In a world bent on enticing kids with the trendiest fashions, newest gadgets, and tastiest treats, how can moms and dads equip their children to survive financially? That's a good question, especially in view of the fact that most family calendars don't leave room for detailed discussions of money management. "Ain't nobody got time for that!" Right?
Not necessarily. As a matter of fact, if you take your role as a parent seriously, you've probably already sensed that raising money-smart kids is important. More than that, you probably know that, somehow or other, you've got to find or make the time to broach this subject with them before they're old enough to launch out on their own.
We're here to tell you that this can be easier – and a lot more fun – than you think.
Motivation: The Current Cultural Climate
Five powerful cultural trends support the idea you are vital to your child's financial education:
- Most youths are financially illiterate. As a matter of fact, a recent Consumer Reports survey revealed that 28 percent of students did not know that credit cards are a form of borrowing, and 40 percent did not know that banks charge interest on loans.
- Advertisers and credit card companies are targeting children and teens. These professionals realize that contemporary kids have more money and spending influence than at any time in recent memory.
- Most parents believe that someone else is teaching kids about money and finances. Believe it or not, 80 percent of parents assume that schools are providing classes on money management and budgeting. This simply isn't the case.
- Whether you like it or not, your kids are looking to you for financial guidance. Surprisingly, 63 percent of older teenagers – kids who are notorious for knowing it all and not listening to their parents – say that they get most of their information on money matters from mom and dad.
- Financial support for churches and ministries is dropping – and is likely to be even weaker in the future. The younger generations simply aren't getting the message that giving matters. Pastors report that most of their donations come from church members over age sixty-five.
Add it all up, and you'll have some idea of why it's so crucial to start teaching your kids about finances at the earliest opportunity.
Foundation: Biblical Perspectives and Principles
We have several activities to suggest that should make this process as smooth and enjoyable as possible – fun things you and your kids can do together to help the whole family gain a firmer handle on the mechanics of money management. But before getting down to nuts and bolts, we need to begin by laying a solid conceptual foundation for the project. The Scripture says, "As a man thinks in his heart, so is he." In no area is this quite so obvious as in the way we approach our finances. The first three things you need to know in order to teach your kids about money can be summed up in terms of the following three biblical principles:
1) God owns it all. "What do you have that you did not receive?" asks Paul in 1 Corinthians 4:7. Everything we have comes directly from the Lord. He is the Owner; we are only His stewards. And as stewards, we have no rights – only responsibilities.
2) We are in a growth process. Our time on earth is temporary and is to be used for our Lord. Money and material possessions are just one aspect of the bigger picture (Colossians 3:2). Our eternal position and reward are closely intertwined with the way we handle the property God has entrusted to us.
3) Faith requires action. Simply knowing that God owns it all is not enough. The lazy and wicked servant in Jesus' story (Matthew 25:26-27) knew that he had been entrusted with his master's money, but he did nothing with it. God's resources should be used with an eye to God's goals and objectives.
If your kids can grasp these fundamental concepts, they'll be well on their way toward becoming effective managers of their money. It's all a matter of building on the right foundation.
Application: Putting Beliefs and Ideals to Work
The next seven things you will want to teach are more "hands-on" in nature – habits to ingrain and cultivate in your child's daily behavior rather than ideas to instill in his or her mind. Here they are, along with our suggestions for some fun and simple ways to put them into practice:
1) The Importance of Tithing and Giving. Because God owns it all, His wishes, desires, and priorities are the first thing we need to take into account when figuring out what to do with our money. And because God is Love and expresses His love through free, unmerited grace, it stands to reason that generous giving – both to the ministry of the church and to individuals in need – should be central to the program.
- Activity. You can teach the importance of giving by organizing a family mission project. We don't necessarily mean traipsing off to the jungle. Simply give your kids contact with people who have more who have more physical and economic needs than your family does. This could mean delivering meals for a food ministry or "Meals on Wheels" project, volunteering to serve in a soup kitchen or homeless shelter, getting involved with Habitat for Humanity, or sponsoring a needy child in another country through an organization like World Vision or Compassion International.
