How do we raise kids that are able to make good financial decisions, as well as being grounded and grateful for what they have?

A great book on this subject is “The opposite of spoiled” by Ron Lieber, who is the finance columnist for the New York Times.

Part 1 of our series is all about starting the conversation, including answering the tough questions.

Why is it so hard to talk about?

We talk to our kids about so many other things in life to help them survive in the real world, but why not money?  Maybe it’s because your parents never spoke to you about money, saying it’s a “private matter”.  Or perhaps you worry about not being a great money role model? Many people also worry about how to answer the really tough questions that kids often ask.

Whatever the reason, we can’t expect our kids to be money smart if we don’t educate them from a young age about income, expenditure, saving and giving.

“Are we rich?”

This is a favourite from young children and often stems from conversations in the playground.  Comments like “You’ve got 3 TV’s?  Wow, you must be rich!” will send kids home with questions that some parents struggle to answer.  Lieber’s suggestion is to answer truthfully, but in doing so, talk to your kids about how being “rich” doesn’t always equate to having a lot of money.

Having access to food, shelter, education, as well as good friends and going on holidays are examples of how a child could perceive what it means to be “rich”, especially compared to those in third world countries.

For older kids, parents might be questioned as to why they can’t have something, particularly if they’re offering to buy it with their own money.  There’s not one simple answer here, but it’s important to discuss needs versus wants, as well as saving money and not just spending it because you have it.  A teenager wanting the latest iPhone is a perfect example.  Do they need a phone?  Yes, but do they need the latest iPhone? Or is this just to keep up with the other kids?

These answers have to be well thought out, so Lieber suggests to taking the time to think about it as your chosen response may just be the words that resonate well enough to help them make better financial decisions as adults.

Finally, the question that almost every working parent will be asked (sometimes multiple times in a child’s life!)…”How much money do you earn?”.

You could answer “none of your business” or simply give a random number, yet shutting kids out may lead them to find out through searching online or from your tax return.  A couple of tips to consider:

  • Answer their question with an estimated monthly amount, that way the dollar figure is more relatable.

  • Use the discussion to talk about your monthly expenses to give some context.

  • Discuss how some people spend more than they earn and the effect that can have long term.

  • Take the opportunity to talk about measures you have in place for unexpected changes to your situation (eg. insurances such as income protection).

  • Advise that this is a family discussion and not a topic they should discuss with their friends.

Not easy conversations, but it’s essential to your child’s financial education to keep the lines of communication open.