Ep. 128- THE IMPORTANCE OF TEACHING YOUR KIDS ABOUT MONEY AND FINANCE

Hello and welcome to Finance Conversation. This is another episode of the Merging Life and Money Show, and I am super excited to be here with you. For those of you who do not know me. I am your host, Marie Jo Caesar. I help frustrated professional women acquire and apply the relevant financial skills and knowledge they need to take control of their money from the inside out, manage their finances, and understand that they can live their best lives with the money they have.

Thank you for being here today. I come to you live every Thursday at 7 PM Pacific Standard Time to share valuable information about how to achieve financial wellness and live your life with means and meaning.

Today's show will focus on the importance of teaching your children about money and finance. Grab a pen and a notebook as I will be sharing tips and ideas that you might want to write down today I will share valuable information about the importance of teaching your children about money. I will start with a personal story. When my daughter was eight years old and she's now 41, we had a conversation on a Saturday in November, that I will never forget.

We had just left the house. I was driving her to a birthday party when I suddenly remembered that I had forgotten to give my husband an urgent message that someone had called him earlier. So I had to go back home and give him the message. My daughter was so anxious about getting to the birthday party that she told me that I should get a cell phone.

Remember that was more than 30 years ago. So she told me that, I have to get me a cell phone because if I had a cell phone, I would've been able to call her dad. and give him the message. So I promptly responded that I did not have any money to buy a cell phone. A few minutes went by, and she suddenly shouted from the back of the car, Mommy, you're a liar.

I said, what? And why are you calling me a liar? She responded, “You do have money. Look.” From the rearview mirror, I could see that she had reached into my purse pulled out my checkbook, and told me, “Look, you have all these checks, so you have money”. At that moment, I quickly realized that I had failed my daughter by not teaching her about money soon enough.

She was eight and my son was only two. From that day forward, when my husband and I sat down to do the monthly budget, she was right there at the table working on the budget with us. So was her little brother, who was only two years old, propped up in his highchair and taking it all in as we were preparing the budget.

I cannot recall exactly how long this lasted, but I can tell you that when they became young adults and went away to college, they would not receive a dime from me until they sent me their monthly budget. So the moral of the story is that it is never too early to teach your kids about money. The phrase, you are a product of your] environment stands true when talking about kids' relationship with money.

It is also true that the earlier a child learns about money, savings, and investment, the better money managers they will become. The big question is how kids learn about money. Teaching them at school has little impact on them; when they go home, if they see no application of what they were taught. They can learn all about the importance of savings and how to become a smart consumer.

But if they do not see their parents save, they will not know how to go about it. And if they see their parents just take out a credit card and buy what they like at any time, or better still, if they get what they want when they ask for it, the kids will have no understanding of budgeting and planning. And think that they can buy whatever they want, whenever they want it, as long as they have a credit card. Kids do not learn about money by osmosis. Okay. Parents must teach them the rules of good money management and also, they need lots of practice to incorporate those lessons into their lives.

There is so much that they must learn. So start teaching them while they are young and parents are an important influence on what. And how children learn about money. The best way to encourage sound spending habits is to show them how to go about it. So today I will focus on three main points.

The importance of starting to teach your kids about money early, teaching your kids the basics of money, and teaching your kids about money in the digital world. So why is it important to start? the teaching process early, if they are old enough to ask for things, then they are old enough to learn about it. A study from the University of Cambridge found that money habits in children were formed by the age of seven. Parents underestimate sometimes what their kids can understand, but always be aware of what kids may be learning from you, even as toddlers.

At this young age, children are like little sponges, learning and soaking in everything. This means they catch more than you think. This is a great time to introduce key financial concepts that they can carry throughout their lives. For example, as you pull cash from an ATM, take the time to explain that you had to work for that money, that you put it in the bank to keep it safe and earn interest, and that you can only take out as much as you have available in the bank So talk to them about what you are doing with the money and why you are doing it. Over time your explanation will resonate, and they will learn important lessons. Another example is when they get money for a birthday or holiday, have them save it in a clear piggy bank or jar because, at this age, they are visual creatures.