2) The Rewards of Work. "Lazy hands make a man poor," says Proverbs 10:4, "but diligent hands bring wealth." Thinking along similar lines, the apostle Paul writes, "If a man will not work, he shall not eat" (2 Thessalonians 3:10). Kids need to understand the fundamental connection between work and financial resources. To use a well-worn parental proverb, they need to know that "money doesn't grow on trees" – that people are supposed to provide for their own needs and the needs of others through honest labor (1 Timothy 5:8).
- Activity. A good way to drive this point home is to hire your kids to do tasks around the house. Even if they get a regular allowance, you can still give them an opportunity to earn extra money by working for it. Post a list of chores on your refrigerator or family bulletin board. Call it your "For Hire" list. Beside each job, include the amount to be paid for the work and how frequently it can be done – for example, pulling weeds (once a month in summer), scrubbing the tub or shower (once a week), cleaning out the garage (twice a year), or washing the car (as needed). Let your child know that paid labor is evaluated by inspecting his or her work after it's done and reducing the pay if the quality of the work doesn't meet your expectations. (Note: the ideal "chores for hire" are the occasional ones requiring extra effort, not the routine ones like clearing the table or making the bed.)
3) The Wisdom of Saving. The third habit we want our kids to develop is that of putting aside a portion of their money in savings. Children should be trained to see the value and importance of delayed gratification. Remember the story of the Grasshopper and the Ant. Help your kids understand that the definition of financial maturity is "giving up today's desires for future benefits." As Proverbs 21:20 puts it, "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has."
- Activity. There are several things you can do to help your children grow up to be savvy savers. The simplest is to buy them a piggy bank and encourage them to use it. You can also encourage them to open a "Home Savings Account" and pay them interest on the cash deposits they entrust to your safekeeping (you can call the interest a "reward for savings" if it makes things simpler). If you're more ambitious, you might want to try playing a little game called "Let's Make a Money Deal." Start by posing a question you're fairly certain your children can answer – for example, a grade-level-appropriate math problem. When they respond correctly, say, "Congratulations! You won! Now you have fifteen seconds to decide how you want to receive your cash prize! Would you prefer 1) $50,000.00 a day for the next thirty-one days, or 2) a penny doubled every day for the next thirty-one days? Which do you think adds up to more?" The answer, as they'll be surprised to learn, is #2 – a whopping $10,737, 418.00! This is a great illustration of the power of saving and compounded interest.
4) The Necessity of Budgeting. Let's face it – most of us don't have an endless supply of money. If kids are to succeed in this world, they're going to have to know how to work with limited resources. That's the guiding concept behind budgeting. Perhaps the simplest budgeting system ever devised by the human mind was Grandma's cookie jar. For Grandma, there was no such thing as an extended line of credit – when the money in the jar was gone, the spending was over. If your children can grasp that idea, they'll learn to steward their cash with greater thought and care. As Proverbs says, "The plans of the diligent lead to profit as surely as haste leads to poverty" (Proverbs 21:5).
- Activity. Ron and Judy Blue's Envelope System is one of the best tools around for teaching kids how to budget. Here's how it works. Beginning about age eight, give each child a recipe file box containing five letter-sized envelopes: a Tithe envelope, a Save envelope, a Spend envelope, a Gifts envelope, and a Clothes envelope. In each envelope put the cash amount that you as parents have budgeted for the item in question for the current month. Then let the kids have control and responsibility for the use of these funds. Some moms and dads might think of this as an allowance. In reality, you're simply turning over certain areas of the family budget – items you'd be paying for anyway – to your child as a way of developing his or her financial skills. That's the important point to bear in mind.
5) The Cost of Consumption. This is simply another aspect of the challenge of working with limited resources. When we talk about the cost of consumption, we're acknowledging that everything is a trade-off. If you spend a certain amount of money today, you'll have that much less to spend tomorrow. And due to the principle of compounded interest, the cost or trade-off isn't dollar for dollar. In actuality, one dollar spent today removes multiple dollars – dollars that might have been gained through savings or investments – from your future resources.
