Resolve to Talk to Your Kids About Money and Investing

J. J. Wenrich CFP
Dec 13, 2020 · 6 min read
Photo Credit to Visionpic.net via Pexels.com

In the real world, the turning of the calendar can be a busy time financially with the holidays, year-end bonuses, tax deadlines, etc. so it makes for a good time to share financial lessons with our kids too.

While many New Year Resolution diets, exercise routines, and other versions of “This time it’s different” will be distant memories by Groundhog Day, here’s some things you can do with your kids to teach lessons that will last a lifetime.

Strong personal finance habits and knowledge can play a considerable role in the quality of your life, therefore, it is important to help our kids develop these skills before we release them to the world.

As always when working with kids (or anyone else), it is easiest to learn lessons and habits if they are fun, interesting, and relative to their world.

Savings Contest

If there is one personal finance lesson that ranks supreme, it has to be “Spend Less Than You Make”. How you handle your day to day, month to month cash flow determines whether or not all the other lessons even matter.

Despite its importance, many adults struggle to save on a regular basis. Saving money is not a skill or discipline that comes naturally to many, but like many healthy habits, it can be developed with focus and education.

We can help our kids learn this skill by encouraging them to save (and share) before they spend their money.

For some kids, the holidays may be a time of cash inflow if they receive monetary gifts from relatives. Help them prepare, and have a plan to save, share, and/or spend it responsibly.

It can be difficult to convince kids (and adults) that you should save some of that newfound wealth for a rainy day, let alone invest it for the future.

Why not make a contest or challenge out of it?

  • Challenge your kids to save a certain amount of money, and if they reach the goal, you will match a portion of it as incentive.
  • Challenge your kids to still have X% of their holiday money by a certain date, maybe in a few weeks, months or next year. Offer some sort of match or incentive for reaching the goal.

With our kids (three in three years, now teenagers), we challenged them to save $500 when they were young, with an incentive to match it when they reached the goal. It took several years, but they each reached the goal.

(By the time they reached the goal, we changed the rules that the match would be invested in stock or stocks of their choosing. They were young and didn’t notice the bait and switch and went along with it.)

By making a contest out of it, you help them get in the habit of saving. They find out that it doesn’t kill them to delay gratification to save. They may even get a sense of pride and responsibility from knowing they have saved their own money and be less likely to spend it frivolously than prior to saving it.

Budgeting for Gifts

Do your kids give gifts? Are they involved in the process?

If they are spending their own money, help them develop a budget for the gifts they are giving, and plan ahead for how much they can spend on each person.

If you purchase the gifts and then put the kids name on it, consider having the choose gifts that fit within a certain budget.

Stock Market Contest

How do you talk to your kids about the stock market? Simple: Talk about companies they know about, that are also publicly traded.

Why is it healthy to teach kids about the stock market? While that question could make a good blog post of its own, here’s a couple quick reasons.

  • Financial and investment literacy are important skills no matter what walk of life kids take, even if they never actually pick their own stocks with real money. Knowledge and awareness of financial markets, even on a shallow level, will make them better consumers of financial services and less likely to be taken advantage of or fall prey to gimmicks.
  • Stocks are businesses. The more aware kids are of the businesses around them as they grow up, the more business literate they will be as they enter the real world. These kids are future entrepreneurs, employees, CEO’s, etc.

To make it fun to begin learning about stocks, have a contest! Every family member picks one or two stocks for the upcoming year (or you can choose a shorter time-frame), and the highest return wins!

With our family, we made it an annual event, and even had small trophies made for the winner each year. The bragging rights on those trophies are NO JOKE!

Help kids think about companies they know and interact with — keeping in mind you are trying to find a company you wish you OWNED. Help them figure out if the companies are publicly traded. (Hint: Google it). Show them the share price, chart, etc.

Remind them to check on the stocks every so often throughout the contest. You can even give periodic updates on the “rankings” to keep them interested.

It is a great way to help kids (and adults) become more aware of the financial markets, and to think about stocks as businesses.

(For more tips, I did write a book about how to do this).

Year-End Giving

The holidays and end of year are the perfect time to talk about family values around giving, as well as any “tax incentives” that may apply to your situation.

Does your family donate money to any charities or non-profits throughout the year? Do you do special end of year giving?

Many families make giving part of their budgeted monthly or annual expenses. If this is you, tell your kids why you do so.

Talk to your kids about these things to that they know about them, and are more likely to follow your path when they become adults.

Do your kids have any charities or non-profits that might be close to their hearts? Maybe they want to make a special end of year gift as well.

A simple conversation about how you feel about generosity will leave a lasting impression on a growing child.

Of course, generosity is more than money! You can be generous with your time, knowledge, kindness and many other things too.

What About You?

While we’re on the topic, do you have any financial goals for the new year? Have you considered sharing them with your kids? Just a thought… as you may know, kids can be great accountability partners!

Depending on where you are in your financial journey, the New Year is a great time to begin participating or increasing your contributions in your company 401k or retirement plan, begin saving for your emergency fund, or setting up a college saving plan for your kids.

While diets and exercise routines can be hard to stick to… automated savings and investment plans are more likely to still be around this time next year because they are, you know, automated. Consider setting up automated savings and investment drafts on the same day you get paid so that you are “paying yourself first”.

Smarter Every Year

No matter what your situation, the new year is a great time to review and make a plan for your finances, and if you have kids, it’s a great time to make a plan to raise their financial IQ!

Just like with compound interest, a little bit over a long time can turn into a lot!

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