Teach Your Children Well (about Money)

How do you teach your kids about money?

Your job as a parent is not to raise a good kid, but to raise a great adult.
–common saying

“Begin with the End in Mind” is the second habit in Steven Covey’s well-known Seven Habits of Highly Effective People. Covey turned the personal-development construct into a profitable business, with book series, Franklin planners, and speaking. (Concept: Michael Hyatt is this generation’s Steven Covey?)

“Begin with the end in mind” suggests people consider what they want the outcome or result of their life/year/day. Then, people can reverse-engineer it with activities and habits that will likely result in those outcomes.

From the Franklin-Covey website:

“Begin with the End in Mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.”

In the kids version of the book, titled The Seven Habits of Happy Kids “begin with the end in mind” is titled “have a plan.”

Planning for what you want lets you do more of what makes you happy and fulfilled. Not planning has life “happening” to you.

This particular “habit” makes tremendous sense to me, as I am a “planner.” But even without this tendency, being able to plan—can offer more security, flexibility, and success when it comes to goals.

“Begin with the end in mind” is best practice for parents.

This week’s challenge is to help the young people in your life about money–or at least begin/continue the conversation.

This “teaching” challenge is part of April’s Future theme for obvious reasons. The future belongs to young people, as they will most likely live in the future longer than we will.

With the Covid-19 crisis ongoing, and shelter-in-place going on in most states, there is all the more reason to take some of the time we are all together as families to even have some conversations about money.

If you do not have kids, consider instead completing one of the prior weekl y challenges instead. Or, share some of this information with a friend.

What are some good ways to teach money concepts to a young person? A few thoughts:

*it’s a conversation, not a one-time “talk.”

There’s an old joke about nervously having “The Talk” about birds & bees with your kids, as if it is just a one-time transfer of information and then never needed again.

But as we all know, if you want a young person to grow up with a healthy approach to sexuality, there’s not just one “Talk.” You need to have an open and ongoing conversation, and be willing to listen as well as provide information. You also need to steer kids away from the vast amount of harmful information out there on the birds & bees, from things their fellow kids say, to bad actors

It’s the same with money.

You can’t just have a one-time lecture on how to open a checking account, and call it good. If you want kids to have a healthy approach to financial issues, you will need to have an ongoing conversation.

Even if you did consider one “talk” as enough, your kids will learn lot both from the culture at large. They will also learn from how you appear to handle money, as more is “caught” than “taught.”

Part of your “money conversation” with kids will involve helping them choose good sources of information, and how to discern good from bad. And you can be one of those good sources, even if you’ve made money mistakes. (We all have, and it actually helps your kids learn from your mistakes.)

By the way, this also goes for adults & money. You should be continually learning and growing when it comes to money.

Ongoing, “just-in-time” learning is best.

People learn best when they need the information, or “just in time.” But it’s tricky with teenagers or young people. Some basic personal finance information is good to have, but most teens are not in need of all the money skills just yet.

How to calculate the required minimum distributions on an IRA for a retired person, is not going to be interesting to any teen right now. They may need the information when they are retired, but it’s not useful at 17 or 19.

At the same time, a teenager is often in a unique position to save for the far future—being that retired person some day!

So, for instance, a Roth IRA is an excellent way for a teenager to set aside some of their early earnings. This is especially good when they do not owe much (if any) taxes, and allow that money to grow tax-free forever.

But what if a teen does not understand the concept of compound interest (or– in the case of index funds or other investing– compound returns)? She might be resistant to putting aside some of her hard-earned babysitting money into a Roth versus other types of spending.

Here are some ideas of some basics of money that someone at a young age. This is not exhaustive, but a good start:

Money with (Little) Kids

This interview covers the high points that are good for even young children to know about money–it’s based on Kobliner’s book Make Your Kids a Money Genius (Even if You’re Not).
How to Teach Your Young Kids About Money
Improving Financial Education (kids of all ages here)

Compound Interest versus Compound Returns:

the “magic” of compound interest, and the difference between compound interest and compound returns (also “magic,” but with different principles). The SEC Compound Interest Calculator is my favorite for ease of use, and the Nerd Wallet one shows how much the earnings make up the total after a long period of time.

Taxes and Tax Planning:

a basic understanding of taxes & how to plan for them. This is actually a great source: the IRS “Understanding Taxes” Student site. I found this to be old-school looking,–as if 1998 wanted its website back. But it is actually quite informative, useful, and easy to use. Worth poking around, especially the tax simulations, based on different types of taxpayers.

Credit Cards — pros & cons:

My three-part series on credit cards is a decent start, and woven throughout are links to various other sources.

Money Mindset: (aka behavioral finance)

How people think about money is a big component of how people end up handling money. This is a huge topic! It’s one I am super interested in, and hope to write much more about. Some articles/videos to spark discussion. I don’t agree with everything written/talked about here, but the discussion is what makes it helpful!

The Millionaire Next Door— a classic book about how rich is not how you look
Six Ways to Instill a Positive Money Mindset
Seven Essential Money Mindset Shifts
What’s Your Money Mindset?

When I titled this “Teach Your Children Well” the Crosby, Stills, & Nash song was going through my head. Here are two of the videos I found of some nice versions of it. Enjoy!

Teach Your Children Well (Crosby, Stills, & Nash)

Teach Your Children Well (Kathy Mattea & Suzy Boggus

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