I was lucky enough to be born into a family where everyone talks about money.  That may seem like a funny sentiment to have, but it’s true.  I have learned so much about money and investing from my parents, grandparents, and aunts and uncles, all because none of them were afraid to talk about money.  This is especially true about my mother.  I can’t count the number of times Mom gave me “the money talk,” but I am absolutely certain I learned something new every time she did it, and I am eternally grateful for it.

My Money Education

I learned how taxes worked when I was about five years old, mostly because whenever my Mom wanted a bite of something I was eating, she’d sing-song “Taxes!” and take a bite.  It sounds silly, and maybe it was just meant to be silly, but I like to think that that sort of forced-sharing did make a little bit of an impact on me.  Now when I cringe at the total of my tax bill each year, I just have to remind myself that I’m paying that because I had a big bowl of ice cream this year, and someone else who has no ice cream would really like a bite.  It’s painful to have to give away some of what you have, but feeling grateful for the gifts you’ve been given (even if you’ve earned them, you were given the ability to earn them) is really valuable.

When I was about 12 or 13, my bicycle was stolen when I was at school, so Mom and I went to go pick out another bike.  She said “you’re not getting this because you deserve it, you know that, right?”  At first I was hurt, like she was saying I was a bad kid.  She explained further: “you’re getting this bike because I worked and earned money, and so we can afford to buy you a bike.  But I don’t want you to think you’re getting this bike because you deserve it.  No one deserves to have a bike.  They can only get a bike if they work and save their money.”  This message took a little longer for me to interpret, and it’s possible I’m not remembering the words exactly as she said them.  But the punchline was that I should be grateful for the bike, that I’m not just getting a bike because I’m entitled to have a bike.  It’s not a given that anyone gets a bike.  You have to work in order to get things; they won’t just be given to you.  (I wasn’t actually old enough to work at that point, which is why Mom bought the bike instead of making me pay for it, but the message was there anyway.)

Helping Your Kids by Building A Work Ethic

Around that same time, I started helping my Mom do the family taxes.  I don’t mean just a couple of personal income tax returns; Mom is a CPA, and so she did the tax returns for the extended family businesses and trusts.  I started out making photocopies, and then filling out the tax forms, and then preparing the financial schedules for the year that we use to prepare the returns.  Little by little, I learned a lot about how the businesses work, and how to prepare loan amortization schedules.  Also, Mom paid me to do the work, and I found that I loved the feeling of making money, which helped me develop a work ethic.

Many parents give their kids an allowance as a way to teach them to budget and spend money wisely.  That’s a good start, and probably appropriate for younger kids.  Some parents go a step up from that, and make their kids do chores for the money, so the kids will learn that earning money is hard work.  That’s a good idea, too, especially as kids get a little older.  My Mom had a similar concept, but rather than paying us to do regular chores, she hired us to do work that required us to learn at the same time.  I’m not saying there’s no value in learning to do dishes.  That’s a fine lesson to learn, and there probably aren’t enough kids learning that these days.  But once a kid learns to do the dishes, maybe the parents should step it up a notch.  Give the kid a promotion of sorts, and teach the kid to balance a checkbook, or help prepare the family budget.

Having the Money Talk with Your Kids

It may be intimidating or uncomfortable to involve your kids in your finances, especially if you’re even a little embarrassed by how you’ve handled your own finances.  A survey conducted by T. Rowe Price showed that 74% of parents were apprehensive about teaching their kids about money, and 28% of parents said they aren’t good with money and so they shouldn’t be teaching their kids about money.  This is a survey, not a scientific study, but it still tells us a lot.  Having the money talk with kids can be intimidating, and a significant percentage of parents feel they aren’t qualified to do it.

If that describes you, consider these points before you chicken out of the money talk entirely.  First, even if you’re not totally proud of the financial example you’ve set, your experiences can be a great learning tool for your kids.  You can show them what happens if you make a couple of poor financial choices, and how hard it will be to dig out of a mess rather than spending a little less (or earning a little more, or both) and preventing the mess in the first place.  Second, sharing your finances with your children can be a great motivational tool for you to do better, too!  It might be easier for you to say “no” to unnecessary purchases if you know that your children are going to be looking over your shoulder and asking why you spent money on those things.

If you are too afraid to have the money talk with your kids right away because you’re embarrassed by recent bad money decisions, then sit down by yourself and figure out what you’d like to change in the short run, keeping in mind that your kids are going to be looking over your shoulder soon.  Set tough goals for yourself, and give yourself a relatively short deadline (three months, tops) to start meeting those goals.  After you’ve passed the three month mark, then have the money talk with your kids.  Talk about the decisions you made before, and your new plan, and why you changed, and what your goals are.

