Our Conversation With Our Kids About Money – What We Have Been Teaching Them

by Hank Coleman

Giving An AllowanceAs a prelude, my eldest son is 10 years old (soon to be 11). Initially , our conversations about money started because my son was influenced by what other kids were wearing or had, what was cool and what was not? Here are a few examples.

  • He noticed that his best friend’s live in a VERY BIG house.
  • He became conscious about what brands he was wearing
  • He was constantly asking us to buy stuff whenever we went out
  • He wants the best mechanical pencil, best markers etc.
  • He notices that many people own a 2nd house – lake or shore house which they go to spend their summer.

Questions that drive us nuts

  • Daddy (or Mommy), why can’t you buy me that jacket?
  • Can we move to a bigger house
  • Can I have a credit card?
  • Can I buy something from Toys R Us?

To kids, money seems to grow in the ATM machines. Whenever you need cash, just go to any one of the machines. Or when you need to pay for your purchase, just use one of those plastic cards which everyone has. No mystery to them at all.

We believe it is never too young to teach them financial matters and emphasize how important it is to learn how to manage them even at a young age. What do you do with your $2 weekly allowance? Should you splurge all your allowance on your favorite toy you were eyeing for a long time ? Should we charge everything to the credit card and worry about how to pay later? Can we afford to take that ski vacation now ?

Below are some of the conversations that we have had with our son.

Where does money come from? One of the first things that Mrs Credit Card and myself try to teach our kids is WHERE money comes from. The reason we decided to explain this to all of our kids is that they keep bugging us to buy stuff. The latest wii game, Nintendo DS!

I used a person that they can identify with – the cashier at MacDonald or at a supermarket check out and the person working at the pizza shop. For simplicity sake, I say they earn $8 an hour, 8 hours a day. Assuming he works 5 days a week, the person (let’s call him John) takes home $320 week. Great! Now, John can go out and buy that Wii he wanted so much and even has left over. Hang on – I tell them. John is renting so he needs to pay rent (say $100 a week). Will he have money left over to eat? I don’t think so. You should see the looks on my kids’ faces. They must think it takes a BIG miracle for them to survive as an adult. Then I continued by listing all the other related expenses – cable TV bills, phone bills, gas, groceries and even doctor’s fees if John gets sick.

So they all agreed those jobs won’t do for them because they all wanted more in life. They don’t mind saving on the rent and continues living with us (GASP) but could not imagine having insufficient money to buy toys and food, in that order. At this point, I take it up a notch and we discuss several career options. Teacher, bankers, music teacher, pro baseball players, rock stars, movie director, entrepreneur and etc. Our conversation got very interesting and I succeeded in planting the seeds of ambition in all three of them.

My Sons wants us to move to a bigger house! When your best friend has the biggest house on the block, it is kinda hard to not want the same thing. A couple of my sons classmates has “huge houses”. Question : Can we move into a bigger house near Aidan? Can we have a pool like the Smiths? Can we buy a house by the beach so we can spend the summer there? How much is our house? Did you pay for this house?

It’s time to learn about mortgages. Ironically, this happened when the mortgage crisis started in USA. I explained that you’ll have to go back to how much you earn, minus your living expenses and savings and the leftover can be set aside for this thing called “Mortgage”. Better to work backwards so you will choose a house which you can pay for month after month. I emphasized to them that a house costs a lot of money and banks can help us by paying it first and we pay back every month – for unfortunately the next 30 or more years of your life. Yes, 30 years. With that I re-emphasized that it has to be paid EVERY MONTH without fail or the bank will take back the house and you have no place to live in. Boy, that was tough.

They looked worried and asked if we’ve ever missed a payment. I also explained to them the difference between renting and paying for a mortgage. At this point, I gently pointed out that it is wise to have a stable job that pays a steady income before you consider getting married because your folks ARE NOT paying your mortgage. And yes, also because they are still paying theirs. Phew, got that out of my chest but I’m pretty sure they’ll need to be reminded. And we also told them that we are “not as rich as his friends parents so we cannot afford a bigger house – and to stop bugging us about it!”.

