It’s a rare day when a client doesn’t ask me about kids and responsibility about money. I’m in the interesting position of having talked to thousands of people about their childhoods while simultaneously observing how they now live their adult lives. And I’ve come to the conclusion that the best way to raise financially responsible children is to teach them cause and effect.
The idea is simple: Give kids logical consequences and explanations for your decisions. When possible, include them in your economic decisions. For example, “I’ll buy you those expensive shoes. But if we’re going to spend that extra money, then I’m going to have to take that amount away from some of your other clothes. Are you sure you want to do that?”
Cause and effect, in practice, simply means: If A, then B. If we do A, then B will result. It sounds simple, but it’s a powerful tool for teaching kids how to think. In order to become fiscally responsible, they first need to know how to think. Of course, none of this is to imply that kids should make the final decisions. The point is to teach them the logical consequences of those decisions.
Too many parents don’t reason with their children. Some try to give their kids everything they want, but shield them from the consequences and stresses involved. This creates unrealistic expectations in the child. Other parents go to the opposite extreme; being authoritarian without providing reasons why they’re saying “no.” Don’t just preach that “money doesn’t grow on trees.” Include kids in decisions involving their own spending as early as possible so that they can begin to grasp, on their own, that money definitely does not grow on trees.
I had a friend who owned restaurants, shopping centers and residential developments. As often as possible, he included his 11-year-old son in each and every negotiation and meeting; allowing him to sit quietly and listen to the goings-on. After the meeting he would ask the boy to verbalize his impressions of the outcome. When I was with them, it was amazing to hear them discuss business matters that would affect the million-dollar company that the boy would eventually inherit. I have met few brighter 11-year-olds.
Older children can benefit from having a part-time job if they can juggle it with school. This will give them some spending money and an increased sense of ownership over their finances. Ideally, kids should have their own checking accounts by late high school or early college. Savings accounts can start even earlier.
Younger children can be given an allowance in exchange for certain chores, but also for the purpose of learning how to conceptualize and manage money. Don’t just tell them what to do with their money. Instead, teach them to ask intelligent questions of themselves. “Do I really want this toy badly enough to pay for it? Will I still want it tomorrow, next week and next month?” It also helps to avoid impulse buying by encouraging them to wait 24 hours before making a bigger purchase. And it works both ways: Never let your child or teenager pressure you into buying something on impulse. Give yourself time to think about it.
Quite honestly, few things nauseate me more than hearing a parent say, “I want my kid to have everything I never had.” This is one of the primary reasons that some grownups aren’t as rational about their spending as they otherwise could have been. Post-World War II parents were particularly guilty of this error, as were parents into the ‘60s. Their children now run the world today. Need I say more?
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