Make our kids rich?

Continuing my theme of children this week … what can parents do to teach their kids financial smarts? I don’t see any way to guarantee our kids will be wealthy, and I’m not even sure that’s an admirable goal. But we can certainly teach our kids financial smarts, and help them stay out of financial trouble once they leave the nest.

I think one of the best things we can do is lead by example. I began sharing with my 13-year-old very early on that I was saving for her college years, and how exciting that was. With my savings, her hard work in school, and probably some loans and a part-time job later, she would be able to afford any college that she could get into. Each month I share with her the statement I get from the 529 plan, and she can see my regular contributions. The statement also helpfully breaks out “contributions” from “earnings” (i.e., appreciation) so Kate can begin to understand how interest and wise investments in stock and bond markets can help money grow over time.

Do I think Kate understands all the intricacies of her 529 plan and the stock market? Of course not. But she does understand that each month I put money away for her, and that it’s growing to a good chunk over time, and that with her own contributions (later) she will be able to go to college. Helping Kate understand the practice of long-term saving also helps me when we have those discussions around things she wants (like a new winter coat, even though last year’s is fine, grrrrr).

Then there’s the old allowance practice. I’ve heard from many friends that they never had allowance growing up, and had to ask for things as they wanted them. What worries me about this is that it puts responsibility on the adult to say “yes” or “no” each time, and to the kid it seems arbitrary, or a game to be won by whining (they don’t see the bills, right?). I prefer allowance, because it puts the money management in the child’s hands, and responsibility for a small number of chores to earn the money. If my niece blows her money, that’s fine by me. She won’t be getting any more until her next allowance. (I don’t do advances.)

When kids are little (say, ages 5 to 7), there aren’t a lot of chores you can reasonably expect. One I used with Kate was making her bed, and also helping put away her clean clothes. Now that Kate is 13, her chores include taking the trash cans to the curb once a week, taking out the recycling, bringing in the mail, and emptying the dishwasher every day. For that she gets $15 a week, out of which she must save $5. You would think this savings requirement would be a subject of huge controversy, but it’s not. Since I’ve required her to save part of her allowance since she first started getting it (around age 6), it’s now just routine. She doesn’t question it, and what’s more, when she gets a windfall, like birthday money from a relative, she actually puts a fraction of that into savings, too! (I swear I’m not making this up.)

Besides a positive example and personal responsibility, I think kids learn a lot through play. One of my favorite games to teach basic financial concepts and planning is the game of Life by Hasbro. You drive around the board in your little plastic car and deal with fairly real life decisions. Early on in the game you get to choose college or immediate career; you get to choose to get married (when I play, I usually marry a boy, and add the blue pin to my game car). Each decision has financial consequences. And random stuff happens, too, when you roll the dice. Kate has outgrown the game now that she’s a teenager (her favorite word now is ‘boring’) but for years we had fun with it.

Money magazine this month mentions a few others ideas, in an article “Gifts That Will Make Your Kids Rich.” They recommend the video game SIMS 2: Open for Business, aimed at teenagers. In that game kids get to run a virtual business like a restaurant, boutique or spa, and learn everything from paying bills to hiring and firing staff and marketing. (Kate used to love SIMS, maybe I’ll add this to the Christmas list.)

Another idea from Money magazine is a book, aimed at four- to eight-year-olds, titled Alexander, Who Used to be Rich Last Sunday. Alexander gets a dollar from his grandparents, and dreams of saving up for something grand. However he ends up spending it on something silly and regrets it.

I don’t want my kid to grow up thinking everything in life revolves around money; that’s a disturbing and pretty empty way to live. But let’s face it, being in debt is no fun, nor is bankruptcy or losing your home to foreclosure. As a parent, I want my child to grow up with the life skills she’ll need to get by, and maybe even better than that. In the end, how it turns out is her choice, but I’d like to think she will be well prepared.