Teaching Our Child About Money

Teaching our child about money has been a frequent discussion in the Oldster house.  Unlike her parents, our daughter has grown up in a household that has not known significant financial problems.  We have been fortunate to have lived fairly comfortable lives (knock on wood).  Our fear is that our child will suffer because of that.  

The Oldsters Financial Heritage

I grew up solidly lower middle class.  Both of my parents worked hard to provide a safe and secure childhood for both my brother and me.  But life was not always easy.  Money was often tight and although all of our basic needs were met, I know that my parents aspired to better.  They just did not know how to get there.  I grew up watching that struggle, and it molded my relationship to money. 

My wife also grew up middle class.  Her mother and father both worked hard to provide a good standard of living, but money was also, at times, hard to come by.  Both of us learned the value of money by direct experience, by watching our families struggle. 

Our Child’s Financial Understanding

We have one child, a daughter, who is growing up in an entirely different situation than either my wife or I experienced.  Don’t get me wrong, we are not throwing money at her or buying her ponies, but the truth is, we don’t want for things and that, in and of itself, affects how our daughter understands money.  How she values it.  What it means to her.  We have, in the past, worried that she “wouldn’t get it” and that not properly valuing money would lead her to make the type of bad decisions that we in the FIRE community try to keep folks from making.

          Sidebar – an interesting study would be how the children of those who are the                                         pillars of the FIRE community came to terms with money and life.                                             Somebody write that in 20 years, ok?

I’m not saying that a child’s relationship to money (and happiness) is in a direct cause and effect relationship with the struggles of her parents.  I’m just saying that as my wife and I had a similar childhood experience, and so we don’t know what is going on inside the brain of our teenager when it comes to financial things, to the things that Mrs. Oldster and I had to struggle with as kids (and young adults, frankly).  Coming up with a plan to teach her the things I wish I’d understood better when I was growing up, has been a primary concern of the Oldsters.

Our Plan

So how does one deal with that uncertainty?  How do you instill a respect for the tool that money actually is?  How do you get a teenager to see that the $50 in her hands is not just a new top, but something much more important?  Honestly, I’m not sure about the answer to these questions.  I guess time will tell whether, and to what extent we got the answer right. 

In the mean time, here is the path we decided to take with our daughter:

We Won’t Burden Her with Large Inheritance

We do not plan on leaving her a significant inheritance.  Most of what we will give our daughter will be given while we are alive. Everyone either knows or has heard of someone who was completely screwed up as a kid because they had access to a lot of money they did not earn.  While I understand that not every kid who gets a ton of cash dropped on them at the age of 20 turns out to be troubled, I see no point in risking it.  She’ll earn her own way in life.  We can help if we are able and think it appropriate, but the heavy lifting will be done by her, and she’ll be the better for it.

Education is Our Gift (and Investment)

We will pay a reasonable amount for college.  I say “reasonable” because Mrs. Oldster went to a highly regarded private women’s college, and I am a graduate of the public university system.  Clearly, my path was less expensive, but hers had advantages that are hard to quantify.  I did security to earn money while in college.  Mrs. Oldster worked for the United Nations.  It was a very different experience.  How that difference in experience manifests in our daughter will be hers to decide.  But the amount of money she’ll have available will be finite.

We discuss our college savings plan and college costs with her on a regular basis so that when she gets to that point she’ll be prepared to make an “educated” decision (see what I did there?).  Getting out of school with little or no debt will be our biggest gift to her.

Allowance Lessons

We give her an allowance, which is automatically deposited into a savings account that is linked to ours.  While she is required to help out in the house and yard, that help is not a prerequisite for her allowance.  She gets $1/week for each year she is old.  $10/week at 10, $11/week at 11, and so on.  As she needs money we give it to her, and electronically transfer the amount she gets from her account to ours.  There is usually money left over in her account by the time the next allowance is paid.  That money accumulates and is supplemented by birthday money, Christmas money, Arbor day gifts, and the like.

Investing Lessons

We regularly invest her savings in the market when her savings balance gets to a certain point.  We use a Peter Lynch style of investing.  We discuss things that she likes and the companies that make them and then decide what to buy.  So far she owns Campbell’s Soup (she’s addicted to Goldfish crackers), Disney (we are Disneyphiles), Mondelez Intl. (the maker of Tostitos), Apple (she has an iPhone, iPad, and iMac), Proctor & Gamble (the maker of ridiculously expensive feminine supplies).  She also has broad market ETFs where her money goes when she has no particular interest or idea.  The hope here is that she becomes interested in investing and comes to understand the magic of compounding.  The understanding is still a work in progress, but she does get what stock ownership is and how dividends can compound your wealth over time.  It’s a start.

Bringing It All Together

1. Don’t burden a child by dropping a ton of wealth on them that they had no part in creating.  That is just a bad idea and very little good can come from it.
2. Help get kids out of college or the post-secondary education of their choice, with little or no debt.  This is probably the biggest thing you can do to help them find their own way in the world.
3. Allow your kids to experiment with money management by letting them have some of their own money to practice with.  It is a good opportunity to teach saving, investing, charity and thoughtful spending.
4. Find a way to introduce your kids to the idea of investing.  This will pay dividends (literal and figurative) throughout their lives.
5. Talk to your kids on a regular basis about your thoughts on money.  Allow them to participate in family discussions and decisions.  This, as much as anything, will lay the foundation for their understanding of personal finance.

There is no one right way to teach a kid about money.  Our path may not be right for you.  It is the result of our particular set of circumstances and our particular child who has her own needs and understandings.  I hope some of our ideas will be helpful, or at least spark discussion about how to get your kids up to speed.

Until Next Time, FIRE On! – Oldster