E16: How to Teach Kids About Money

Nate: In this episode, we will discuss the three biggest mistakes parents make when teaching their kids about money, and what you can do instead to help them have a healthy relationship with money. She’s Holly, and she helps people find financial freedom.

Holly: He’s Nate. He makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered. Episode 16. All right,

Nate: Holly. It’s good to be back, and today’s a pretty interesting topic because I guess it probably can be subjective. Each person has their own goals to teach with their kids, but there’s some pretty common mistakes that people can make when teaching their kids about money that really everybody can probably agree with to a certain extent. That’s really kind of what we wanted to get into today. Holly, you’ve got three girls and I’m sure it’s fun teaching them about money. You’re in the money business. So am I, so we get the pleasure of having this be on our mind all the time. We may do a better job. We maybe do a worse job. I don’t really know, but how has your experience been with your kids?

Holly: I think that I have learned over time the importance of first practice what you preach, so often times we don’t practice what we preach. Our kids maybe always see you buying something. I’m going to use a perfect example. One of the things is to save money, whether that be for a vacation, or a trip, or that car you want to buy, whatever that is that you’re actually putting money away in savings. If your kids actually never see you doing it, then they have this mentality that it doesn’t really exist. Yes, maybe you’re saving money, but they have no idea how, or are they saving money, or how does that work? Just a couple years ago, my daughters were out somewhere, and they said, “Hey, Mom. I want to buy something.” I said, “No, I don’t have any cash,” which means I literally didn’t have any cash. My oldest daughter says, “Oh, well, just whip out that plastic card and swipe it,” and immediately I knew we had a problem with the reality of, just because you want it, to buy it, and you might not have the money or the cash to buy it, or maybe it’s not the right time to.

Her mentality was, you don’t have to have cash to buy it. You just have to have that plastic card and swipe it, and then we can buy it. The whole point of what I didn’t say to her, and what I should’ve said as practice what you preach, is we’d spent what we had allotted for the month, whether it be going out for meals, or buying toys, or whatever it is, that I didn’t want to spend the money to actually buy the item she wanted. My excuse was, I didn’t have the cash to buy it, not that I didn’t have the credit card to buy it, and so I wasn’t practicing what I was preaching, just in regards to being honest with her in saying, “No, you can’t have that, because we’ve already spent our budget for the month, and you’re gonna have to wait or save up for that.” I think practicing what you preach and actually showing them, so one of the things that we’ve started doing is showing them, this goes into savings every month.

They actually see what that is, with actually you’re putting in, and they can actually see that versus never seeing you do that. Just because you go to the bank doesn’t mean they understand what you’re doing, or ours is life insurance policy so that they actually see that money going in.

Nate: Yeah, and so the first mistake people do make is that we don’t practice what we preach, actions always really speak louder than words. If you keep on telling your kids, “Man, saving is a good thing, saving money, not spending every dime,” but if you end up finding yourself spending all the money that comes in, do you think that they’re going to follow the example, or do you think they’re going to follow the advice? Unfortunately, it’s normally the example.

Holly: Yeah. What is it? You can talk all you want, but you lead by example, so …

Nate: Every parent who has struggled financially doesn’t want their kids to make the same mistakes that you make, which is good. You can tell them, “Don’t make these mistakes,” but if you continue to make them, it really kind of sets up your kids to have a relationship with money that’s similar to yours, which may or may not be the best. If you’re preaching to them good ideas, but you don’t actually practice them yourselves, that can definitely come back to bite, especially I guess really bite your children when they’re trying to do what you say, but all they’ve ever seen is the reverse of that. Whether that’s saving, or making smart investment choices, or whatever it is, practice what you preach. Go through with it in your own life to show them what a healthy relationship looks like with money.

Holly: You might want to be dreaming. You dream with your kids all the time, but is that dream a reality? Are you dreaming for a house you know you could never afford, or are you being realistic with them and saying, “This is something that we could afford, and here’s why, and how it gets there.” It’s amazing to see that in action, and actually having those conversations with them, but then practicing that out actually literally with your actions of, I can go look at a $10 million house. Doesn’t mean I can afford a $10 million house.

Nate: Right, so first mistake is don’t practice what you preach. If that’s you, you may want to really try to follow through with what you’re encouraging your kids to learn and understand. The second mistake, Holly, we found a lot of the time, is that some parents never actually discuss any money matters with their kids. A pretty big mistake is, if you never talk about money, where do you think your kids are going to learn how to use it?

