Having ‘The Talk’ with Your Kids (the Money Talk)

By Brandon Miller, CFP–

Every year on the Fourth of July, the Tahoe neighborhood where my vacation rental is located has a little parade. Kids decorate their bikes, pull pets in wagons, and try to twirl a baton and walk at the same time while adults sit on lawn chairs and clap as they go by. It’s straight out of a Norman Rockwell painting—just with a few more tattoos.

I’m all for continuing traditions like these that are good fun for children. But I hate seeing harmful things passed on just because “that’s the way we’ve always done it.”

As a financial advisor—and a father—it upsets me to see so many parents unwilling (or is it unable?) to talk to their kids about money. After all, it’s something that’s going to be a major factor in their lives, whether they have it or not. Let’s set our children up for success by teaching them money lessons early and often. Here’s what I suggest for kids of all ages:

Make it tangible for little ones.

I give my twins an allowance—$1 for every year of age—to help them get used to handling their own money. I mix it up each month and give them six $1 bills, 24 quarters, 60 dimes, 120 nickels or any combination to start teaching basic math skills. Each child has three buckets that they decorated, one for “me today” money, one for “me tomorrow” and the third for “charity/other people.”

Today funds can be spent whenever on whatever. The tomorrow bucket teaches them how to save for bigger items. If they want a deluxe Lego set, for example, they have to save up for it. This instills the idea of delayed gratification and working toward a “long-term” goal. The third bucket is about teaching compassion and the pleasure of doing something nice for others. I let them decide where this money goes, whether that’s adopting a whale, tithing at church or giving the money to a homeless person.

The boys also get to decide how much of their allowance to put into each bucket, which changes depending on their goals. The idea is to give them real, understandable lessons about how to divvy up a finite amount of money to get what they want.

Teach pre-teens the value of time.

Once kids are capable of doing more to help around the house, it’s time to encourage good work habits. In addition to establishing allowance chores, you can offer the opportunity to earn more from additional work. For “extras,” such as washing the car or doing yard work or laundry, pay your child an hourly wage. Have them keep track of the hours that they work and their earnings for a quick math lesson. This also teaches them the value of their time and what it takes to earn spending money.

Show teens how to make money work for them.

As your kids age, get them to:

• take charge of money spent on them. Giving your teen access to all of the money that you give them on top of their allowance for clothing, entertainment, eating out and more helps them to learn about responsibility and budgeting. They’ll inevitably make some mistakes and poor choices, but at this stage, they should be small and easy to correct, while the memory of the error can keep them from making costly mistakes in the future.
• open bank accounts. Having your teen deal with a financial institution (vs. a decorated bucket) makes them feel more grown up and gets them used to the banking world. If they open a checking account, have them keep the register to get used to funds in/funds out. Once they are 18, a credit card or car loan can help to establish credit in their name. And if they are gainfully employed, have them open a Roth IRA and show them how saving even a little early on can have an enormous impact on the money that they have later in life.
• buy stock in something of interest. Buying a few shares of a company or brand that they care about encourages them to track the market’s ups and downs, understand how good or bad news impacts the share’s price, and introduces your teen to the world of investing. The goal here isn’t necessarily the smartest investment; it’s getting your kids excited and engaged.

Teaching your kids how to handle money responsibly is a great way to prepare them for adulting. Plus, it might just prevent them from boomeranging back into your house after college! 

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always, please remember that investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.

Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.