All parents want their kids to succeed and live good lives, and part of accomplishing that is raising them to understand the value of a dollar. We talk to Beth Kobliner, a financial expert and author of the book Make Your Kid A Money Genius (Even if you’re not) about tips and tricks to help our kids, from toddlers to post-grads, handle money responsibly.
- Beth Kobliner, financial expert and author of Make Your Kid A Money Genius (Even if you’re not)
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Teaching Your Kids About Money
Karen Hand: For generations, Americans have chased the American dream. And once you’re a parent, you want your child to live the American dream. You want your kids to go to a nice school, get a good job, buy a new house, even get to see Hamilton on Broadway. And so, from the day your kids are born, you may begin to wonder what you can do to set your child up for financial success. According to Beth Kobliner, a financial expert and author of the book, “Make Your Kid a Money Genius (Even If You’re Not),” the answer is to start young… like, really young.
Beth Kobliner: Research shows that by age three kids really understand the money basics. They understand that when you give money for something, you get something back. They understand exchange. It’s really important to start talking to kids at very young ages, three, four, five about wants versus need. We want chocolate milk, but we need milk. So when we go to the store we’re going to buy mostly things we need and sometimes we’re also going to buy things we want. Making that distinction at a young age is a great way to get started.
Hand: Kobliner stresses that teaching your children about money is a process and that each children is different but that there are some common guidelines she encourages all parents to follow:
Kobliner: Generally speaking, it’s smart to talk to girls as much as you talk to boys because research shows that parents seem to be less likely to talk to daughters about investing topics for example than they are to talk to sons. You also want to not lie about how much money you have on you. If you’re with your kids and they say can we buy this and you say no, we don’t have money, then you turn around and buy a coffee with your credit card or debit card, they see that and they know and you’re busted. It’s better to be honest and say nope we’re not buying that right now. That’s something we’d love to have but we don’t have the money. We’re not going to pay for it right now. And explaining to kids rather than lying I think is important.
Hand: Once a child understands value and the distinction between wants and needs, Kobliner says you can begin to teach them how to prioritize.
Kobliner: It’s great to set a goal and it’s great to say okay this is the Pokémon you want or the speakers you want – whatever it is, whether you give your kid allowance or they get money from grandparents, whatever it is you want to have them save that money and talk about what they call opportunity costs. You don’t have to use that term, but it’s that basically, if we’re going to spend our money on snacks after school, then we’re not going to be able to put that dollar into that jar that you’re using to save up for that Pokémon. So starting to have concrete goals and save up money in a very understandable way is great.
Hand: And Kobliner says the opportunities to make your children feel a part of their own financial future continue to pile up, as they get older…
Kobliner: When a kid turns eight or nine and maybe they have fifty dollars or so, opening a bank savings account making sure it’s a bank that doesn’t charge fees for very low balances is very smart because it’s a real way to concretize the idea, okay I’m really taking this seriously now and I’m saving in a place that will keep my money safe. When the kid gets a little older you can help him transfer to a online bank, so he’ll probably get 1% interest, a little bit more than you get in a regular bank. But just the experience of opening a bank account is really key for kids, something that my generation most people fondly remember opening that first bank savings account and that just doesn’t happen as much anymore.
Hand: An important factor in the whole discussion, though, is how your child receives money. Do they get monthly spending money? Do they just get gifts around holidays and their birthdays? Or maybe you make them earn their own money? Kobliner says these tactics all have benefits and drawbacks, but ultimately it comes down to the lessons they’re taught about handling that money.
Kobliner: I looked at more than two dozen research studies on this and found that actually giving kids allowance is not the financial Holy Grail. You don’t have to give kids allowance. I think parents get a little stuck on that, they’re like Oh we started it then we stopped. The kids forgot to ask us about it. But the important thing is whatever you’re giving, however your kid gets money, whether it’s from grandparents or you give them from tome to time, be clear on what you expect them to spend money on. So if you get them a pair of sneakers, but they want those designer sneakers, you’re like, okay that’s on you. You’ll have to save up for that. So be clear about what they’re supposed to spend their money [on] and be consistent.
Hand: There are some money-providing habits Kobliner says parents should avoid.
Kobliner: Don’t tie allowance to chores. It’s good to give kids chores, but research has shown that it’s important to give them that responsibility so they feel like they’re doing their chores as being part of the family, a team player and not just getting money for it. That feeling of being a team player working responsibly to be a member of the family is one predictor of how likely someone is to go on to graduate from college or get a job even. So keeping chores separate from allowance is really critical.
Hand: Another money-providing habit Kobliner warns parents about is co-signing on a credit card for a high school or college-aged child.
Kobliner: Parents sometimes think, well, they’re young; I’m going to give them what they call an authorized credit card and let them use my credit card. Some parents think they are helping their kids build up credit and they may not be the case depending on what kind of card it is. But also if the kid makes a mistake that could have an impact on your credit score. I’ve met many parents that said, Oh I gave my kid my credit card, co-signed it and my credit score is now damaged because of it. So I think talking about credit cards even with middle schoolers or elementary school kids, when you use this, this is like borrowing money. Now when you borrow money you have to pay it back with interest. So buying something like an iPad for $600, if you can’t pay it all back it might end up costing you close to a thousand dollars when you add on the interest, making that a concrete point.
Hand: Kobliner recommends parents find a way to provide their college students with some spending money without securing them a credit card.
Kobliner: It’s fine to say, we’re going to give you whatever it is… $200 a semester…whatever you feel is appropriate. You can give it to them on a limited debit card or it can be a debit card attached to your account, but you only have a specific amount of money in it and no overdraft protection and no way to tap into more money. When it runs out, it runs out.
Hand: And of course, Kobliner has some advice for actually paying for college itself.
Kobliner: First off, living in college is usually a time when you’re not supposed to be spending a lot of money, having your kid chip into college actually research shows that if they have some skin in the game they are giving some money towards college, that actually kids that do that have slightly higher GPAs. I think when your kid is older and graduating, not paying off their student loans, if you have a lot of money and that’s not a problem, there’s nothing wrong with it, but if you’re sacrificing our own retirement money and you definitely don’t want to tap into your 401K to start paying off your kid’s college loan.
Hand: Kobliner says all of these tips can help parents guide their children, from age 3 to 23, to make smart financial decisions. And these decisions can really pay off down the line. For instance, your child’s high school job could actually help secure their future in retirement.
Kobliner: If a kid starts working at say age fourteen and maybe they just work over the summer, maybe they get a thousand dollars over the summer and they do that for four summers in a row and they put the full thousand dollars into a Roth IRA and they never put more money in that again, if they started at fourteen and get to eighteen, by the time they are finished working and they never touched it and they put it into an investment that earns only 7 percent, which is a reasonable expectation of the long period of time, you can expect to have $100,000 in that account. And that is pretty amazing.
Hand: For more of Beth Kobliner’s advice on how to help your children succeed with money, you can find her book “Make Your Kid a Money Genius (Even If You’re Not),” in stores now. For more information on all of our guests, visit our site, viewpointsonline.net. You can find us on Twitter at viewpoints radio. Our show is written and produced by Evan Rook, our executive producer is Reed Pence, our production director is Sean Waldron. I’m Karen Hand.