Holly: Yeah, they’re going to learn from everybody else, and really one of those ideals is, we have a lot of discussions, or things that are discussed now, or you used to say it’s discussed around the kitchen table. With so many people eating out, and families not sitting down even to meals or whatever, what is discussed at a table? Sometimes it’s that there’s electronics going on, and there’s no discussion going on, but having that discussion of what is money, that kids have to realize that it just doesn’t grow on a tree. I think if we never discuss money with our kids, and what is going on, then the kids don’t have a reality of what really is money, and what does it take to buy something, or to purchase something, so they grow up with this idea of, that Mom and Dad maybe work really hard, but we can have whatever we want, as if the money just appears magically.

Nate: Right. If you never discuss money with kids, as you’re saying, it can just seem kind of magical, or they just grow up without an understanding of what money is, and that’s … You find a lot of kids like that, as they go to college, and they’re trying to learn what money, how it really works, and they get bombarded with all these credit cards in the mail, people trying to get them to open up, and that’s why college graduates a lot of times don’t just graduate with student debt. They graduate with credit card debt because they really never knew what was okay to spend, what wasn’t. They never talked about it with their parents, and so they’re really just hoping for the best, and it’s … The easiest route forward is sometimes just to get into the credit card debt. The second biggest issue is normally, when parents just never really talk about it. That’s kind of the way that I grew up. My parents and I, we really never spoke about money. I was just blessed to learn about this whole infinite banking system, and be able to use it at a young age.

Who knows where I would’ve been if I hadn’t? We didn’t really talk much about money, and I want to make that change with my kids.

Holly: Yeah, and I think it’s important too, because if you don’t start discussing it, they don’t understand, why can’t we go on a vacation right now, or why can’t we do this? Then they get to, like you said, they get to high school or college and they have no concept of how money works. My daughter, her fifth grade class went to a field trip, and I was amazed at the number of kids … They supposedly got a paycheck for the day, and I was amazed at the number of kids I was supervising that came in, collected their paycheck, or even deposited it, so then they couldn’t even go buy anything that day, and they weren’t even worried about it. In the real world, when you’re working, that paycheck comes in, you have bills you have to pay, but their reality was they actually had to open up a savings account, and then they got fined if they didn’t, and stuff like that.

The reality of it was, most of them weren’t even bothered to get the paycheck to even go to the bank. They just wanted to go do whatever they wanted to do, and see all the other things, and not actually get the paycheck. I think that part of that even starts that age of not understanding how money works.

Nate: Yeah, because we just didn’t tell our kids what was going on, because there’s one thing of those that, as we said, rule number one or the mistake number one was if you don’t practice what you preach, and you tell them all these good ideas but you don’t do it. The other thing is also true is if you never tell them any good ideas at all, it’s probably actually worse than the first one, is for them to grow up clueless.

Holly: Yeah, and they’ll go to college, and if you think it’s wrong … Credit card companies send all kinds of advertisements to college students. Having worked in the past on college campuses, you would be amazed at how many credit card company advertisements and signups come through. I even saw one college student who actually took her student loan money, and she went and bought a car with it. She had the car, but she couldn’t pay for school, and her parents are like, “Well, where’s the money for your housing, and your tuition,” and she was like, “Oh, well I bought a car with it.”

Nate: Oh. Great. Just what we wanted to hear.

Holly: The reality that that loan actually had to be paid back, and then there was no money to go to school, and it was a catch 22. She’s like, “Nobody told me. I just thought it was my money to use however I wanted.”

Nate: Second mistake is when people never discuss money matters with kids. We’ll get on to a couple more and also some healthy ways to teach your kids after this short message from our sponsor, Living Wealth. Are you tired of being stressed about money? The Dollars and Nonsense Podcast is sponsored by Living Wealth. You can visit livingwealth.com/freedom to get your free smart money ebook and sign up for a personal wealth presentation today. Living Wealth is a family-owned and operated business which works with individuals, families, and even small businesses to slay the money stress dragon. Our clients receive individual coaching regarding wealth creation and how to create a retirement income. You’ll be enabled to have cash today and in the future. Since 1972, Living Wealth has been committed to educating smart people on basic money principles to assist them in becoming debt-free and finally find financial freedom. Let us help set you free. Remember to visit livingwealth.com/freedom to receive your free ebook and even sign up for an individual wealth presentation today.

All right, so Holly, we’ve been through the first two big mistakes when people don’t practice what they preach. You say good ideas, but you actually do all the bad ideas. That’s never a good idea. We also discuss when individuals never talk with their kids about money, and that can always harm them. They have no idea what it is or how to use it because their parents never taught them. The third one is, we can go a few ways with it, but one of the things I wanted to kind of think about is that we never really show them the value of saving up to afford something.

