Monday, April 11, 2011

Kids and Money

I will occasionally repost articles that I found interesting, thought provoking, or entertaining. Ronny and I have been talking with each other a lot lately about kids and money. When this article was published last week it seemed very timely to me, so I thought I would share it:

7 Things You Should Never Say to Your Kids About Money

By Laura Rowley on Yahoo Finance

Two-thirds of parents think they could be doing more to teach their children about money, according to a new survey of 1,000 parents by T. Rowe Price. Only 28 percent of respondents say they are very prepared to discuss financial principles with their kids, such as setting goals, the importance of saving, smart spending, inflation, and diversification. Part of the problem is parents are foggy on some of those concepts: On average, they grade themselves a "B" for their knowledge about money, with more than one-quarter grading themselves a C or lower, the survey found.

I initially thought I would write a column about how to raise money-savvy kids. But that information is ubiquitous (see your local library). What struck me as more important is to know what you should never say to your kids about money. What words and attitudes can turn kids into spendthrifts or hoarders, under-earners or workaholics, financial basket cases who may eventually spend thousands of dollars in therapy sorting through their issues?

So I consulted a few money therapists. Here are seven ways to avoid raising financially dysfunctional kids:

#1: Never make money the unmentionable taboo in your house.

"The worse thing we can say about money to our children is to say nothing at all," says Brad Klontz, financial psychologist and co-author of "Mind Over Money: Overcoming the Money Disorders That Threaten Our Financial Health." Not speaking about money matters conveys the message that it's either an unworthy or taboo topic. "If you do not teach them about money, who will?" says Klontz.

#2: Conversely, never talk incessantly about money.

I recently received an email from a mother of an eight- and 10-year-old, who wrote that she and her husband began discussing money with their kids at age two: "They go with us to the bank, watch us pay our bills, balance the checkbook, etc. My husband has even used our wipe board to explain the process of how money is earned by mom and dad, how it gets to the bank via our paychecks and how it is spent and saved. We tell them everything and I am amazed how despite all of our efforts we still get, especially from the oldest one, 'just use the card.'"

I asked California psychotherapist Kate Levinson, author of the new book "Emotional Currency: A Woman's Guide to Building a Healthy Relationship with Money," to weigh in on the email. "It's really easy with money to be too lax or too obsessed with it — educating too much," she says. "Depending on the kid, if we push too hard, there's a boomerang effect, and kids can respond in the opposite way." Whatever educational strategies you employ, pay attention to how your kids are reacting, Levinson notes.

#3: Never say 'Let's shop until we drop!' to kids without suggesting some parameters.

Money therapist Karen McCall, author of "Financial Recovery: Developing a Healthy Relationship with Money," due out in May, says a fun day at the mall can be disastrous if kids have no idea what the limits are. "Parents can build up anticipation that turns shopping into a negative experience," she says. "The kid learns, 'I can't get my hopes up; he said he was going to buy me a toy, but I can't buy the one I want.' Instead, say, 'we're going to the store and we have $X to spend on your dress or your toy.' Now they have guidelines." Suggest to older kids that they can supplement that budget with their own savings if they'd like a wider selection.

#4 Never make 'we can't afford it' the only response to kids' financial requests.

That statement is a timeless justification that few children could argue with. But in fact, you could probably afford most of what your kids want if you were willing to go to extremes — like cash out your retirement funds, max out your credit cards or sell your house. It might be more productive instead to explain to your children why you choose to spend money the way you do. If you're not careful, you may set them up for a life of obsessive work in pursuit of getting what they felt has always been out of reach. "Or they could decide that since it is out of their reach, why bother trying to get ahead?" says Klontz.

#5: Never turn a child's small mistakes into heavy-handed teachable moments.

I received another email describing a father who wanted to teach his five-year-old not to waste money. On one occasion the child asked his mother to buy him a slice of pizza and then didn't eat it. When the father came home from work, the child mentioned the incident in a lighthearted way. The father took out a dollar and told his son to give it to his mother for wasting her money. The child put his head down and handed her the dollar.

"Be careful not to make a Supreme Court case out of what we perceive as kids' carelessness or lack of respect for something," says Levinson. "A kid's hand slips and the balloon goes up in the air; or maybe he doesn't like the pizza. I don't think these are best places to teach value of dollar. You run the risk of teaching them that what they want doesn't matter. We are better off if we can at least some of the time say, 'I don't like that pizza, I don't want to eat it' — and have it be okay."

#6: Never lay a financial guilt trip on a kid.

Levinson's book profiles a woman named Susan whose parents told her they were taking her out of private school in sixth grade because she was too proud and entitled. In her freshman year of college, Susan's mother found out Susan had tried alcohol, and sent her a letter cutting off support. Susan put herself through college and graduate school, but never saved any money. "I think this was a form of perpetuating my mother's punishment of me," Susan said. Thirty years later, Susan's father confessed they really couldn't afford the private school or college tuition.

Susan's story is extreme, but I've interviewed other adults who feel guilty spending money on themselves, based on childhood experiences. "Kids cost a lot of money, and costs escalate with their needs and desires," says Levinson. "I think it's easy for us parents to lay guilt trips. Some kids get consistent messages from parents that if they weren't spending the money on school or music lessons they'd be flying to Paris or have something that they need. Eventually the kids feel bad or guilty for wanting things in the world."

#7: Never make your child a financial confidant.

In his current research, Klontz has found a "significant percentage" of the population feels better after discussing their financial stress with kids. But that's a big no-no: "Don't use your child as a financial therapist," he says. Children need to know the adults are in control and taking care of things. They're not capable of helping with the big issues, like looming credit card debt or an underwater mortgage. If you lose your job, be honest about the situation and empower kids to be part of the solution. "Have them plan meals, shop for them and cut coupons," Klontz says.

McCall agrees: "Use all resources — time, energy and money — to meet a child's needs. Explain they can't get the new bike or go on the ski trip, but make sure a kid's emotional needs are being met. Go outside and shoot hoops, read a book together. Kids need connection and a feeling of safety and security — they don't need things."

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