As they see the amount of money grow, they will get excited. Each time you add money, use this opportunity to count what they have saved. Help them set a goal of something they would like to use the money on. Teaching how to save and the importance of patience is essential in this early development as it helps kids learn that sometimes you must wait.

Remember that young kids have a short attention span. Learn So it is important to keep their goals fairly short. When kids are between the ages of four and six, their eyes are on everything. This is the time to introduce them to the basic concept that we use money to buy goods and services. For example, give them the change to operate a vending machine and explain that when they pay for something, the machine keeps the money but they get the candy bar or the bag of chips or the soda or whatever from the machine. Take this opportunity to explain to them that money is a means of exchange. Ultimately, the message is that when you spend money, it's gone. So while you get something in return, you do not have the money anymore. So choose wisely.

Kids also need to learn that when you buy something, you are dipping into a limited amount of money. So make a list before you go shopping, then show your kids both the list and the money you have to pay for the items. When your kids are between the ages of seven and 10, you can start focusing your money lessons on deferral of gratification. their eyes are on you. At this transitional age, children are watching everything you do. They're closely tuned into their parents' spending habits. This age group is building their habits and values from what they see their parents do. What kids see you do is a lot more powerful than what they hear you say.

Of course, when they see and hear the same thing that creates a strong message. So teaching this age group, the difference between wants and needs can help build day-to-day habits that will shape how they earn, save, and shop, weighing decisions and teaching consequences, such as if you buy this, you will not have enough money for that, help them budgeting and saving skills that prepare them for a successful financial future.

Tell them that sometimes it is really easy to be attracted to an item because a friend has it or because it looks great on TV, but they need to think about why they want it and if it will be what they expect before they buy. Explaining budgeting at this stage does not have to be difficult. There are tools such as little jars, Piggy jars, or mason jars that can help them understand spending limits and learn money management in an easy and fun way.

Teach them how to read what is in a receipt, how sales tax is calculated, and how to determine percentages such as tips or discounts. Understanding sales tax is important, particularly when saving for larger items. So between the ages of 11 and 14, it is time to explain the myth of the bottomless wallet. To some children, parents with regular salaries seem rich.

It doesn't matter if you say you have no money, they do not believe you. All they see is those credit cards and those checks. So as long as there are checks and credit cards in your wallet, you have money. Wherever possible, show your children a bill that makes the cost real. Invite them to sit with you when you do the household budget.

Many parents are usually resistant to telling their children how much they make and where the money goes. Some say that money is a private matter, so private that they cannot talk to their own children about it. Some parents say that they do not want to rob their kids of their innocence. They must take kids for as long as they can be kids.

I don't think they are preserving their innocence by not teaching them about money. What they are preserving is their ignorance. At 15 and older, their eyes are on the future. As your Children are reaching young adulthood, you are preparing them to go into the world. You want to make sure they are equipped with those life skills that will lead to success.

So by this time, they may already have developed a concept of how the financial world works. However, they are now ready to learn some more in-depth concepts that will come into play as an adult. A checking account is a necessity, and using a debit card is the preferred method of payment for most.

But you must teach your kids that money comes from somewhere, okay? Once your kids begin earning money, setting up an account for them is a great way to put a real budget plan to use. They will be a lot more cautious of what they spend their money on if they are the ones who must work to earn it.

According to a recent poll, nearly half of Americans are living at or beyond their means each month. Sharing the family budget and helping your kids create their own budget is an extremely useful life skill. It will give them a greater appreciation of what they have and how it is earned. So setting them up with a savings account is also a great opportunity for them to learn about how interest accrues.

Letting your kids practice money skills and making their own financial choices keeps them from feeling overwhelmed with responsibility once on their own. It is also a good time to teach them about how credit cards work. Explaining the potential dangers of credit card debt and how to build a positive credit history can put your child ahead of the game as they get ready for college.

