In Part 1, I shared 6 essential money skills children need to learn before they leave home. This doesn’t mean that they won’t discard the advice or never make a money mistake, but they will have the tools and experience to make good money decisions. It’s an incredible advantage and has a direct impact on their ability to create the life they want for themselves.
Even if they rebel initially, it doesn’t mean your hard work was for nothing. Eventually, they will hear your voice reminding them of the importance of making good decisions at some point. It has been years since my own money lessons with my father, but I can still hear him telling me to a value-based or an integrity-based decision when I find myself struggling with a money choice. I’m sure many of you can relate and the same will eventually happen with your kids too.
Today, I’m going to share 5 additional money skills you need to teach your kids before they leave home.
You’ll notice that I said “understand” versus “avoid” and that was a deliberate choice on my part. I’m not entirely sure if debt is completely avoidable as many of us will incur debt buying a home, attending college and/or starting a business. Now many consider those types of debts to be “good” whereas consumer debt is “bad”. Maybe. The truth is all debt, whether it is your mortgage or a shopping spree, has risk that needs to be assessed.
I instead advocate that you teach kids what debt is (borrowing and paying back with interest) and what happens if you take on too much debt (the risk debt carries and what happens if you default). Give them a balanced approach so they understand when leveraging debt may be appropriate and when it’s not. To know how to assess the risk to make sure it’s not only reasonable but worth it to them.
When parents hammer the need to avoid debt at all costs to kids, it’s often a result of their own debt and the work they had to do to eliminate it. I certainly understand their passion and their fear of their kids repeating their mistakes. And that is also why I suggest you help them to instead understand debt, rather than fear it. Fear is often a stopgap measure, while knowledge is real power.
Many people fall into credit card debt because they offer an easy way to extend their lifestyle and give them the freedom to do what they want. But that freedom is an illusion. First and foremost, make sure your kids understand that living within their means refers to learning how to live well on the money they earn, which does not include their credit cards.
If you had or have consumer debt, share with your kids what caused you to initially live beyond your means. Did you assume credit card debt was normal? It is likely they will have people tell them that repeatedly throughout their life, so make it clear that while many people do have credit card debt, it should not be considered normal and thus safe. Or were you an emotional spender? Trying to playing keep up? Now share with them what opened your eyes to the dangers of credit card debt and explain how it actually robs them of their freedom.
Survival Skill Tip: The lure of a credit card is going to be high, even if you taught your children to use cash responsibly. My plan is to give my girls a credit card (with a very low limit) when they are in their teens, so they can learn to use them and make mistakes while I can still help them. It’s always easier to create good habits, then it is to fix them later.
One of life’s great ironies is when I talk to 20-year-olds who think saving for retirement and investing is something old people do, like their parents. And when I talk to people in their 40’s and 50’s, one of their biggest regrets is not investing in their 20s. 🙂
Your kids don’t need to be Warren Buffet when they leave home but they should be eager to start investing, rather than intimidated or confused by it. So when they receive their 401k enrollment paperwork at their first job, they eagerly sit-down to fill it out and even call you for advice, rather than ask the HR person what a 401k is. Most importantly, they know sacrificing a couple nights out with friends for the money to invest in their goals, is worth it.
Survival Skill Tip: Play an investment game with them. Have them choose a stock to buy hypothetically and follow it. Let them experience market volatility and investigate whether they should buy, sell or hold. Also focus on emotions because knee-jerk reactions are often the biggest mistake investors make.
This mindset or habit coupled with using credit cards as a lifestyle extender, causes so much trouble for many people. Kids often learn they need to “keep up” from listening to their parents and other loved ones either complain about others having more or gloat about having more than someone else does. I know this doesn’t paint a pretty picture but those keep up urges are not solely fueled by the media. Truthfully, I don’t think many people realize they even do it.
The best defense against playing keep up is:
Teach your kids theses rules to help prevent them from getting caught in the game of Keep Up. To create a life they want, full of the things that make them happy.
Whether your household consists of 6 or 1 or anything in between, it needs to be run with confidence and like a well-oiled machine. I am surprised by the number of kids leaving home today without these skills and it costs them money.
Your child doesn’t need to become a gourmet cook, but they should be able to make healthy meals on their own. Dining out should be a privilege, not a necessity. Invite them into the kitchen to cook with you and teach them how to make some of their favorite dishes themselves.
Meal planning is a great way to keep your grocery budget under control. Teach your kids how to plan meals around what’s on sale and in season. Have them help you plan meals and educate them on the cost of food waste. Even if we stay within budget, but throw out 25% of our food costs, we are throwing away money that could be used on other things.
Thanks to the Internet, comparison shopping has never been easier. And it can save you a small fortune too. Don’t let your kids get in the habit of automatically paying full price. Teach them to do some research, read reviews and compare prices. This is also a good place to talk about quality versus quantity. Sometimes quality does trump and other times it doesn’t. Help you kids be able to identify when paying a premium makes sense and when it doesn’t.
Seems like such a basic skill, but you’d be surprised how many kids have to ask someone to show them how to wash their clothes at college. I suggest you instead make sure your child is a laundry pro so they can tutor and charge their fellow classmates to show them how to do laundry without ruining their clothes.
I already touched upon this, but college tends to act as that bridge from childhood to adulthood. They will pay some bills in college but most likely fewer than they will once they are truly on their own. Sit down with them and open up the books. Let them see what you pay in rent/mortgage and all your other bills. It is an incredibly eye-opening experience for most kids. They had no idea that there are so many bills to pay and what things cost.
Spell it out for them so they see the money that automatically goes towards your savings/investment goals, such as retirement, their college savings plan and other important goals and your bills, including insurance, utilities, cable, etc. They will be surprised by how little is left after you pay bills and fund your goals, which is why you are so careful about how you spend your money.
Because your kids are likely years away from home ownership, you can keep it very basic. I do suggest that as you have them help you do chores that you remind why you do those things. They may think it’s punishment, but mowing lawns, cleaning gutters, etc is part of being a homeowner. As they are likely to have a car before a home, you should be very specific about when they need to get an oil change, rotate tires, etc., especially if you took care of those things when they lived at home.
It can be a bit overwhelming and parents don’t always feel as though they are the best teachers, but you are and you can do this. On Friday, I’ll give you some pointers on how to talk to your kids and common mistakes I see.
The Heavy Purse Store is now open! My new downloadable Money Club Workbooks are now on sale. Each workbook provides five targeted lessons to help you raise Financially Confident Kids. Please check them out in The Heavy Purse Store.
SHANNON RYAN, CFP®
These tips are so helpful. I've got two who are getting ready to go off to college and they'll be living in the dorms.
We've been talking about money and how to save. I intentionally left out laundry ;) but I guess I can help out there LOL.
Thanks for the tips! I'm definitely using these! Hope you're having a great week!
cori