Holly: Yeah, and that’s really key, is kids today really, for the most part even with education, get to be able to go out and buy stuff, or they think that it doesn’t cost them anything, even going to school doesn’t cost anything. They don’t see the cost of maybe the school uniform, or to participate in sports or athletics, what you have to pay just to participate, because we’ve … Like we said, we never have discussed it. Actually showing them the value of saving up for something that they really want. Even at a young age, whether that be that car set, or Lego set maybe, or a Barbie doll, versus as they get older, a computer that they might want to buy, or an iPod, or the cost of that, because what we’ve tended to do in society is if our kids even want a cell phone, what do we go do? We go add them to our plan, and we get them a cell phone, and they don’t know the cost or the actual value of what that is because they’ve never had to save up to actually be able to afford something.

Nate: Right. Definitely. It can definitely happen whenever you take the easy way out as well. A lot of times, especially when kids are young, it’s easier just to get them what they want so they stop screaming in the store or something like that. It can definitely be the path of least resistance. It’s essentially never telling them no, or very unusually if they keep on saying, “We need this. We need this. We need this.” You just cave in. It’s hard for them to see the value of saving up for that, and that’s why for me and my kids, I’d rather go the route where they get an allowance for doing chores or something like that. Instead of them coming to me and asking for things, which I’m sure I’ll pay for things, but as far as when the kids come and ask, I would really encourage them, “Hey, I’m paying them this money,” and teach them with their money, on a small scale, what it’s like in the real life, not to just get handouts all the time. You don’t have to be too strict about it, but at least teach them, have them have an understanding that saving up for something is something they may have to do in life, or else very often they’ll find themselves in credit card debt because they didn’t learn. They learned more of, I want it now, instead of I can wait and get it later when I actually have the money myself.

Holly: I think, too, if you actually give them the opportunity and allow them to save up for that item of value that they really want, and it actually costs them something to have to save up and go buy that item, what I’ve found with my own kids is they actually have an appreciation for that gift or that toy, because they had to use their money to buy it. Versus when they’ve just been given something, there’s not as much appreciation in my viewpoint, or a value place on it, because it was given to them freely so they really didn’t cost them anything. My daughter, she really wanted this American Girl doll. She saved up for a year and a half, roughly, to buy this doll. $125 doesn’t just grow on trees for a nine, ten-year-old. She had to save up to buy it, and her other two sisters actually didn’t save their money, right? When she went to go buy it, they were upset because they didn’t have any money to buy a doll, and she did, but that doll, she treats it like her pride and joy, because it cost her something.

Nate: You always value what you pay for a lot more than what’s given to you.

Holly: The point is, we could’ve bought her the doll, but she wouldn’t have learned the value of having to actually save, and then choosing to use that money to buy something that she really wanted.

Nate: There’s a sense of achievement there as well. Us as adults, when you go pay cash for your first car … Let’s say you’ve borrowed money, and you finally get to that point where you don’t have to go into debt to get a car, or to go on vacation, or whatever it is. There’s a sense of achievement in that, that a kid may never really understand or get that sense, and it actually is gratifying to be able to have saved up, have the money, and pay for something instead of someone else provide the money for it.

Holly: Yeah, and then she was like, “Oh, I can save up next for a computer. How much does that cost,” right? She got in her mind that she could achieve something, and even if she wanted something, that she could actually save the money and be able to afford it. I think that that’s very important, that they actually feel like they accomplished something. When all we do is give, and give, and give to our kids, they actually aren’t able to get to that point where they actually have earned this money, they saved this money, and how we’ve robbed them from feeling an accomplishment of achieving something.

Nate: Exactly, and that’s kind of what we wanted to get to, so those are the three big mistakes that we make, is that we don’t practice what we preach, when we don’t feel like we should discuss money manage with our kids, and when we don’t show them the value, the excitement of actually saving up to get something. Really the three biggest mistakes, but now I kind of wanted to move a little bit, and we were just getting there, actually just naturally, on a healthy relationship with money, how to cultivate that. The way to get a healthy relationship with money is to actually have some goals or some achievement, just like Holly said with the American Girl doll, there’s this sense of pride whenever you actually had a plan, and you executed the plan, and it worked. You now have what you wanted, and you have the achievement, and Holly, you and I were talking about before the podcast, we don’t want our kids to be on either side of the extreme. The Scrooge side, where save, save, save, save, save, never spend a dime on anything, that’s not a really great way to live at all.

Then there’s the other side, which is really don’t care about money, spend it on credit card. Maybe you have the money to do it, maybe you don’t. You really don’t care. You never know what’s going on, so there’s the two sides. There is a happy medium, and I think that’s the we’re really trying to get at, is goal-based money planning, really.

Holly: All the three things, if you do those three things, you don’t practice what you preach, and you never discuss the money, and you don’t show them the value, then when you sit down to talk about goals, and how to actually talk about money, because we’ve never taken the time to do it, they don’t really understand. If you give them a goal that you know they can achieve, then it not only builds up their self- esteem, but it gives them a healthy discussion. I think we’ve been taught in some ways to be afraid to talk about money, to avoid that discussion, because what if they don’t make as much money, or what if … Whatever the what-ifs are, or we’re working really hard, and we’re just living paycheck to paycheck, that really, we develop an unhealthy fear of being honest with our kids about how money works. Just that value, Nate, of watching them achieve a goal, and making sure that you set a goal that’s realistic.