Credit Card and Banking Conversations. Our kids know that we have a website called askmrcreditcard.com (surprise surprise). So they have asked us many questions about credit cards because we charge everything to our credit cards (we pay in full and it is mainly to earn cash back and travel rewards points!). We hardly write any checks at all except for things like paying their piano teacher. Our kids think we’ve paid for the items already once you swiped that plastic card. They are always fighting to swipe it & sign it at the stores. “How can I get these cards, Mommy and when can I get it?” asked my 10 year old. They also see how we go to the Bank of America “drive through teller” and withdraw cash. So naturally they have all asked me and Mrs Credit Card about ATMs.

Once again, I talked about the money that he gets when he starts working. The money can be directly deposited into a bank or a check given to him which he has to convert into cash or deposit it into the bank and gets cash out by ATM machine or through the teller. However, it is not safe to carry around so much cash (you might be robbed, you might lose it etc), banks started to offer ATM cards where you are given a special password for you to access your funds. They also offer credit cards.

I explained that we use credit cards simply as a tool to pay for stuff because we do not like carrying cash around. We also explained that credit card companies send you a monthly statement detailing your charged expenses and gives you a deadline to pay. And that you had to pay in full. Right or wrong, we told our kids that we had to pay our credit cards in full every month – both personal and business credit card. We did not bother about explaining the concept of carrying a balance etc.

We explained that the cycle starts again with the money you earned which gets deposited into your bank account and some money is deducted for mortgage and some money is deducted for credit card bills, some money is deducted for phone bills & etc. Therefore, you need to make sure you have enough in your bank account every month to pay for these and it boils down to spending only what you can afford.

You need to earn the right to buy fancy stuff. My eldest son used to keep bugging me about buying new stuff. When baseball season started, he wanted a new baseball glove. He obviously wanted a batting glove! He even asked me to buy him a “first base glove” if he is chosen to play first base! BUY BUY BUY!!! It drives me nuts.

I always say no to him and always told him that he had to earn the right to these things. Last season, his team won the championship! He only got a couple of hits and many walks. So I reminded him that his “batting gloves” did not help him hit. I told him that wearing a glove does not make him a better baseball player. He later found out that there were a couple of MLB players who do not wear gloves! So now he understands. During his soccer tryouts, he had a teammate with the fanciest gears but was the worst player. So I think he is slowly getting the idea that having the latest gadgets or fancy stuff does not make you a better person or (at least in sports a better player). But having said that, he is still influenced by friends. His latest craze is Northface winter jackets!

Giving. Last but not least, I also stressed to them the importance of “giving” – to church, to charities and to people in need. “To whom much is given, much is expected.”

To End This Post. At the end of the day, I am glad we talked about money matters with our 3 young kids and I am pretty sure that’s not the end of our discussion. Soon, we have to make a decision about getting kids their cell phones. Eventually, we have to face the issue of co-signing for their credit cards when they go to college. I’m not sure if I look forward to that!

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ctreit March 9, 2010 at 12:05 pm

Thanks for sharing these conversations! Kids are as much social beings as we are. At some point they start comparing themselves to others and they want to fit in. Heck, our 4-year old tells us he can’t wear a certain shirt because other kids may make fun of him. But I think we as parents have an obligation to make sure that peer pressure does not get us or our kids into any sort of trouble – financial or otherwise. This peer pressure is often subjectively perceived anyway. I think it is not only ok to be or to become who you are, but it is our responsibility to value the gift of life by being or by becoming who we are.

Mr Credit Card March 10, 2010 at 10:41 pm

This is easier said than done. Very often, it is the “friends” who act as though you need “certain things” to be cool! Not befriending them because of it is tough on any kid. But we have to keep trying to explain that to them.

Hank March 12, 2010 at 5:27 pm

@ctreit – You are right. We have to rise above the peer pressure and be the bigger person. Telling our kids no is rough, but it is definitely something that we have to do. In the extreme case, we cannot put our family’s financial situation in jeopardy even at the cost of our children not fitting in.

@Mr. Credit Card – Thanks for a great guest post. You made some great points. I am truly dreading these situations with my own children when they get older.

Mr Credit Card March 13, 2010 at 11:50 pm

Yeah, have 3 kids and the oldest one is most “brand conscious”. One of the reasons I think is that sometimes his classmates just talks about those stuff like “I just came back from Aspen skiing” – then it carries on to the brands of ski jackets they wear! Once we get him of one topic, something else will crop up!

My middle kid is much better…

well, keep your fingers crossed.

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