- Activity. Identify an item that your children tend to waste money on – for example, candy, ice cream, or video games. Ask them how much the item costs. When they answer, say, "That's how much it costs today. But what does it cost in terms of what you're giving up?" When they look confused, help them calculate an average annual amount spent on their luxury – for example, $2.00 per day, four days a week adds up to $416.00 per year. Now compare this to the alternative of saving that money. Let's say your children buy a $2.00 treat just once a week instead. They save the rest – which comes to $312.00 per year. Saving that money for forty years at a five percent interest rate will result in over $39,500.00! Be sure to point out that only $12,480.00 ($312 times forty years) was actually saved. The other $27,020.00 comes from compound interest.
6) Shopping Smart. Kids (and adults) who understand the cost of consumption will weigh potential purchases more carefully – like the celebrated "Proverbs 31 woman:" "She selects wool and flax and works with eager hands. She is like the merchant ships, bringing her food from afar … She sees that her trading is profitable" (Proverbs 31:13-14, 18). They'll learn quickly that by being smart shoppers, they'll have more money available to do other things.
- Activity. Advertisers of cars, big-screen TVs, and boats rarely mention the actual purchase price of the items they're selling. Instead, they say, "Only $399.00 per month." Examine some of these ads with your children. Read the fine print to find out the total cost of the item and how many monthly payments would be required to complete the purchase. Compute the total amount of these payments and compare it with the price you'd be paying if you simply saved up your money and bought the car or TV for cash. Your kids will be amazed at the difference.
7) Goal Setting. As kids get older, you can use the Envelope System to teach them the wisdom and value of setting long-term as well as short-term goals. Even an eleven-year-old boy can understand that if he doesn't spend the money he earns during the summer, he can save enough to buy a car by the time he's sixteen. It was exactly this kind of long-range planning that Joseph had in mind when he devised a plan to feed the people of Egypt during seven lean years of famine: "Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. They should collect all the food of those good years that are coming and store up the grain under the authority of Pharaoh, to be kept in the cities for food. This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt, so that the country may not be ruined by the famine" (Genesis 41:34-36).
- Activity. Has your child ever begged you to buy the latest toy or doll or electronic gadget? The next time this happens, turn the circumstance into an opportunity to teach long-term planning. Say something like, "Looks like it's time to start saving your money." Then help your child set a goal and use visual reminders to achieve it. You can do this by finding a picture of the item he wants to buy in a magazine or on a website. Print the picture or cut it out, then post it in a prominent place, preferably near your child's piggy bank or wherever he keeps his money. You might even consider drawing a big thermometer on a poster board and having your child color it in as the amount of money saved approaches the goal.
Method: "As You Go."
So there you have them: Ten Things you need to know in order to teach your kids about money. Three Foundational Biblical Principles. Seven Activities designed to develop seven Practical Habits. And all of it geared towards creating a mindset that sees the stewardship of material wealth as an aspect of worship and service to God.
What's the best way to communicate these perspectives to your kids? How can you most effectively put these lessons to work in their lives? We suggest you do it as you go.
Deuteronomy 6:6-9 expresses it this way:
These commandments that I give you today are to be upon your hearts. Impress them on your children. Talk about them when you sit at home and when you walk along the road, when you lie down and when you get up. Tie them as symbols on your hands and bind them on your foreheads. Write them on the doorframes of your houses and on your gates.
To put it in more modern terms:
Talk about them when you sit at the dinner table and at family devotions and when you drive along the highway, when you are tucking the kids in at night and when you are at the breakfast table and driving them to school. Write them on Post-it notes on the mirrors and pin them to the corkboards in your kitchen.
You get the idea. Teaching kids about money doesn't necessarily mean sitting the whole family down on a Saturday night for a lecture on the benefits of budgeting. Instead, it's a matter of sharing your ideas and values with your kids as you go through the routines of daily life together. It's a question of taking the time to tell them how it's possible to get cash from an ATM, or why people leave money on the table when they exit the restaurant. It happens when you're driving down the road together and you explain how taxes cover the cost of maintaining our highway system. It's something you promote by giving your older kids an opportunity to help you write checks for the monthly bills, or when you interpret Grandma's comments about her Social Security check for them. If you're creative enough, you'll probably discover hundreds of different ways to turn the world into a classroom for teaching sound financial principles to the up-and-coming generation.
And here's the point: there's no way to calculate the power of lessons like these when delivered in a real-life context.