Great Parents Inspire Children with the Magic of Money
Financial pros weigh in with timeless money advice for parents
Given her druthers, Alicia R. Hudnett Reiss might have kids riding in shopping carts with a calculator helping their parents keep track of purchases. At the least, she suggests youngsters should learn about money as early as possible.
“That may be around age 2,” she said. “Then you can start having conversations about working in order to make money, in order to pay for food and your home and anything you buy at a store.”
Youngsters should learn about money as early as possible. Around age 2, start having conversations about working in order to make money, in order to pay for food and your home and anything you buy at a store.
Hudnett Reiss, a certified financial planner and personal finance expert, joined other money pros to offer advice for how and when parents should talk to their children about money.
A personal finance blogger, three-time dad Luke helps people become debt free. He is also a police officer.
Moyer wants people to be “a SavingFreak with your finances.” He shows how to manage finances, invest for the future, and “save money on just about anything.”
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Harzog is a credit card expert and columnist at U.S. News. She is the bestselling author of “The Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free” and self-described recovering CPA.
“There are great ideas for talking to kids about money from U.S. News,” she said. “One suggestion is to start a coin collection together. I think that’s cool. When they’re old enough to earn an allowance for chores, start teaching money concepts — the sooner the better.”
The Experian blog offers easy ways for parents to incorporate financial learning into their kids’ daily lives.
“Children understand more than we realize,” Luke said. “Often, we continue to talk to them like they are babies well beyond their baby years. Working for money and the importance of saving can be taught extremely early on, even when they are toddlers.”
Into the Future
Further on, Moyer would move into more advanced money concepts.
“The main advantages of savings accounts is that they are safe because of Federal Deposit Insurance Corporation protection and are easily accessible,” he said. “The only real disadvantage is that you are not going to get the same interest that you can with other investment options.”
While Experian notes that starting a family can be incredibly exciting, “It can also be overwhelming and expensive. Reduce your stress and the impact of surprises by preparing as much as possible.”
Experian’s blog includes several helpful posts:
- Take steps to get ready financially.
- Pay close attention to any tax benefits you qualify for. Find out what the child tax credit is and how to qualify.
- Find out what to know before taking on the awesome responsibility of adopting a child.
“I’d give the same advice to both moms and dads,” Harzog said. “Revise your monthly budget and your financial goals because kids are expensive. Also, enjoy parenting because it’s awesome.
Revise your monthly budget and your financial goals because kids are expensive. Also, enjoy parenting because it’s awesome.
“Start a 529 Plan or start a savings account for college,” she said. “It’s never — ever — too early to start the college fund.”
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Luke knows from experience that having children brings many adjustments.
“As a new parent, your head is probably spinning,” he said. “You’re still amazed someone put you in charge of a little human. As a parent, your focus should be on teaching your child more about money than your parents taught you.”
Moyer advised parents of any age to remember that saving is money that can be accessed quickly for either a known expense or an emergency. Investing is for a longer term and geared toward higher interest.
The Experian blog notes that parents who start educating their children about credit early can help set youngsters up for success later in life. A post details what kids should know about using credit cards.
Prep for the Unexpected
“Start by setting an example,” Harzog said. “Teach kids to save for an emergency. Depending on their age, show them how the family sets up a budget and tracks spending.”
Hudnett Reiss believes money management is one of the most important subjects anyone can learn about in life.
“Teach your kids that money in itself is not a bad thing,” Luke said. “Work equals reward. Avoid giving an allowance. Teach your kids to work for commission. Pay them appropriate amounts when they complete specific chores.”
In sight of inquisitive young eyes, parents’ financial behavior affects their children’s money habits.
“If you make a lot of impulsive purchases and never talk about budgeting, kids notice that,” Harzog said. “They learn from watching and listening. Be a role model.”
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That applies to issues beyond money.
“Children can pick up on stress in the household,” Hudnett Reiss said. “That includes financial stress. All of these little things — good and bad — build up over a childhood and will affect how children manage money.”
Every moment is an opportunity to learn.
“We know children look up to their parents and imitate them from early on,” Luke said. “The more you teach, the more they understand. Focus on practicing what you preach. Be the best role model you can be.”
“One of the simplest ideas is to show them your paycheck,” Hudnett Reiss said. “Then show them the household bills. Then show them your savings account statements.”
Luke advocates following a natural education progression.
“When your children are young, teach them about coins and cash,” he said. “As they get older, let them pay for birthday presents with their own money. Let them count out the cash for the cashier. You are your children’s best resource.”
Having an Equitable Peace of Mind
Financial solvency is a calming influence for the entire family.
“Paying off debt is going to help you the most,” Moyer said. “The negative interest and stress of debt are much worse than your investment gains.”
