Good intentions gone bad: How to make your kids money smart

If you want your kids to become financially irresponsible, have poor money skills, become deeply in debt and remain financially dependent on you, start by giving them everything that they want and never holding them accountable for their finances.

Also, avoid discussions around budgeting, debt, bank accounts, investing or saving. Let your children discover the meaning of these words by the mistakes they will make when they are adults.

For children to grow up to be financially responsible adults, they need to have the opportunity to handle money often and from an early age. The ideal time for children to learn the consequences of poor planning and budgeting is while they are living at home. When they live safely under your roof, it’s okay for them to learn how it feels to spend money on something frivolous, and then not have money available at a later time for something they really want or need.

You most likely expect children to clean their room, help with the dishes, take out the trash and do other daily chores. And you may give them a weekly allowance for their efforts. But consider offering them the opportunity to make extra money by helping you organize the garage, wash the windows, or do another job that goes beyond the normal routine. Teach them very early the benefits and rewards of hard work.

We live in a culture that promotes consumerism and entitlement, but these values do not lead to personal happiness or financial success. Help your children understand that money is merely a tool, not an indicator of self-worth. Set an example for your children by living within your means. Emphasize low- or no-cost family activities such as board games, hiking, reading, or family movie night.

Even if your kids are spending their money on the wrong things, let them do it. They’ll learn from it, and it provides an opportunity to talk about it at a later time. Recently when I was shopping, I overheard a mother belittle her son for the choice he was making while selecting a toy. She believed the toy was a waste of money. Her behavior was instilling self-doubt in her child. The toy he selected will always have negative connotations and may just sit on the shelf because the child, consciously or not, will be affected by his mother’s outburst.

Giving up control and letting kids make mistakes is part of teaching them. While a child is under your care, set guidelines to keep their mistakes limited to small-scale lessons. But let the amount of money be high enough to learn about critical financial principles. Give them the freedom to make choices based on their financial limits.

A fun grocery game that takes a bit of patience is to give your young children a set amount of cash, say $3 to $5 when you are grocery shopping. Set your expectations before entering the store, such as, you expect the child to behave. And tell them candy is off-limits. Once the parameters are established, they can buy anything that fits in the budget. (Caution: This may be something you would not select.) This gives you the opportunity to discuss price and value. Once they’ve spent their allocation, they’re done. If they were not satisfied with their purchase, remind them that next time they can make a better choice.

As your child grows older, these rules should change. You can ask them to plan a meal, establish the budget, then purchase the items for the meal. However you choose to implement this suggestion, over time it provides ample opportunities to discuss seasonal items, sales tax, product placement, generic items, etc.

In our household, we only bought large-ticket items for our children when it was their birthday or at Christmas. If they wanted an expensive item not earmarked specifically for a gift, we would offer to pay half the cost. This meant they would need to save their cash until they could afford the item. If they did not save for it, we learned the item really wasn’t important. When they did save for the item, they were rewarded and also learned the benefit of delayed gratification.

Create learning opportunities that work within your family dynamics. Every summer before school started, we would spend a day shopping for the school wardrobe and necessary supplies. To plan for this day, we identified a budget and listed the desired items. The budget would then be dissected and prioritized to address items that were necessary vs. something that simply was a want.

Again, any rules for what was acceptable or not would be established before we left home. An envelope of cash was earmarked for each child. The day was spent shuffling between stores and finding the desired items within the budget. We would break for a nice lunch and then shop again until the task at hand was completed.

At 16, all three of our children received their driver’s licenses and wanted the freedom of driving to school, afterschool activities, and their friends’ homes. To accommodate their wishes, we provided each of them with a basic used car. With the car came new responsibilities. They were responsible for paying for the car’s gasoline. This meant they needed to come up with a small side business or find a part-time job. Their bi-weekly allowance would not cover the new expenses of owning a car.

Take your child to the bank and open a bank account or brokerage account. Each month after receiving the statement, spend a few minutes discussing the information on the document.

When my oldest son was about 7 years old, we opened a bank account, and he made his first deposit. He was in tears as he handed over his sum of cash to the bank teller for deposit. But, several years later, he was ready to open a brokerage account. He quickly learned the benefit of compounding interest.

Fast forward 20 years and he has traveled the world on a shoestring budget. He discovered that the money he saved is too precious to waste on frivolous stuff. And when he does spend it, he chooses to use it for life experiences.

Even when the kids are very young, speak to them about charitable giving. Talk to them about organizations they might like to support, then earmark part of their allowance for donations to those causes. Take them with you when you are volunteering. When they are driving, encourage them to spend some time volunteering on their own. When my daughter turned 16, she decided to volunteer at a local animal shelter as a foster kitten mother. While she was learning to be philanthropic, she also learned she loved cats. Her favorite kitten, Dusti, is now a member of our family.

Don’t let your good intentions of providing your children with a good life go awry. Take as many opportunities as possible each day to teach your children about money. The skills you teach your child as they are developing, good or bad, will last a lifetime. Think wisely about your actions while you are raising your children, so when they are grown, they, as well as you, are financially independent.

Teri Parker CFP® is a vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. Reach her via email at Teri.parker@captrustadvisors.com.