Teaching Children About Money By Sharing Your Financial Information

by Neal Frankle, CFP ®

Do you share financial information with your family? Is that the best method for teaching children about money? How much information should you share? I personally think it’s very smart to include children in the financial reality of your family’s situation as soon as possible. Here’s why:

  1. It dispels the notion that money grows on trees.
  2. It demonstrates that you can create your own financial future.
  3. It proves the value of work.
  4. It teaches the importance of mindful spending and budgeting.

There is no question that your children can benefit quite a bit when you involve them in your financial affairs. But what about the costs? If you are currently struggling financially, your kids might worry if you tell them too much. And if you are doing well, your kids might not learn the valuable lessons above. Where is the balance?

My wife and I decided that we’d open up our financial books to our kids at a relatively early age. While they were in middle school, we started speaking more freely about our situation and in high-school we were even more open about finances. We even gave them a copy of our personal cash flows statement. The outcome has been excellent.

Our kids see my wife and I work hard. They also see the results of hard work. That is exactly what we wanted. Now, you may think I’m nuts but I even send my kids a copy of our actual spending for the month every month. I think this is the most powerful thing we could do and I encourage you to follow our lead.

First, your budget gives your children a frame of reference for spending. They see what you spend every month to keep them in school, keep food on the table, a roof over their heads and clothes on their backs. Because they know what these things cost, they won’t pressure you to spend in other areas that aren’t necessary. That’s because they have a sense of proportion.

In our case, this proportionality spills over to their professional choices as well. While neither of my college-age kids are solely focused on finances, they have chosen career paths that will enable them to make a living. Me likey.

As far as the concern about children worrying about money prematurely, I have some news for you. If things are tough at home the kids know it and feel it. If anything, you’ll do them a huge favor if you simply tell the truth and put everything in perspective. Believe me; the “truth” they make up about your financial situation when things are tough is far worse than the reality of it.

So there you have it. I suggest that you start including your kids in your “State of the Family Financial Address” in middle school. And by the time they attend high school, I suggest you distribute a copy of your budget and spending. Also, do a year end review and include them in the process.

Black Belt Level

Once my kids went away to college, I started sending them a profit and loss statement and a balance sheet. These documents are the cornerstone of our family financial planning. This opens up the discussions about saving, investing and retirement. I can’t think of a better way to introduce these concepts. They start to see the balance between spending, assets and income. They also understand why it’s important to save. They see savings as a way to achieve long-term financial needs rather than simply satisfy an appetite for immediate spending.

I’m really happy with the results so far. But what has been your experience? How much financial information do you share with your family? Why or why not? What has been your experience? How do you discuss your personal and general economic conditions with children?

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{ 4 comments… read them below or add one }

Jerry September 10, 2012 at 5:38 AM

I totally agree with this. We have talked to our daughter (now 7) about finance for years. We are fans of Suze Orman in our home and we listen to her show on MSNBC every week and she’s even requested to be on there. There’s no insurance your kids won’t make mistakes but they can at least be given the tools that will lead them in the right direction.

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Pollyanna August 17, 2012 at 11:42 AM

Our sons are 27 and 24, both through college (fully paid by us) and are working full-time (it took #2 son a bit to get to this point, he graduated 5/2010 and was boomerang child for a while). We are/were fairly conservative money-wise and saved for the things we wanted (college tuition!), but probably could have involved them to a greater extent and earlier like Robert is doing. Our boys are both pretty frugal, so I guess our behavior did have a positive effect on them. I wish I knew in my 20’s what I know now – I could probably have been retired by now (that was the original plan until we hit 2008). My husband and I have a tendency to make decisions more emotionally than deep look into the facts, and we have learned from some mistakes (maybe the boys have too!)

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Robert Henderson August 16, 2012 at 10:40 AM

Neal,

Nice article. I agree with you. As a kid, my parents didn’t really share financial information, other than “money doesn’t grow on trees”, or “we can’t afford it”.

My kids are 7 and 10 now, and we have been trying to share as much as possible without (a) scaring them, (b) confusing them, or (c) telling them things that we would probably not want repeated to friends, etc.

As they get older, we plan to add more information – as much as we think they can handle. At their ages, it’s easy to put spending in perspective. So when my son wants to spend $20 on a book that we can get from the library for free, or wants to buy a $100 Lego set, we can put that in perspective with other things that we may need or want.

And you know what? They are getting it. My 7 year old daughter now regularly says “we shouldn’t buy that, it’s too expensive”. Pretty cute. Of course, she also says things like “I don’t want us to run out of money and have to sell our house”, which is when we know maybe we have gone a little too far.

But lack of financial education is such a huge problem in this country, and it’s up to parents to start the conversation early.

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Neal Frankle August 16, 2012 at 11:29 AM

It’s awesome that your kids have parents that are proactive. Good for them and good for you! Your kids will reap big benefits. It’s amazing how much more our children are capable of than we generally give them credit for.

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