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This is one reason why parents should help their teens with budgeting. The Experian blog features ways to teach kids about finance, money management and credit. Bank of America’s Better Money Habits includes tips for teaching teens about money.
“Teach them what they need to know about credit — both the good side and the bad side,” Harzog said. “The more they know, the less likely they are to misuse credit cards.”
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For Hudnett Reiss, teens are in prime time for money education.
“At this age, parents can have more substantive and meaningful money conversations about earning income, paying bills and saving,” she said. “Personal finance means personal financial responsibility.”
That includes taking financial initiative.
“Teach your children the importance of dividing their money up as soon as they receive it,” Luke said. “Too many kids learn they should spend all of the money they get. This immediate consumption and lack of discipline leads to adults who over spend and spend every penny they make.
“Teach your children to separate their money into spend, save and give,” he said. “By teaching the importance of only being able to spend a portion of what they earn, they will be better prepared for life.”
Moyer’s short-term investments include high-interest savings, money market accounts, certificates of deposits and WorthyBonds, which is a newer platform that allows investment in corporate bonds.
“It’s higher return and risk than traditional savings accounts, but WorthyBonds have been a real winner for me,” he said. “They are giving 5 percent, and the money is completely liquid. All investments are backed by the businesses taking out the loans putting up collateral.”
Falling Prey to Desires
As enthusiastic as they might be, parents should beware of making money mistakes with their children.
“Don’t buy them everything they want,” Harzog said. “Teach them how to save money for a big purchase. Also, teach them they need to have a rainy-day fund in place first.
“Teach them the joy of earning money and buying something with their own money,” she said. “Some parents just give their kids too much. They don’t learn how to manage their money.”
Hudnett Reiss warns against not talking openly to children and the family as a whole about money, while Luke questions allowances.
“What is allowance?” he said. “Allowance sounds very similar to welfare. Avoid giving your kids the idea that money is free. Train your children to understand that money is a reward for hard work.
“Teach them the joy of working and earning money as part of a job well done,” Luke said. “This will not only instill great financial habits, but great work habits as well.”
Moyer contends that the best type of savings account is a high-interest account.
“They are not associated with brick-and-mortar branches and give interest rates 20 times better than a traditional account,” he said.
Along the way, parents also need to keep an eye open for criminal elements. An Experian blog post states that child identity theft can be a scary crime for parents to face. Through vigilance and preventive steps, it’s possible to reduce the risk that a child will become a victim of identity thieves.
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There are other pitfalls for aging parents to avoid.
“Don’t give kids your retirement money,” Harzog said. “You have to have boundaries if they ask you for money. Do what you can within reason, and freely give advice if they ask. Refer them to a financial advisor, if needed.”
Stay True to Yourself
Hudnett Reiss is sympathetic — up to a point.
“I can wholly understand parents’ desire to do anything for their children,” she said. “Just try to make sure that it is not at the detriment to your own finances.”
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Preparing for life’s end is also a priority.
“If you haven’t done so already, set up a will,” Luke said. “A will allows you to save your children the heartache of making life-altering decisions without your help.
“Show them how much you care by making your wishes known,” he said. “Take the potential drama out of any future inheritance debates.”
All of these elements come together so parents can make sure their families are financially protected.
“Having an emergency fund is essential,” Harzog said. “Both partners need to know banking information and passwords. Also, get with an attorney to have a will in place.”
Hudnett Reiss gave these necessities:
- A six-month emergency fund.
- Life insurance for those in the household whose income the children are dependent upon. This can also include a parent who does not work outside the home.
- Estate planning documents such as a will but also guardianship papers.
“If you are not debt free, you need life insurance,” Luke said. “At a minimum, 10 times your yearly salary is preferred so your family can continue with their current quality of life.”
Long before end times, money should already be at work.
“Getting started with investing can pay off in the long run,” Moyer said. “The most important thing is to keep investing and have a long-time perspective.”
Some of the best advice for parents is to have an open ear.
“Let children know they can come to you with questions or if they need help figuring out how to get out of debt — without judgment,” Herzog said. “That’s a big one.”
Pursue a Happy Ending
Lessons today will come in handy tomorrow.
“Teach children about personal finance and personal financial responsibility,” Hudnett Reiss said. “Explain that money management skills are life skills they will need and use forever.”
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Even more important is that there are no absolutes.
“Remind yourself that no one is perfect,” Luke said. “You will make mistakes. It’s how you learn from and bounce back from mistakes that will have the biggest impact.
“Show your kids that it’s OK to fail as long as you learn to avoid making the same mistake twice,” he said.
As time and money march along, there is no rush.
“The most important part of investing is being patient,” Moyer said. “For saving, remember to not only save for emergencies but for known expenses such tires, taxes and other predictable things.”
After that, all bets — if that’s a good financial strategy — are off.
About The Author
This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.