College is already a conversation most parents are having with their teens in high school. Payment options and how student loans work is a vital part of this decision-making process. Note that in the U. S. as of 2020, the average debt per student borrower was approximately 38, 000.

Okay? Now, let's explore the basics of money. It is essential for children to learn about money because it will help them live a successful life, knowing that they are financially stable and have a genuine respect for the value of the money they earn. Currently, children rarely see cash exchange hands, right?

 Their exposure to transactions involves watching their parents swipe or click to make a purchase. Because transactions have become so seamless, it is hard to grasp that there is actual money behind that purchase, right? Money in the bank or on a credit card comes with an interest payment.

They don't see it. Okay, that's totally transparent to them. Because of this loss of physical context for money. It is especially important to stress the why of it. Buying things and paying bills are not magical acts. Okay? Kids have a vague understanding of how their parents get them food, clothing, and toys.

It seems to a child as though people just go to the store, get what they want, and leave. So whose responsibility is it to teach them how to handle money? Parents hold the weight of that lesson. And it is an important one. Without the proper education, in dealing with money, children of today are at risk of becoming financially irresponsible in the future.

The important lesson may seem basic to you at first, but you must explain them in depth, to your children, to make sure they know all they need to know to get by in the world.

They are never too young. It is never too early to start, as I noted earlier. In order for kids to learn about money, you have to put some money in their hands. Okay? Without some actual dollars and cents to work with, everything you say to them will be a discussion. Simple as that.

Give a child an allowance and you move from thinking to doing. I will say that there are several schools of thought when it comes to kids and allowance. I have my own opinion on that as well. If and when done correctly, an allowance should mimic the role of having a job. and earning every penny the child works for.

Once a child earns an allowance, they can go to the bank to make deposits in their savings account. They can also use the allowance to buy goods by always using cash. Determining if they have enough for the purchase, figuring out sales tax, counting money to the cashier, and counting the change they get back are all part of the learning process.

It is also important to stress to them how to allocate their allowance money. A certain percentage goes to savings first, and a certain percentage goes to charity, giving, and some for spending. The specific percentages can be worked out with the child, okay, as long as they understand that not everything, they have is immediately expendable.

So how do you address credits with kids? Some people think that credit cards are evil and that keeping kids away from them is the only way to keep them safe. It is better for kids to know what to do with plastic when they finally have some in their hot little hands, okay? And who better than you can teach them, about that?

The first time most kids actually learn about credit, it’s when they go off to university and the credit card companies start throwing cards at them with no experience and very little understanding of the long-term 

negative ramifications, kids start to charge, and they charge and they charge until they are in a hole.

That is because they have no prior experience with how a credit card works and how to use one, so it is a tool and not a weapon. All it takes is a little time and a thoughtful approach to help your kids see credit for what it is. 

Useful when used correctly and deadly when it is not. So when you use your credit card, show your kids that you are only putting on the card what you can afford to pay off when the bill arrives.

Explain that you use your card for good reasons, not just to satisfy an impulse purchase because this debt has to be repaid. 

Now, let's look 

at savings. As a culture, we have lost the ability to save. Okay? And the statistics show that. We know we should. and we keep meaning to. But we are completely out of the habit.

If you want your children to grow up, knowing the value of saving, and starting the habit is key. Like brushing their teeth and saying, please, and thank you saving can become something they do automatically because the habit was introduced early. Regardless of your current predisposition to saving you are your kids' most influential teacher.

So you may want to look at the example you are setting. Saving can be easy if you make it automatic and consistent. Teaching your children, the ABC of saving makes a difference between a child who has a good saving ethic and one who spends every red cent he makes because he never learned to defer gratification.

