Kids and Money: A No-Guilt Approach to Financial Education for Your Kids

Guest Post by Joline Godfrey

One outcome of the 2008 economic meltdown was that moms (and dads) began to think about how to help their kids acquire enough financial literacy so that they would not make some of the mistakes that swept through homes in the years leading up to the housing crash. Suddenly terms like “FICO scores,” “subprime,” “interest rates,” “penalty fees,” and others were part of a language everyone needed to know, not just bankers playing with funny money.

By 2009, allowances were making a serious comeback; piggy bank sales were up, and some families instituted family meetings or at least conversation about the family budget. Lots of families reordered the things that were important to them (often not things at all, but the relationships they have with one another).  But as family members lost jobs, cut back on expenses, or just became more vigilant about all things economic, one refrain I often heard, still, was and remains this:

“I am so stressed, busy, and overwhelmed—now I have to teach my kid to be financially literate? I have don’t get most of what’s going on myself, so how am I going to help prepare them? What can I do?”

I first published Raising Financially Fit Kids in 2003. Feedback about the book at that time was contradictory: “We love it—it’s so helpful to have financial tasks broken down by age and stage of what to do when with my kids. But, there’s SO MUCH—can I really do all this?” Parents nailed the problem with the book at that time: I had packed 20+ years of experience into each chapter, providing so many ways of teaching kids about money that, though valuable, it was overwhelming to most parents.

A no-guilt approach

But it was this feedback that caused me design the “drip, drip, drip” approach that has liberated parents from the guilt of feeling that they are not doing enough  and provided an easy way for moms and dads to develop their own financial fluency, alongside their kids. In the new edition of the book, released on June 4, I describe this approach (p. 27).

Few families have an extra hour or two a day to offer financial education. And even if they did, most children would rebel strenuously! But “drip, drip, drip” is a steady, ongoing process. A word here, a teachable moment there—it’s just a mindful, intentional approach to developing a child’s financial consciousness and skill set over time.

The new edition spells this out in a much more parent-friendly way, emphasizing a few basic principles:

• You don’t have to be a financial expert to raise financially thoughtful kids. Learning beside them is just as effective, sometimes moreso as it models an intention to learning.
• Living your financial values is essential. If the family doesn’t have an active habit of saving, children will not internalize saving for themselves.  Again, modeling the values and behavior you want to see in your children is key.
• Financial education is not just about the money. It’s about raising great kids. Families who focus on core values (saving for a rainy day; sharing; living within one’s means, etc.) tend to raise great kids who—oh by the way—also have good financial habits!

Rethinking “allowance”

The other thing that has helped liberate parents is an unconventional approach to the allowance—or Allowance 2.0 as I call it. In this approach, the allowance is not a salary (payment for chores or good behavior) or an entitlement; rather, it’s a practice tool, a vehicle that gives kids a way to practice financial skills.

The allowance is a little like a clarinet or a tennis racquet. That is—you don’t hand a kid a musical instrument or sports equipment and think they know what they’re doing right away. You provide instruction; coaching; and practice, practice, practice! Most allowances are simple spending plans (you give a kid some money and hope they will learn how to use it well while also setting aside money for giving and saving).

But these spending plans are often confusing for children and parents alike. They rarely take the problems of cash flow into account, for example–and they do little to teach kids about balancing a budget.

Allowance 2.0 is a more realistic approach to a balance sheet for children—and it’s as manageable for an 8 year old as a 12 or 18 (or 28!) year old, and over time (drip, drip, drip) it helps kids acquire skills and habits that will serve a lifetime. Allowance 2.0 makes the invisible allowance every child gets now (what you spend when you buy a snack, treat them to a new game, or pay for that new bicycle helmet) and makes it transparent.

Thinking about money

When kids understand the expenses of their lives—and have a voice in those expenditures—they become more thoughtful over time. And children who can see a budget laid out for a month (for 10 year olds); a year (for kids 12 and over) and maybe 2-3 years (for teens 16+), are able to make choices in line with their values: “Do I really want to spend x amount of money on those new sneakers, or do I want to have a little more money available to travel, or give birthday gifts for friends, or to support the local animal shelter?”

And when kids are making better financial choices, parents relax—life is less fraught with financial tension in households where the family is aligned in financial values and action. Taking the “Drip, drip, drip” approach to financal education and using  Allowance 2.0 are, I think, two of the more useful strategies shared in this new edition of the book, and, of course, there are many, many others. I’m always happy to hear from parents who have stories to tell, or reactions to the ideas in the book—so please share your experiences and stories with me!

Startup summer camp

And BTW, for parents of teens, take a look at Camp Start-Up this year—this 12-day residential program teaches teens how to create a business plan and how to invest. We’re partnering with Kiva this summer for our Silicon Valley based camp. This program is as relevant to the budding rock star as to the next Mark Zuckerberg, to the aspiring actor and the young person with a quest to change the world!

JOLINE GODFREY has been a pioneer in the field of financial education since 1990. Today she is one of the country’s foremost experts on kids, families, and money. Godfrey is founder and CEO of Independent Means, Inc., a leading provider of financial education for families. Recognized in features for the Today show, Oprah, Fortune, BusinessWeek, and the New York Times, Godfrey is a frequent speaker and consult-ant worldwide. She lives in Ojai, California. Visit www.independentmeans.com and follow her blog at www.independentmeans.com/imi/category/joline