Kids & Investing: How to be a Financial Influencer to Your Kids
Updated: Aug 25, 2020
Anyone who has kids knows that you’re never quite sure how much of what you say to them actually sticks. The saying “in one ear and out the other” is frequently used around my house, but on those rare occasions, kids will surprise you and say something that will throw you off your heels. A few weeks ago, we decided to order dinner out, which is a pretty rare occurrence around my house. Assuming my son would be thrilled, I nonchalantly asked him what he wanted. His response: I don’t want you to have to spend your money.
I couldn’t believe it. My husband and I just looked at each other in utter disbelief. A 5-year old…was offered pizza…and turned it down…to save…money! Then it hit me. All my passive (and not so passive) comments about saving money and spending it wisely were actually sticking. Maybe not always, but at least some of the time!
So as much as I didn’t feel like cooking, and as much as I wanted that hot, delicious pizza, I even more wanted to be a good influence and show my son that I practice what I preach. I whipped up some spaghetti and we enjoyed dinner together as a family.
My son’s response has really stuck with me, and made me realize that we parents are our children’s first financial influencers.
Our decisions about money will impact our children’s financial decisions for their entire life.
The way we discuss, or don’t discuss, finances with our kids will have a resounding effect on their future financial lives.
As with many of us, I grew up in a home that did not really discuss money or how to manage it. Some say this is because it is a “faux pas” to talk about money, but I think in reality, it is because many parents (and adults in general) don’t know how to manage money.
That leaves us (and your kids) stuck learning lessons on our own, the hard way. Years wasted not building wealth by investing and contributing to an IRA or 401K. Thousands of unnecessary dollars spent on high interest loans and credit cards. Then, hopefully, at some point we learn the error of our ways and start saving and investing, but that lost time can never be regained.
So, with that said, here are some simple ways to be the best financial influencer in your child’s life:
1. Be a Role Model.
As I noted earlier, I wanted to show my son that I practice what I preach. Nothing bothers me more than hypocrisy, so I certainly would not want to be accused of being a hypocrite. I worked hard to get my financial house in order, and want to show my son what a strong, stable financial life can look like through leading by example.
We spend money just like everyone else but try not to overspend. I don’t buy lavish things just to say I have them, but do buy what I find value in.
I try to teach my son that it is important to spend on what is important to you and save on what is not.
This is still a lesson in the making, but I think one of the most important ones that I did not learn until very recently.
2. Talk About Money.
There is no shame in whatever your current financial situation is. Maybe you have a stable income, contribute to your retirement, and have a healthy emergency fund. Or maybe you are living paycheck to paycheck, having to put groceries back on the shelf because you don’t have enough money, and are in major debt.
Having lived on both sides of this spectrum, I wish that I had known more about money earlier on. How much things cost. How much my parents made. Why we couldn’t go to Disney World on vacation, even though it seemed like all my friends did.
While I fully understand that you don’t want to put the weight of your financial burdens on your kids, and want them to enjoy their fleeting childhood, I don’t think we give kids enough credit for what they can understand.
I talk to my son openly and freely about money and finances, but at an age appropriate level.
I discuss the cost of things, and why we can or cannot buy/do certain things. I discuss why it is important to save your money and not spend everything you have, just in case you have an emergency. I try to explain interest and investing, and how your money can actually make money!
As your children get older, you can discuss more in depth topics. Help them understand your experience around money (whether good or bad), so that they can learn from you, and know what or what not to do.
3. Set Up Your Kids for Success.
If you have not already, as soon as you can, have your child start “earning” money. This can be an allowance for doing chores around the house, helping neighbors do tasks, or even getting a part-time job (Fun Fact: I’ve been working since I was 13!).
Even at 4 or 5 years old, your child can earn money. My son gets “paid” for age appropriate chores (e.g. feeding the cats, setting the dinner table, loading/unloading dishes, etc…). I think there is a fine line between paying your kids for chores and them just doing what they should as a member of the household. The good thing is that as the parent, you get to decide what that line is!
Once your child is earning money, have them start saving it. It can be in a piggy bank or a bank account. Younger children tend to like piggy banks because it’s tangible. They can see it, touch it, and learn how to count the money. For older/working age kids, it may make more sense to open a bank account, and here’s why.
4. Open a Roth IRA ASAP.
Once your child has earned income, they can open and contribute to an IRA (Individual Retirement Account), regardless of their age. Maybe your teenager is working a part-time job, or maybe your infant is a baby model. Whatever the job might be, so long as they have earned income, they can contribute to an IRA.
Why a Roth and not a traditional? Because any contributions, as well as growth, within a Roth IRA are not taxed upon withdrawal. The reason is that the money going in (contributions) has already been taxed when it was paid (via income/payroll taxes). Assuming your child’s income is within the lowest tax bracket (10% for 2020), it is most likely going to be one of the few times in their life that they will be within that tax bracket, so they should take advantage of it.
If you really want to up the parental influencer ante, you could tell your child that for every dollar they contribute, you will match it. You can choose by how much you want to match (e.g. dollar for dollar, 50%, etc…). Not only will this allow your child to keep some of their hard-earned money for other savings or “fun money”, but it will teach them about the benefit of a “matched contribution” (think 401K/403b employer matching)!
These were only a few tips I wanted to share, from parent to parent, to not only help our children start out on the right foot, but to help us parents be the positive financial influence in our children’s lives. They will receive so much “well-intentioned” information about money throughout their lives, and we all know how much kids are marketed to by companies and “spokespeople”.
It is our responsibility as parents and influential adults in their lives to show them that there are other ways to live than keeping up with the Joneses.
There is a TON more to be said about kids and money, and we will be sharing it with you throughout our Kids & Investing series this summer, so be sure to check back soon for more great info that will help the kids in your life become financial superstars!
Are you a financial influencer to a child or children in your life? Tell us some tips about how you are teaching the kids in your life about personal finance and money management. Share your comments below and join the conversation!
Want to continue the conversation? Join us Wednesday at 8 pm ET on Instagram Live @Winenance for Winenance Wednesday. Can't make it? Watch the replay on IGTV - #WinenanceWednesday Episode 8. Cheers!
Need help tracking expenses and building your wealth? We’re big fans of these apps and tools:
Disclosure: some of the links above are affiliate links, meaning, at no additional cost to you, we may earn a commission if you click through and sign up to use these tools.