When I was young and in the process of changing jobs, whenever I considered making a speculative investment or wanted to buy something frivolous, my father would say to me “you have to pay to learn!” It has taken me many years to figure out what he meant by that.
We get asked all the time: What is the best way to teach kids about money? The answer to this question is: slowly – because it takes a long time to get it right. It is different for each family and for each child. We observe that some kids have the embedded sense of how to make money, save it, keep track of it, and how to spend it. Others think that money “grows on trees” and that there is an endless supply of it. Everyone is different.
As parents, it is important that we act as role models to help our kids along the way. It is not a perfect science, unfortunately. Whether you are good at finances or not, it is important that you speak to your children now about financial literacy. Setting the foundation today will prove to be invaluable to your children later on in life. I remember my mother sitting at the kitchen table setting aside money in separate envelopes for the Christmas savings book, school bills, braces, etc. This was my first foray into the importance of budgeting. I remember her bringing me to the local savings bank to open a passbook savings account for my summer earnings – and then enjoying seeing the balance slowly creep up with the additional deposits and the “free” interest that my money was making. When I opened my first checking account, again my mother showing me how to balance it every month. This was my first lesson in savings and investing.
“Paying to learn” was my father’s indirect way of expressing that financial wisdom takes a lifetime to learn. It was his way of saying that, like a store, money was my inventory and it was critical that I handled it properly. His goal was to teach me that making money was not easy – and that once I learned how hard it was to make it, I would value it more. For example, my first business venture was a paper route – which, in my eyes, was all about making money by simply riding my bike around the neighborhood. What I didn’t know is that I had to get up at 5 AM daily – 6 days a week, in rain and snow, all year long. It was awful. Another personal venture was a new painting business – which was all about freedom of schedule. The education was that these jobs were tough and physically demanding – for very little return. With this in mind, I would think twice before I spent it.
Beyond experience and role modeling, emphasize that your child read more – particularly in investment related topics. Financial education should not be a mystery and most kids can be successful at it. Failure is usually caused by ignorance and lack of a process and a plan, not because of intellect. At that end of the day, nothing replaces hard work, desire and passion. I don’t know any successful investor in this business who doesn’t read everything about investing and beyond. Unfortunately, many parents think that they are helping their children learn about investing by funding a “play” investment account – a starter account that more than often fails. This is speculation and not investing. While speculation (and losing money) may actually satisfy the “paying to learn” philosophy, it does little to build a sound financial philosophy that will endure through thick or thin.
Our firm recognizes the importance of educating children on finances. If your advisor or broker thinks that working with your children on such things is too cumbersome or a waste of time, then you and your family are being shortchanged. Many of our clients ask us to meet with their kids on a regular basis. We encourage this. It is our goal to serve as mentors for your children. They are welcome to call us for advice, attend our investment events and use us a guiding beacon. With this, theoretically “paying to learn” shouldn’t be so expensive or time consuming. For older children just joining the workforce, we also developed a program to help invest their work 401k plans – because young workers need to know that there is a proper way to invest. Finally, we put together a list of investment books that are necessary for building a firm financial foundation. Like my mother sitting at the kitchen table, educating me on budgeting, reading will prove to be fruitful later on in life. Each one of the above items is part of a mosaic, built to improve financial literacy and give your kids a better foundation to be successful down the road.