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November 28, 2016

How to teach your children about money

While we normally talk on this website about „How to invest“, one of the most discussed subjects that comes up in conversations with clients and friends is how to teach our children about the value of money. As a father of two daughters, I am all too familiar with this hot topic! We want to share here what we have learned from our own experiences and from various other sources. This post is a little bit different than our usual investment advice, but we hope you still find it useful.

We parents are all in this together and I think most of us want the same things for our kids when it comes to imprinting good values, virtues and character traits. If you have questions, please do not hesitate to get in touch.

Talk about it

My biggest takeaway from bringing up my own children is simply to communicate more with them about your finances. But money is often a taboo subject matter, especially in Germany, where even partners eschew this topic. It doesn’t need to be and shouldn’t be. Since dealing with money isn’t really included in most school curriculums, parents have to play the key role in teaching important money management skills.

Kids are constantly learning. At a young age, children learn by listening and imitating those around them; language is learned this way, as are social skills and money matters. When they hear us talk about finances in our daily conversations, it becomes a matter of daily life and not a taboo subject.

This can be a difficult task for some because it can require a hard look in the mirror about their own financial habits. So many people make terrible choices with their own money – it is tough to pass along good financial habits when you don‘t have many yourself. Just be aware that kids learn from how they see us act not just what we say.

Be as honest as you can with with your kids about money to establish trust. Have an open door policy and don’t skirt any big issues.

One trick that we found useful is first trying to figure out why the children are asking us a specific question. If you ask them why they come to you in the first place, you gain some valuable time to come up with a good answer and you also understand better what is really behind their inquiry.

Why talk about it?

One of the best books I have come across is Ron Lieber’s „The Opposite of Spoiled“. My favorite quote from the book is when Lieber says “Every conversation about money is also about values.” I like the idea of using money as a tool to teach your children about the right values. Money doesn’t have to be the root of all evils if you frame it correctly and put it into perspective. Seen through this lens, talking about money just becomes another way of conveying what is important to us as parents.

How to talk about it?

When other parents tell us what they are most worried about, the term „spoiled“ usually tops the list. But how do you avoid kids getting spoiled? We are not talking about „The Rich Kids of Instagram“, which are probably every wealthy parent’s nightmare with their bottles of Kristal on private jets and more bling than a Kardashian’s wardrobe. We are talking about normal parents who have worked hard all their life and want to ensure that their children don’t lose their work ethic.

Spoiled is negative term and for education we need a more positive leitmotif. There are probably four attributes that most parents want to instill in their kids: generosity, curiosity, patience and perseverance. I think these attributes can all be taught with the concept of money and here are some examples how:

ValuesDaily life
GenerosityGenerosity has the biggest crossover potential for teaching kids how to be a good person. Parents should talk openly, why and how they give to others
CuriosityMake kids aware how good they have it without preaching to them. Help them gain perspective, not all of us live in socio-economically diverse neighbourhoods. Show kids how to help others nearby, maybe less fortunate
PatienceKids want an iphone, toys, clothes, etc. Giving an allowance teaches about patience. Kids learn that they can spend the money now for small things or save up and buy something bigger later. They can’t have evertything at once – an important learning experience
PerseveranceAsking kids to help with the chores makes them tie the allowance to doing actual work. Work is about perseverance

Bottom line

What we presented here is not the perfect road map. We need to realize that not all children respond the same way to every parenting method. There is something of a trial-and-error process where you try to take what has worked for others and apply it to your own very unique situation and child.

Instilling good money habits in your children is arguably one of life’s most important lessons and we hope that you find some of the issues we highlighted in this article useful for your own situation.

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