Saving can be surprisingly easy and rewarding for children. It helps them to develop a sense of security and mastery over their money. They can see the result of their discipline and efforts. As the account balances grow and they accumulate savings, they begin to see their money earning greater and greater amounts on its own.

This is an opportunity, a very good opportunity to explain the concept of interest, particularly compound interest. 

Now, spending. Spending is a significant part of money management. So it makes sense to try to help kids figure out the best way to use their money. Since your children do not have needs, on which they must spend money, they don't have any needs, right?

Because they are kids, right? So they have no need at all to spend money on a regular basis. It means taking the time to explain how needs and wants are different. For kids, it's pretty much a want, right? And yet, they view them as needs, which is how they end up not being able to make the distinction later when they grow up.

The fact that needs and wants were not clarified for us and we were never taught about smart shopping is evident in the way we abuse plastic, okay? So more than 50% of American credit card holders have balances owing, paying what can be exorbitant interest rates for products and services that typically fall into the want category and that may not even outlive the repayment schedules.

Okay, so while our values are very different from those of our parents who typically spend only what they have, our 'consumer Ritis' exists in large part because the money game has changed, right? Credit is now a substitute for disposable income. The public debt in America is at an all-time high, nearly 27 trillion, and you are spending huge amounts of dollars on interest every year.

You must help your kids distinguish between needs and wants. between things that are must-haves and things that are nice to have, okay? Whether you are aware of it or not, you already play an important role in teaching your kids how to shop. When you go to the mall, you model what a consumer looks like, and whether your model is positive or not, your kids are learning. Teaching your kids about becoming smart consumers may mean looking closely at your own spending patterns and evolving and developing some new habits. It may also require that you take an active role in explaining what you are doing and why, right?

put shopping into perspective by explaining that shopping is not a hobby or, it is not a pastime. It is something you should be doing consciously and intentionally. So you shop with a list, and you do not buy anything that is not on the list. And you shop with a budget, and you always look for ways to save. So you can put what you successfully kept in your pockets to work for you in your savings. So most importantly, understand your own motivation to consume and walk the talk. Demonstrate how much more important it is to experience things together than it is to accumulate lots of stuff, okay? Do not make up for the time you could not spend with your kids because of work or school or whatever else is making demands on your time by buying them whatever crap they say they want, okay?

If you use stuff as a substitute, you will be teaching your kids the wrong lessons. Focus on keeping money in the right place in your life, and help your children understand the role money should play in theirs. Now, be truthful. Paint a realistic picture of the family's financial state for your child.

In other words, if you cry ‘poor’ every time a kid asks for something, is that sending the wrong message about the family's financial stability? And does it help or hinder teaching kids about money? If the right messages about finances are not being sent, then you can talk about financial responsibility by using words that are less fear-inducing than poor and broke.

Use the child's requests for things as teaching moments by asking a question in return. For instance, if they ask for a toy, perhaps you can respond with something like, don’t you already have one of those at home? What is the purpose of having another one? If we get this one, that takes away money that we could use for food or something really more important. Parental behavior has a huge impact on how kids view the world. In teaching a kid about sound finances, the family should practice the same. Thank you. And if they are not, it would be a good time to start to practice what you preach. The third piece that I want to touch on is teaching kids about money in the digital world.

In today's world, it is not easy for kids to understand the effect of saving and spending, especially when they rarely see coins or bills exchanging hands. Nor do they see it added to or taken out of the physical piggy bank. It is the era of what they call frictionless transactions, where there is no need to hand over cash or in some instances use a card.

Let us not forget that delayed gratification and autonomy are keys to financial responsibility. As our economy becomes increasingly digital, this concept remains important. And in addition, you must highlight the connection between digital and physical money, beginning at a young age. As kids mature, you should continue to reinforce that connection and gradually increase your kids’ level of autonomy while still supporting them in navigating the digital world responsibly.