If your finances are already in good shape, then get your kids involved right away.  You can show them what you’ve done, and what your goals are, and compare that to the bad choices you could have made and how much it would have cost you to make those other choices.

What if You Don’t Have Kids?

Even if you don’t have kids (I don’t), you can still be a very valuable mentor to other kids in your life.  My nephew turned 16 this year, and for his birthday, I gave him a choice: $40 in cash, or $100 in a Fidelity account, so long as he promised to keep it in the account for at least a year.  I was stoked that he chose the Fidelity account option.  It opened the door for a half dozen really good conversations about investing, stocks, college, taxes, and retirement accounts.  Even better, we’re going to hire him to help us with the taxes this year, so he can get his feet wet the same way I did.  When my sisters’ other kids get to be a little older, my hope is to involve them the same way.

Involve Kids in Major Purchases

If there’s a major financial decision to be made, such as a buying a house, buying a car, or even choosing an investment property, involve your kids in the decision-making process.  You could show them the item you’re planning to purchase and a couple of other options, and talk about why you chose what you did.  You could talk about how it will be paid for, and explore what would happen if you decided to borrow to pay for it instead of saving up the money first.  You could talk about how much you would have to pay in each of those scenarios, and how many hours you’d have to work to pay back the purchase with interest, versus saving.

Most people are thrown into adulthood having to make those tough decisions without any real preparation for it, which is why so many people make big financial mistakes in young adulthood.  But if you get your kids involved early, there’s some real varsity-level learning that you can pass on, so maybe your kids won’t make some of the same mistakes that their friends are making.

Don’t Wait Until It’s Too Late

I’m really grateful that my Mom gave me the money talk so early.  By contrast, my Dad took the more typical approach.  (My parents divorced when I was four.)  By the time he first mentioned that it would be a good idea to pay off credit cards in full every month, I was 21 years old and about to close escrow on my first condo.  By that point, most of the people I was going to school with were already up to their eyeballs in debt, and most of it wasn’t tuition.  They spent like crazy at clothing shops, and financed all of their furniture purchases, and walked around campus with expensive coffees and boba teas.  I had the impression that their parents must have been bankrolling their semi-lavish lifestyles, but later in our school term, I learned that a lot of them had just been given free access to credit and they didn’t have the financial discipline to say no.

In law school (private school), I met lots of students who had borrowed to pay for undergrad (also at private school), and then borrowed again to pay for private law school tuition, and some even borrowed to get their JD/MBA degree at that same school.  I went to a state school for undergrad, so tuition was cheap and I worked and had family help to tackle it as I went.  For law school, I worked hard and was lucky enough to get more than half of my tuition covered by scholarships, and my parents helped with the remainder.  I had to cover living expenses, which I did by living frugally and working every time school was on break.  But some of my classmates spent freely, and were so unbelievably far in debt that I don’t know if they’ll ever recover.  They didn’t even know what their total debt number was, in many cases.  I’m sure they didn’t want to know.

The really scary part is that not all of those students passed the bar exam after graduating school.  What the heck would you do with that?  You’ve got all this schooling, but you can’t be a lawyer, so you could try to get a job in business, but one of the first questions you’ll get is “why didn’t you become a lawyer?”  And now you’ve got to figure out how to pay back over a quarter of a million dollars in student debt (that’s a modest estimate of private school tuition for undergrad and law school, not counting living expenses).  How much pain could they have avoided if someone had given them the money talk at an early age, so when the decision for choosing a school came up, they could have decided to go to a state school, at least for undergrad, and lived frugally and worked all the way through?

Pick a Kid and Have the Money Talk

Whether you’ve made some smart decisions in your financial life or you’ve made some dumb decisions and you’re just starting to turn things around, grab a nearby kid and have the money talk.  Get up the courage to show a little bit of your finances, and maybe you can save that kid from making at least a couple of dumb young adult mistakes.

Don’t know how to get the conversation started?  Pick a gift that involves the kid in a little decision-making.  A savings bond instead of cash is okay, but it doesn’t really involve any choice on the kid’s part.  Try giving an investment account and help the kid manage it and learn how to research stocks.  Give the kid a piece of an investment property and teach the kid how rents are collected and books are kept, and how the property is maintained.  Teach a kid to earn his or her own money, and you can keep each other motivated for years to come.

Have you ever mentored any children in making smart financial decisions?  Do you involve your children in your household finances?  Did you parents involve you in their financial decisions?  What have you learned from watching your parents or other adults handle their money?