New York Times columnist Ron Lieber writes candidly about the tough questions and situations that parents face as we try to teach financial literacy to our kids
I’m privileged. My parents took an interest in giving me some type of financial education as a child. In high school, for example, I remember having lunch with my dad near his downtown office building. He handed me my first credit card, then explained why he decided to make me an authorized user on his card. My credit score almost surely is higher today because of it.
Most importantly, though, both my mom and dad made themselves available for financial questions. I don’t think I can overstate how rare this is in American culture. When I needed help navigating my 401(k) plan as an entry-level employee in Washington, D.C., they answered the phone. When I debated how to pay off my student loans, they provided input.
Now that I’m both a father and a financial advisor, I’m especially committed to teaching my kids about money at each stage of life. This effort requires more than just holding a CFP® credential, though. The decisions that our family makes about how to handle early-childhood financial education takes — as with many other aspects of raising a child — a village.
In these early years, I’m particularly drawn to and grateful for Ron Lieber’s financial research and writing. By day, Ron is the lead personal finance columnist for The New York Times. But he also has devoted significant time to writing finance books that greatly expand upon columns he has written. I want to highlight here a few selections that I have found meaningful from his book The Opposite of Spoiled. Financial literacy initiatives in the U.S. too often have hidden agendas, but Ron writes candidly about the tough questions and situations that many parents face:
“A number of polls and studies lay out disturbing parental tendencies. Parents are much more likely to talk to boys than girls about investing, protecting their personal information online, how credit card interest and fees work, whether it’s wise to use check-cashing services and what a 401(k) is. Teen boys in one Charles Schwab survey earned an average of $1,880 from chores and jobs, while the girls earned $1,372. This seems to affect expectations, too, since the boys believed that they would earn a starting salary of $79,700, versus $66,200 for girls.
And what do girls get more of? Parents tend to talk to them more often about giving money away.”
“So when do we start? By first grade at the latest, though there is no harm in starting sooner. If a child can count and is asking questions about where money comes from and what things cost, then it’s time to begin. Kids who have gotten wise to the power of pestering parents to buy things are ready as well. Even if children seem oblivious to money, there is subtle power in having them watch their small piles of allowance money grow bigger over time.
“If a child can count and is asking questions about where money comes from and what things cost, then it’s time to begin.”
The next task is to figure out how much money a child should receive each week. With children under 10, 50 cents to $1 a week per year of age is a good place to start, with a raise each year on their birthdays. We want them to watch the money grow and strive for a goal, so they should have just enough to buy some of what they want, but not so much that they don’t have to make plenty of tough choices. Starting low allows for more frequent or bigger raises if the initial amount doesn’t seem right (and avoids a reduction, which can feel like punishment). Older kids will probably need more money, depending on whether they’re paying for meals or gas or clothing.”
“Another tactic that encourages thrift, cuts down on endless nagging, and gives kids some sense of autonomy is the use of prepaid debit cards. These work particularly well during trips or in situations where parents are paying but want the kids to stick to a budget. Lori Embrey, a financial planner in Columbus, Ohio, wanted a ready answer for the chorus of “can I get this?” she feared she would hear on an endless loop when her family went to Disney World for a week. So each kid got a $100 prepaid card that they could use for anything beyond basic food and drinks, which were on Mom and Dad. She even devoted one piece of luggage to snacks and Ziploc bags, so they could choose to tote those around rather than paying $5 for Dippin’ Dots and the like.
“Another tactic that encourages thrift, cuts down on endless nagging, and gives kids some sense of autonomy is the use of prepaid debit cards”
The combination of a strictly finite resource and the control built into having a card of one’s own practically forces a child to think about value and trade-offs. Still, it puts the kids in control, which makes them feel powerful. Even Embrey’s five-year-old son totally got it; he thought hard about his purchases and didn’t pick his souvenirs until the last day of the trip. He also had enough left over for ice cream”
“Many parents avoid talking to their kids about their socio-economic status because they believe that children don’t notice class differences until they’re teenagers. But very young children have a basic sense of what the words “rich” and “poor” mean. In a research study conducted by Patricia G. Ramsey, a psychology professor at Mount Holyoke College, she showed three-year-olds a series of photographs and distinguished between the haves and have-nots. Only half of her subjects thought that the rich and poor people in the pictures would be friends with one another. Other research has shown that six-year-olds keep score of which kids have what sorts of possessions and begin to make judgements accordingly.
“In a research study conducted by Patricia G. Ramsey, she showed three-year-olds a series of photographs and distinguished between the haves and have-nots. Only half of her subjects thought that the rich and poor people in the pictures would be friends with one another.”
By 11 or so, they’re beginning to assume that social class is related to ambition. Around age 14, they begin to wonder whether there is a larger economic system at work that may constrain movement between classes. So even as we’re sorting out our own complicated feelings about the smaller differences between ourselves and many of the people we know, kids are jumping to even bigger conclusions about larger differences. They may not come to the right ones — or to more nuanced ones — if we’re not engaging them in conversation all along the way.”
Through Ron’s writing and the collective wisdom of other financial advisors and journalists, I’m optimistic that my kids will navigate their adult lives with strong financial literacy. In the worst case scenario, though, they (like you!) can always just buy Ron’s book.
Kevin Mahoney, CFP® is the founder & CEO of Illumint, a Washington, D.C.-based financial planning company for young couples. He specializes in navigating the new financial decisions that arise during our late 20s and 30s, such as repaying student loans, buying a house, & investing savings. Kevin also works with employers and brands on a variety of Millennial personal finance events and projects, including speaking engagements, financial wellness programs, and sponsored campaigns.
Visit Kevin's YouTube channel for guidance on young couples' most common financial discussions, including student loans, housing, and preparing for kids.