When I was in high school, I thought money was what you needed to be cool, to get the hot car, to get the hot chicks. I even had a personal experience that taught me this lesson. One day while walking to school, one of the neighbor teens came driving by in his brand new custom van (back when vans were cool, and not vehicles that draw suspicion from law enforcement). A friend and I tried flagging him down for a ride. We thought he was pulling over for us, but turns out he pulled over about 50-feet in front of us, where two hot girls were also walking to school. They jumped in the van, the van took off: here endeth the lesson. If you want to be cool, you need some scratch.
I learned the lesson that you need money if you want girls to jump into your car (uh, that doesn’t sound good does it – well, I guess legally or illegally, the concept is the same). But, I never really got the concept figured out of how you save the money in the first place. My neighbor had earned enough money from delivering newspapers (back when kids did that job). He saved, made short term sacrifices and when he had enough – boom, instant coolness and girls jumping in his van (I guess I never really got over this, but I digress).
In a nation where our leaders idea of fiscal responsibility is to simply continue to raise the limit of how much the country can go into debt, how can we teach fiscal responsibility to our own children?
Money is not a difficult concept to understand, and neither is the concept of not spending more than you make. So why are so many people so stupid when it comes to money? I am including myself in this category, but like most parents, I don’t want my kids to make the same mistakes I’ve made. I want them to learn how to manage and handle their money before they are facing mountains of debt.
David Owen, in his book The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money explores effective ways of not just teaching your children how to manage their money, but ways to save and even invest all before they are 12 years old. And then he has some good strategies for moving into the teen years. I actually came across this book while reading Bruce Feiler’s The Secrets of Happy Families. Feiler featured some of Owen’s Bank of Dad strategies and I was so impressed I added his book to my review.
Do you remember the wonderful government savings bonds you used to get from the grandparents? So when it’s fully amortized 20 years later you got a whopping $25? Unfortunately, kids are not that dumb. If you talk to them about a savings account and force them to sock away birthday and Christmas cash, plus a portion of their allowance, they view it as a jail in which parents incarcerate their money so they won’t be able to spend it on things they want (Owen 7). Seizing that $50 check from grandpa and saying, “good we can put this in your savings account,” tops the list of all-time greatest buzz kills.
Most kids can relate to the concept of saving money for college the way a a 50-year-old can relate to saving for the colonization of Mars (Owen 7). So how can your kids learn anything about handling money if you’re just going to keep dreaming up new ways and excuses to take the money out of their hands? (Owen 9).
- A key principle of the National Bank of Dad’s is to teach your kids that if they defer consumption for a while they will eventually be able to consume more. Kids don’t see the immediate or even the shorter term benefit of saving money. However, through personal experience, I know that you can convince your six-year-old to save their allowance for a few weeks to buy an even better toy, or in some cases to save for a few months to have some spending money at Disney World.
- As it seems with everything else in life one of the best ways to teach kids about how to use their money is set a good example yourself (Owen 10). I know, this is no fun at all. We would rather continue to spend more than we earn and figure out how to pay for it later – hey works for Congress, right? But look at the long-term ramifications, if your kids do not learn financial intelligence they will likely be living with you for much longer than you’ve planned. In fact, you may even be moving out of your house before they do. So let’s speak to our own selfishness and realize that if we don’t teach our kids how to manage their money, WE will be financially responsible for them until our nest-egg is gone. Just kiss Florida or Arizona good bye right now.
- One of the goals of teaching children about money is to make them immune to greed by helping them learn to view money intelligently and unemotionally (Owen 11).
The basics of The National Bank of Dad include establishing a savings account with a decent interest rate that provides them incentives to save their money, and an allowance that is not so little so is to be construed as forced poverty and not so large that they are using $10 bills as tissues.
Your kids are ready have a pretty good idea of how many works (Owen 24). That’s why they’ve never been excited about being forced to shove a birthday check in a bank account. A savings account is a black hole that sucks up earned and donated money, never to be seen again. At least it is to your kids (and if you seen the interest rates on a real savings account is pretty much is to adults as well). People tend to be rewarded for doing things (Owen 25). If you want to change people’s behavior, increase the incentives – professional sports team contracts are filled with performance incentives and for a good reason.
You will find the kids don’t need complicated charts to keep track of their money. A few envelopes, one for spending and one for savings is all you really need to get started. If your kids have a problem with taking money out of their own envelope and spending it without your awareness, then you can set up a little checking account for them where you maintain control of the money and they give you slips of paper which act as checks, to make withdrawals. Once you’ve mastered this simple accounting, the next step is to set the allowance rate and the interest rate. Topics we will address tomorrow.
Ultimately, our goal is what I will call financial intelligence. But we also have to keep some things in mind. First, up until they are about 13-years-old kids have a limited opportunity to earn money without violating a few child labor laws. So they must rely on allowance and a few bucks here and there for helping out in the yard and such. Also, the interest rates need to be a little bit higher than your local bank. So we may need to distort some reality just a little bit to get the program going. But this is okay. When our kids are learning how to ski, do we give them a pair of Rossi 160’s and wish them luck? (Owen 31). When they are learning to read do we hand them a copy of Moby Dick and tell them to have at it? When they first learn to ride a bike, do we get them a racing cycle, make the watch the Tour de France and buy them a ticket to Paris? No, no and no. We start them out small – there will be plenty of time to teach them about blood doping later.
The goal is to teach them the sound principles earning, spending and saving money, then maybe when our kids are running the country, they will understand that simply raising the debt ceiling does not contribute to long-term prosperity.
Owen, David. The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money. New York: Simon & Schuster, 2003. Print.