Over the weekend, Glenn van Zutphen and Neil Humphreys spoke to Andrea Kennedy, Certified Financial Planner, about how you can get your child to understand the value of money and start investing early.
Glenn van Zutphen: It is important for adults to be aware of their financial situation and well-being and to know how to invest. But the children are often overlooked. Why is it important for your child to understand this?
Andrea Kennedy: As a parent, you will always be the greatest role model for your child. I think the first thing parents need to realize is that whatever is going on in your home, whether you are having healthy discussions about money, worried about money, or arguing about money, your child will pick it up.
Parents also need to understand that if you are not communicating about money at all, your child will also understand that money is not something you are talking about.
Neil Humphreys: A lot of people who grew up relatively poor or working class and then moved up to the middle class still want their children to keep those values - the appreciation of where the money came from and the value of money. Then how do we teach our children to appreciate the value of money?
Andrea: I think the first thing would be to give our child the chance to make mistakes with money.
Part of it is giving your child a more personal experience with money – by allowing them to make money, making a decision about what they are spending their money on, and giving them the choice to raise money and save.
There are many people who think that they are giving permission to do things [house chores] is doing the wrong thing. It may be best to do the opposite.
Whether they’re walking the dog or washing the dishes, they’re given an allowance that is consistent and that comes closest to a salary that allows you to model the real economy for them.
Glenn: What’s the best way to limit the allowance you give your child? Should they have control over how they spend it or should it be dictated?
Andrea: First of all, they made the money, which is like a salary, so they did [should] do what you want with it. This will be shocking to many parents. Asian parents in particular pull this money to put in savings and don’t let their child do anything with it.
This is a mistake. You have to give your child some authorization for this money, otherwise they would understand: “I work and make money, my mother keeps it”. So you have to allow them to do things that are both “right and wrong”.
Some children will save, others will spend. But if your child is consistently spending money on the wrong things, over time they will learn as long as you stop giving them more money without them working for it. If you don’t give them a chance to learn, they won’t learn.
Glenn: How early is it advisable to start the admissions route to help your child understand money?
Andrea: I think children understand money at a very young age, but it’s up to the individual families. On another point, parents should talk about money in one [casual] Way how [how they] Talk about the weather. Otherwise, money becomes something we don’t really talk about for parents who can’t model this.
Having conversations about money calmly, consistently, and consistently would be one of the best things we can give to our children.
Glenn: How are these conversations supposed to be? [about money] sounds like?
Andrea: Everyone would have a different opinion about it [kind of information] they want to reveal.
We literally talked to our children about everything; not necessarily how much we earn, but why we do what we do with our money, what we spend, what we think about, what we give ourselves for and what we don’t want to spend money on.
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We went through the whole spectrum of why we don’t want to spend our money on expensive rents because we want to do or save our money on other things.
Or if I am investing I am looking for dividend growth investments, why is it important to invest for the long term and [talk about situations] Tech bubble.
So, [my children] I’ve heard every conversation and I talk about it in the same tone as when I talk to them about what they did in school today, so they got very used to talking about it.
I think if you can start talking about money this way it will help your child realize that there is no shame in talking about money. We should talk about it with the same ease that we talk about [other subject matter] because [money] is something that we have and need in our life.
Neil: Most kids are not interested in saving money. How do we talk to our child about saving money?
Andrea: First explain to your child why you are saving money. I would set up a junior savings account and buy them a piggy bank too or something where they can literally see it build up.
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Children usually need to see something grow or get bigger in order to naturally have an incentive to add something. If you can’t see it physically, your brain can’t understand what to save for.
Second, and more importantly, your child needs to learn how to invest by understanding inflation – the increasing amount you have to pay for the same thing over time, e.g. For example, for house prices, tuition fees, or even what you order in a restaurant that you order frequently.
You need to understand that unless you invest in something that will make you more money over time, you will not be able to keep up with inflation.
Glenn: How should we as parents get our child into the world of investing and understanding money?
Andrea: Allow your child a way to collect [money] and feel ashamed of the conversation. Stimulate and have healthy conversations that are not about shame. If you are ashamed of money, it is a good idea to think about yourself first before trying to teach your child.
Cumulate, communicate and be very consistent in yours [money] Habits like saving and investing a certain fixed amount of money each month.
You also need to teach your child the values of what they are spending money on, why it is important to them, and making them understand why they are spending the money.
Listen to the full podcast to find out how Andrea keeps her emotions in check as she teaches her kids how to make a living:
This article was first published in MONEY FM 89.3.
