recently learned how to write a check and that’s something I didn’t learn until I was on my own and too embarrassed to ask about.
We also help her keep track of her account through our bank’s app. She can see her money grow (even if it’s at a slow pace). It took a little while for her to understand that we can’t go to the bank and visit her actual money but showing and using the app has made it more practical. She now knows the process for putting money in the bank and taking it out if she needs to.
Save. Donate. Spend.
Many kids are visual learners and it’s a lot easier to understand when they can actually see their money. We recently bought a bank with three slots: spend, save, donate. When they get money for any reason, they distribute it into these three areas. This helps them see the money grow and know that they’re making a conscious decision to save for something they want, make a short-term purchase, and donate to a cause they’re interested in. If we would just say we were doing this and not having them do it themselves and actually be able to see their progress, I don’t think it would hit home as much.
Have them use their money to buy things.
This might sound obvious, but it’s something that we just started doing with our kids. If they wanted something or had been asking for it, we would usually get it for them for their birthday or holidays (within reason). We didn’t really buy “presents” just because especially if it was something they didn’t need. Since Pokemon cards seem to be the big thing in our house, our kids are always wanting them to trade with their friends. Now, if they want them, we have a conversation about it and if they choose to use their “spend” money, they can. When they see the money from the bank decreasing and know how much work it will be to add it back it, it changes their mindset about making that purchase.
Explain the waiting game.
In the world of instant gratification, this one can be tough to process. My 6yo desperately wanted a book and was disappointed when it was on backorder and we couldn’t get it for two days versus an Amazon instant delivery.
We make it a point to sit down with our kids to explain that as much as you might want something, it can take time. Time to save and time to fix financial mistakes if you’ve made poor choices. While not all of these talks hit home, over time they’ve helped temper their expectations. If there’s something they want and think they need now but don’t have the money for it, we talk about if that thing is worth waiting for. Having those visual banks also really helps with this process.
Make it fun.
I’ll admit, budgeting and talks about money are not my favorite past times but being fiscally responsible is something I really want to instill with our kids. We don’t want to make talking about money a bad thing and only bring it up when they do something wrong. It’s something we reward and have real conversations about early on. The more educated they are now, the more likely they are to live more financially responsible futures.
While talking to our kids about money is important, we also need to understand where we stand as adults. One of the first (and most often overlooked) steps, is to get a better grasp on our finances. Pulling your credit report, understanding your score, and fixing any inaccuracies is essential. When we have a better grasp on where we stand and make an active effort to increase our scores; we’re setting an even better example for our kids. We’re also able to learn from our mistakes and provide them with a real financial education. The professionals at Lexington Law can provide you with personalized assistance to help you understand your credit score and repair your credit. Two things that will help you be an even better example for your kids!