They’re never too young to learn
Not so long ago two of my children, aged six and eight, went shopping for candy in the local store. Money safely stored in pockets, they made their way through the aisles choosing their favorite treats, filling their bags as they progressed. They hesitantly approached the cashier who weighed the treats with a big smile. “That will be 42 nis please” she said. Scrambling through their pockets they realized that they had only been given 30 nis for their pre-Shabbat shopping spree. “Don’t worry”, the cashier assured them, “you can bring me the missing money later”. Elated the children returned home telling their tale about the candy store. Softly and patiently, I explained to them that they had been given a budget as to how much they could spend (30nis) and that they didn’t have permission to spend more than that; the storekeeper had offered them their first unsolicited loan. They were advised to either return the merchandise or pay for the reminder out of their allowances. While the morality of offering loans to small children can be debated another time, the children learned their first lesson about what constitutes a budget. Now when my kids shop, they always ask what the budget is and when they want or need to go above it, they know how to proceed without increasing their overdraft.
Teaching financial literacy to one’s children cannot come from a vacuum. In last month’s article we discussed ways to improve financial competence, and explained how improving one’s financial smarts does not need to be the exclusive result of a formal financial education. Much can be learned during the simple course of events of the day. So too with educating our children. They don’t necessarily need formal school courses (although I do believe that these courses would help them tremendously, especially at critical junctures of their lives). Take advantage of everyday events to teach your children the critical lessons of finance that you wish someone had taught you.
If one has any hope of instilling financial responsibility into one’s children, one must practice what one preaches. Example is by far the most important element of your children’s financial education. They need to learn about money’s value on the one hand, but also its incredible limitations on the other hand.
If you are constantly dreaming about money with comments like “if only we had more money” or “I wish I could buy that new … (fill in the blank), your children cannot help but be influenced. Human psychology plays a big part in how we see money and how these images of money are communicated to others. Are we comfortable with our standard of living? Do we feel it’s ok to drive a small car or no car at all, to not go away on big vacations or fulfill every “need/want” that our children crave? Do we convey confidence and satisfaction with our situation, or frustration and regret? These feeling and values are being communicated to our children, whether we realize it or not.
On the other hand, if you never talk about money and your children don’t understand how you manage your finances, money can become a taboo subject that your children feel uncomfortable discussing and learning about. How can you expect your children to learn the basics of financial responsibility if you don’t involve them? The next time you take your children shopping, bring them into your mindset as you’re going through the shopping process. How careful are you, or do you need to be, about the things you buy, and how much you pay? Do you shop around in multiple stores or do you know the store you like and go there automatically? Do you have any budget for the item you are buying or is it unlimited? There are no right or wrong answers to these questions. It depends on your financial situation.
But whatever the answers are, bring your kids into the thought processes that you go through on a daily basis and you’ll be providing your children with valuable information. Show them how you check your receipts for errors or how you calculate which product is cheaper based on equal weighting. Ensure that they understand what living on a budget means, and why saving money to buy things in the future is a better plan than taking a loan and always being in debt. Do they understand the concept of investing and the impact of compound interest? How about the impact of inflation on one’s standard of living, or the effect of paying a high interest rate on one’s overdraft?
But even if we successfully and consciously educate our children about money, and take a smarter, holistic approach, promoting financial literacy still has its limits. Your children will need to find their own way financially. Everyone is unique, and that includes their financial personalities. An easy but oftentimes simplistic way to look at our financial personality is in terms of saving or spending our resources. One child might naturally be a “saver”, putting every shekel away for future use while his sibling is a “spender” burning a hole in his hand/pocket at the end of the day. Both grew up together in the same home with similar experiences but both view and use money in very different ways. Respect the differences and don’t try and make them fit into a single mold. They need to find their way in the financial world just like they do in all other areas of life, and personal responsibility sometimes comes earlier and sometimes later. In any event, start giving them the tools to help them forge their financial path. Good luck!