savings

How to Raise Money-Smart Kids

Telling them how to be financially savvy probably won't make much of an impact. You have to show them.

Our behaviors and attitudes towards money start forming early, and maybe earlier than we think.

As a Cambridge University study on childhood money behaviors showed, kids can learn and take on new processes and tendencies by the age of 7!

"Approaches, practices and skills which are modeled, discussed and demonstrated by parents and other significant adults, are most likely to be influential 'levers', supporting the development of efficient habits and practices," the study notes.

On the flip side, however, teaching your kids money lessons or "explicit forms of financial knowledge" appears to be "ineffectual in shaping or changing their behaviors."

In other words, the financial actions our children observe—good or bad—could impact them for life. Further, what our kids see is a lot more important than what we say.

For parents, this revelation may be both exciting and frightening. If we're able to show our kids positive money habits and skills early, the study shows, we may set them up for a lifetime of success. But if we don't teach our children early—or they pick up negative ideas about money elsewhere—it might be harder to teach financial literacy later down the line.

As my wife and I gear up to have our first child in April, I've found myself reflecting on things that my family taught me about money at a young age. Which life experiences taught me positive money habits, and how could I possibly impart those ideas on my own child?

For example, one time my grandfather saw me walk over a penny on the ground without picking it up. He quickly taught me that 100 pennies are worth a dollar and every little bit adds up. To this day, I can't walk past change on the ground without thinking about how disappointed my grandfather would be if I didn't stop.

Another time, my father bought me a life-sized crayon piggy bank. It took us years to fill it up, but I still remember the day when we cashed in all that change. While my dad gave me this gift mostly for fun, the experience still taught me how to save and delay gratification.

And for sure, I'll never forget a trip I made to the bank with my mom at age 7. She opened up my first savings account and helped me deposit my first $20. When the first statement came in the mail, she showed me how to read it and taught me about earning interest. This experience forced me to take responsibility over my money at a young age – and that compound interest was truly magic.

More Money Lessons for Kids

I'm certainly not the only one with these stories and memories. I've reached out to a handful of my favorite money experts and challenged them to share their favorite financial lesson that helped shape their behaviors and attitudes towards money. Here's what they said:

Lesson #1: Financial decisions aren't always cut and dry.

"As a kid, I loved collecting baseball cards. My dad saw this as an opportunity to teach some valuable lessons.

Our small town used to have baseball card shows at the local middle school. The year I turned 10, he rented a table and built a case for me to display the cards I wanted to sell. He let me set the price, based on an industry magazine that would print the fair market value of different cards. On the day of the show, he told me I was going to run the booth.

It was a great test case to learn the value of pricing, negotiation skills and opportunity cost on the fly. People would approach the booth and propose a trade deal or ask if I would take any less for cards. I also had time to browse other vendors but had to decide if purchasing other cards was more important than saving the money I'd earned to pay the entry fee of the next show for the potential to earn more. To this day, I often think of those examples when using negotiating strategies, assigning value or prioritizing choices."

Chad Smith, CFP® is a Partner at Financial Symmetry.

Lesson #2: Investing early matters more than we think.

"My most influential childhood money moment was my grandmother giving me a single share of Nike stock on my 13th birthday. This gift allowed us to talk about the mechanics and benefits of investing. It only took a few dividend checks and a bit of price appreciation to get me hooked. I started having more money conversations with my parents and grandparents and bought investment books geared towards teenagers. By the time I left for college, I knew this was exactly the profession for me."

Peter Lazaroff, CFA, CFP® is the Director of Research at Plancorp. You can see all of his insights at www.peterlazaroff.com.

Lesson #3: Take care of your pennies, and the rest will follow.

"Being just tall enough to see over my grandfather's desk, he would show me hand-written spreadsheets with his laddered CDs and schedules of compound interest (remember when CDs used to pay interest?!). He jokingly tried to trade his pennies for my dimes, winking and remarking, "Pennies must be worth more; they're bigger!" My grandfather's zeal for finances was contagious, and I was permanently hooked.

The care and interest he took in finances extended beyond planning for his own well-being. He suffered from substantial physical disabilities and knew his wife would likely outlive him. My grandfather taught me that life doesn't always go as planned, and sometimes planning isn't as much about you, as those you leave behind."

Benjamin Brandt, CFP® is a North Dakota Financial Advisor who works with clients of all ages.

Lesson #4: A penny saved is a penny earned.

"My grandmother used to reuse water after she washed clothes in the washer and hung our clothes to dry on an outside clothing line. She would also reuse wrapping paper, aluminum foil and plastic bags—anything that could help her save. Having grown up in the depression era, she couldn't help herself.

While I don't take it to that extreme, the way she was careful with her resources taught me plenty about money."

Jeff Rose is a CFP® who blogs at GoodFinancialCents.com.

Taylor Schulte, CFP®, is founder and CEO of Define Financial, a San Diego-based fee-only firm. He is passionate about helping clients accumulate wealth and plan for retirement.

About the Author

Taylor Schulte, CFP

Founder and CEO, Define Financial

Taylor Schulte, CFP®, is founder and CEO of Define Financial, a fee-only wealth management firm in San Diego. In addition, Schulte hosts The Stay Wealthy Retirement Podcast, teaching people how to reduce taxes, invest smarter, and make work optional. He has been recognized as a top 40 Under 40 adviser by InvestmentNews and one of the top 100 most influential advisers by Investopedia.

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