I’m just amazed that the simplicity of saving up for one doll, how it changed not only her but our family and our other two daughters’ lives, because now they set goals that they know they can achieve. When they want to spend their money on that, I’m going to say piece of candy, or that dollar section of a store, and then you say, “Hey, you know, if you spend your money on that, you’re not gonna have the money you want later on to buy something,” but you give them that choice, that they learn from it. Oldest daughter before the doll basically spent her money on some candy, okay? $2, and she went to go buy a remote tarantula because she likes spiders, right? Remote control tarantula, and she was $2 short, and she couldn’t get it, okay, because she was $2 short. I laughed because the week before, she’d spent $2 on candy.

Nate: That’s the thing, is a healthy relationship is just when you’re not so impulsive anymore, where you’d rather achieve something with your money than just simply have it leak out on these little things. You’d rather do big things. That’s what I say. That’s what I want my kids to understand is, so use your money to achieve the things that you want to. That’s the subjective thing. Maybe your achievement is different than mine, but if you’re searching for financial freedom, you have goals to set, you say, “Okay, I have money coming in. I want to achieve this with my money. These are my priorities, what I’d like to be able to do.” Instead of having just life come at you and conquer you, to actually utilize your money to take over the life you’re living, and you can do that by teaching people this achievement base. Hey, if I do these things, if I don’t buy this, don’t buy that, I can do this, what I really want, and that outweighs these other things, and that’s the most important.

Holly: Really making them realistic. The point in that is, could we have given her the $2? Absolutely, but I don’t think she would’ve learned if we’d been willing to give her the $2, and the funniest part is the whole story is she saved up the money, and she went back to go get the toy, and it was gone. She really learned the value that we don’t always get what we want, just because we’ve saved up the money, or when we’ve spent it on something else, that there are consequences. I think there’s a healthy value of understanding needs versus wants. Often time these things that you’re saving up for are wants, okay? What are those wants, and can you prioritize them to a point where your kids can also achieve their own goals. Now I see them where the neighbor wants something, and we can help you get that, or earn that. It was amazing to see them have a conversation with another kid about money. Oh, well he said he only had $50, and it was $60, and so they were coming up with a plan for him. What other chores or things could you do to get that $10 to buy the Lego set you want?

Then together, collectively, the kids are working together to achieve that, and they’re like, “Hey, maybe we could do a lemonade stand. Maybe we could do this.” Different things, but actually them working together and talking to each other about how to save up for goals. I think it goes not just in life here, but it will carry them in the future as well.

Nate: Yeah, definitely, and many things that cause financial ruin are just the lack of goals set, and so everything else takes precedent when there is no priorities set. Everything else just fills up the void, and it is those little candy bars, or the coffee a day, or different things that you may not really see. When it comes to saying, “Okay, I finally want to go get that remote control tarantula,” or whatever it is in life that you want, if you’ve never really seen the impact that those little things can have on achieving your actual goal … We don’t want you to be Scrooge-y though. You do want to live life, but you want to have at least priorities set, so you say, “Okay, we’re gonna sacrifice maybe this today, because that is not nearly as important as where I want to be.” That’s something you can have your kids do, and if you’re doing that right now, something you can change in your life.

Holly: I think that part of having that healthy balance is that you can go out for that ice cream, okay, with your family, or you can go out for that treat, and enjoy that, and appreciate that. Are we going out for that treat every day? Are we going out for coffee every day, or is it on a regular basis, versus oh, every day we’re going to go out for ice cream. I’ve just seen with my kids the value of when it’s a treat, and we have let them experience that treat. Yeah, go ahead and go buy that root beer float, or whatever it is that you want, but realize that it’s going to cost you something later on, that they can still enjoy that, but when you’re letting them do it every day, even every week, then there are consequences. My kids will come. “Mom, I need that two more dollars. Can I do this, and this, and this for chores?” I’m like, “You can do that for chores, but the reality is, I’m not always gonna say yes to that just to make up for the money you chose to spend on a treat, just because it was instant gratification.”

Nate: Yeah, that’s right. That’s the biggest issue in society, is instant gratification, but all right, Holly. I guess that’s pretty much what we wanted to get across today, so I wanted to thank everybody for joining us on this episode. I hope you found some wisdom in it, and maybe some encouragement to change how you’re bringing your kids up if you do some of these mistakes, to try to get into that goal and achievement base, and really help them get excited about it. This has been Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: To get free resources and transcripts from this episode, visit livingwealth.com/e16.