We all want our children to grow up and experience life in a grander, more profound way than we have. At least most parents do.
I think most of us can also agree that living grander often takes a little bit of moolah…which makes teaching your kids about money one of parenting’s most important tasts. And teaching our children to ‘think differently’ about money is very important in a changing economy.
There are many areas where we can teach kids to think about money differently than we do, but one of the most important is teaching them to think of financial choices in different time frames. Let me explain what I mean.
Let’s say that you find yourself going out for coffee every Friday and with your coffee you start buying a bagel so that the total cost each week is $5 (with cream cheese, of course).
At a glance, on a per week basis, spending just $5 seems trivial. But…if you look at that expense over the course of a year, you’ve spent $260.
Now even $260 won’t break the bank, normally, but it’s not just the actual cost that we need to consider. It’s the waste of growth potential over our lifetimes that we need to examine to get the whole picture.
Let’s say you started investing that $5 each week instead of spending it each Friday. At just 5% interest (return on your investment), in 25 years you’d have $12,969 instead of spending $6,500 on coffee and bagels. In essence, you would have doubled your money in 25 years. And that’s only getting a 5% return!
Let’s look at a personal example that floored me when my boyfriend pointed it out (and I’m the financial literacy lady).
I live in a three bedroom home in Santa Barbara, CA. It’s expensive to live here so I have rented out one of my spare bedrooms since I moved into this wonderful home 6.5 years ago. I ‘choose’ to put my office in the third bedroom because I wanted to have a dining room and not have a third body in the house.
Well, I did this for 6 years and it just go to the point where I was tired of paying out so much to live in the house. I moved the office into the dining room, which I only used about 6 times a year except to store papers on the table:-), I painted the office room, put furniture in it and now rent it out for $900 a month.
Rather than looking at it by the month as money I was paying out in rent as an expense, I added it up and saw that if I had done this for the past 6 years and had the room rented only 80% of the time, I would have over $51,000!!!!! that I hadn’t spent in rent.
This is the sort of things we teach kids who attend my Camp Millionaire programs. They really begin to see how seemingly small change money choices add up to large financial impacts over time.
I was sick to my stomach. Why hadn’t I been able to choose this option before? Little things…like I wanted more privacy…I wanted to have a dining room…I didn’t want the office space to intrude into the house (I love working out of the house by the way)…and I’m sure there’s other reasons that have to do with my inherent stubborn nature:-).
So,when you’re teaching your children about money, make it really mean something by expanding the savings, investing, expenses, choices, etc., out over a longer period of time. It’s amazing how thinking a little differently can influence your choices, and theirs, when it’s their turn to make financial decisions that will affect their entire lives.
To learn more about how to teach YOUR children about money, check out The Ultimate Allowance…it’s the only financial parenting book you’ll ever need to make sure your kids grow up with the skills they need to move out and stay out.
Just something to think about…
I think every parent would agree on the importance of teaching this value and more importantly the realization of having choices.
However, kids and especially teenagers are move governed by their surroundings and peers. Parents, as general collectives and as adults; are not living this ideas. Thus it is an up hill battle.
In the end, a parent can only lead and hopefully the message resurface later in life. Ultimately, learning is totally personal anyway.
Elisabeth, although your title is “Teaching Your Kids to Think About Money Choices”, this is a good lesson for adults as well. I for one am guilty of purchasing a tall soy latte from Starbucks at least 3 times a week and consequently, my daughters request one as well. I can see that not only am I setting a bad example for my girls, we are all losing out on time, energy and money when we visit starbucks. Wow, such an eye opener!!
Actually there is more to finance than just teaching kids how to spend or use their allowance. They still need to know the difference between a want and a need, where money comes from and concepts of inflation and deflation. To get an idea about what a child can benefit from please check out the series Finance for Kidz available at http://www.finance4kidz.com
Prakash Dheeriya, PhD
Father, Author & Professor of Finance
Finance for Kidz Series
finance4kidz dot com
Elizabeth, I have been reading your newsletters and have given your Ultimate Allowance book to friends and family as gifts for some time now. You are right, sometimes the things that are apparent to others are right under your nose and you can make make yourself crazy by berating yourself later. I have to say that making decisions on things like renting out a second room also takes looking at your heart and not just your numbers–you weren’t ready or motivated to rent that second room and it’s OK. I am just happy to have your knowledge available to all of us. The U.A. book is great and my twins (in first grade) and I had a discussion yesterday at the table yesterday as they had overspent their lunch account by 5.25 and 7.50 respectively since the start of the semester. I am SO glad the school provides online management of the account so that I can show them what I know and why. It was eye opening for all three of us!
I totally agree and all of my programs teach all of those things! 🙂 Thanks for dropping in.
Jennifer…thanks for the kind words. I understand the berating thing and yes, isn’t it interesting that things are right there under our noses…
I’m so happy you find my book and work helpful. This is what keeps me doing it each and every day. Thanks again. I really appreciate it. E
The best time to change things is when you realize you need to. If that time is now, then now is the time.
Thanks Paul. I agree that the number one thing any parent can do is set the best example possible. It’s the first secret in my book in terms of preparing kids to handle money wisely. I really appreciate you dropping in! Thanks again. E
I have enjoyed your newsletter for many years, and in fact my kids both attended money camp 5 or 6 years ago. What I am wondering about is this: in this article you talk about renting your home and how much money you wouldn’t have spent on rent if you had opened up that other bedroom…what about all the money you wouldn’t have spent on rent if you had purchased a home instead of paying someone else’s mortgage for the last 6 years? I was very surprised about this and am very interested in your reasoning. Thank you.
Hi Jill. Thanks for popping in. I’m not a lover of owning real estate…especially in Santa Barbara. If would have cost me a ton more to buy a place in Santa Barbara because property here is incredibly expensive. The property taxes alone can be more per month than you’d pay to live in some one-bedroom places.
So, it’s all a matter of choice. I don’t ever want to owe anyone that much money. I own rental property in other locations and actually, can’t wait to get rid of it also. I’m a business/stock market investor by heart but it took me dabbling in real estate to find that out:-). Also, there really are no rules about owning real estate. I’m just not drawn financially or any other way, to own the house I live in. I love the idea that at any point I can just decide to move:-). Sometimes owning your own home makes sense; sometimes it doesn’t. And more times than not, it doesn’t but people do it anyway because they’ve been conditioned to think that it is…
Great website. We need more poeple who can and is able to educate our kids about money matters.
Keep up the good work