Why is it so hard to teach kids about money? Perhaps because we keep treating them like children. What if we made 10 year olds buy all their own clothes and let 15 year olds see the family portfolio — all of it? That’s the “radical transparency” recommended by New York Times financial columnist Ron Lieber, who has a new book out called The Opposite of Spoiled. Here are four ways to put that into practice.
1. Tell kids everything. Including your net worth – while they are in high school!
Parents are in the adult-making business, Lieber stresses, so the sooner the kids handle financial reality like adults, the better. The college decision-making process can and should include a realistic assessment of the entire family’s financial situation, which teen-agers can’t do unless they are fully aware of it. Throw open the books for a full family audit, Lieber says. Some parents cringe at the idea of such radical transparency, but many kids are going to figure this stuff out anyway, because of all the details included in college financial aid applications.
2. Instead of protecting kids, tell them the (sometimes ugly) truth. Even about your credit card bills.
Transparency shouldn’t start at 16, however. There are ways to introduce kids to money realities much sooner. Sharing family expenses with younger kids is appropriate. One family Lieber interviewed plays a credit card “scavenger hunt,” game. The parents show their kids the credit card bills, and the kids then look around the house for evidence to see what the money bought, and inquire if the cost was worth the fun. The game helps both kids and parents.
3. Instead of paying the kids for chores, just pay them. And expect a lot.
Lieber thinks parents shouldn’t give kids an allowance for doing chores. He isn’t against the kids using the Bissell vacuum every once in a while. Quite the contrary: He thinks kids are capable of far more than most parents realize.
“Any 10-year-old is capable of making the family dinner, and should be,” Lieber said. “I think most chores parents give kids aren’t hard enough.”
Lieber disagrees with tying allowance to chores, however. That just invites kids who don’t really need the money to manipulate parents. Instead, take away something more precious, like screen time, when kids misbehave.
“I’d rather people treat allowance as a teaching tool, the same they treat music, for example. You don’t take away music lessons as punishment,” he said.
In fact, Lieber thinks kids should get a sizable allowance, but then get an equally large responsibility.
Kids as young as 9 or 10 should be given a clothing allowance that might be several hundred dollars, for example, and then have to make it last all school year. If they run out of money prematurely, they’ve learned a valuable life lesson.
“You can put financial responsibility on kids at an earlier age than you think. They can handle it,” he said.
As kids become teen-agers, move from three-figure decision-making to four-digits, such as letting kids help plan thousand-dollar family vacations. Then, when the 5 or 6-digit college decision comes along, they will be ready.
4. Instead of trying to look perfect, let kids see your warts.
Watching a parent try to buy a car, or a home, can be a profound experience for a young child. While it’s not great for parents to fight about money in front of kids, there’s nothing wrong with letting them witness real-life tension during negotiations.
As soon as kids are old enough to encounter math problems in school that are akin to the math problems adults encounter in a car dealership – which is to say, probably 10 or 11 years old – let them watch and learn. And if you make a mistake, let the kids in on that, too. Explain how the mortgage broker or cell phone salesman tricked you, and why both adults and children can learn from mistakes.
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