Try to imagine how your kids see cashless purchase transactions. You take out a plastic card or a phone. It gets swiped, inserted, or tapped on something, and voila. As far as they are concerned, you just got that toy or game for free. And why not just keep on spending if it is that easy? Now, picture how obscure it is to them when kids see you buy something online or with an app by clicking or tapping a few buttons, and what you purchased shows up on your doorsteps a few days or sometimes hours later.

Instant gratification just by tapping some buttons. How do they learn the effects of saving and spending when money is invisible? With each of these scenarios, they are not able to see what happens with bank accounts or credit card balances during each purchase, right? So the ups and downs in your accounts remain invisible to them unless you invite them to review your statements when you do, if you do, and you better be doing so.

So how do you teach your kids the value of money when it is so hard to see the transactions? Some parents stick to the piggy bank model when they give their kids physical money for allowance. In that fashion, the kids bring and use their own cash for any purchases they make. In so doing, the kids may not be totally prepared for the cashless future that awaits them, right?

On the other hand, some parents set up limited-feature checking and savings accounts for their kids. So for the younger generation, frictionless transactions are accepted as normal because they like the convenience and the simplicity offered by this payment method. They don't have to carry those wads of dollars but many of them see passwords and security measures as an inconvenience.

So giving them the skills to manage their money well and in new ways becomes an ever more important job. This new method of payment comes in several forms mobile phone payments, and mobile personal payments, which are a variety of app solutions. digital wallets, that allow you to store multiple payment cards, in a single digital wallet. So you can make simple online payments without the need to type your card details every time you pay. And any of these cards can be... Use to pay online from a PC, tablet, or smartphone, right?

So Children encounter those frictionless payments through iTunes, the App Store, Google Play, in-app purchases, and mobile phone purchases. Online retailers and, of course, gaming. This may all seem daunting, but there's a lot you can do to help your children manage frictionless payments. Some strategies are generally like keeping your password to yourself and sticking to a budget, but many services also have specific tools in place to help 

parents stay in control of their children's spending. Teaching children the life skills of delayed gratification and autonomy are core tenets of understanding the value of money. As the world moves toward a digital economy, it might become more challenging for both children and adults to embrace these skills and it is important to link physical currency to 

digital currency at an early age.

Parents have the opportunity to engage in conversation and have fun while teaching children the value of a digital dollar. Alright, so I will stop here today and do a quick recap. So I shared information about the importance of teaching your children about money and finance. I addressed the importance of starting early, the importance of teaching your kids the basics of money, and teaching your kids about money in this digital world.

So I promised that I would give you my information, so you could reach me. via email at mj@mariejocaesar.com or by sending me a direct message via Facebook. I am going to leave you with these last points. By teaching about money, budgeting, and saving at an early age without being negative about it, you will be able to better strike the balance between necessity and obsession.

Okay, that's real. Making a big deal about money in a negative way could get a negative result. That is why positive reinforcement is helpful when children are showing the correct behaviors. Encourage them when they express an interest in going to the bank or depositing coins in their piggy banks.

Plus, there is the added benefit that they are improving their math skills. Okay. Remember that while society teaches us how to spend and how to be consumers, it is not always evident to your mind how those purchases are made. The almost magical nature of the swipe-and-click way of transacting business must be revealed to them if they are to avoid a lifetime of financial struggle. 

You teach your children to do well in school and to get a good job to make money, but you do not teach them enough about what to do with that money. Since your ultimate goal is for them to be successful adults, you need to teach them well in order to give them the tools to become just that. 

So I will end the show today with a citation from a lady by the name of Nan Morrison. She's a president and CEO of the Council for Economic Education in the U. S. And it reads, “Better education equips kids with the tools to make better decisions, to understand their first paycheck, and take better care of themselves and their families.”

For more information about how to achieve financial wellness from the inside out and live a purposeful life with the money you have, join me next week Thursday Thank you for being here today on the Merging Life and Money show. I am your host, Marie Jo Caesar. I will be back again next week. [00:38:00] Until then, continue merging life and money. Bye for now.