Teaching our kids about money and financial health is critical. According to a great article from the Wall Street Journal, despite the best intentions, we’ve been getting this all wrong. “Most children still grow up into adults who can’t properly save, spend, and budget,” and invest, leverage, and give. In other words, kids are growing up without an understanding of money as a neutral tool to help them create the lives they want and instead arrive at adulthood with financial anxiety, unable to speak about finances rationally, and unable to distinguish cultural associations and personal emotions all too often attached to money.
So what do we do? How do we instill in our children a healthy financial perspective and the ability to navigate finances with confidence?
The answer is honestly simpler than you might think. We’ve gone back to our philosophy to create a developmentally appropriate, easy to integrate approach to teaching children about money and value, and it centers around allowance. The benefits are many: kids learn about themselves and their relationships to money & value while earning some money, and parents are able to eventually off-load some work they’d otherwise have to do themselves. The plan is customizable, and each family can determine the amount of allowance as well as specific expectations and chores.
This strategy spans from birth to age twenty-one, and we’ve broken that time into 7 distinct stages. Each stage naturally comes with its own challenges and opportunities. Your role is to identify and make the most of them. They are:
Need to know: before jumping in we need to introduce some necessary vocabulary. Each stage goes through three phases: Assurance Ensurance, and Insurance. These phases will look different at each stage, and your children will need you to be responsive to each one. When in Assurance, they’ll need you to be supportive and to show, tell, and model what they need to know. Each stage will demand that you give your children Assurance support for a good while in the beginning, especially when they are younger, and it requires an investment of your time more than anything else. Ensurance isn’t a word you’ll find in the dictionary, but it’s absolutely the right word to describe making sure, ensuring, your children have enough practice and anything else they need to develop a strong, healthy habit. The Insurance phase is the pay-off for you: you’ve invested in your kids up front and installed in them habits that minimize their risk of back-sliding. By the time you and your kids reach Insurance they are moving along under their own steam.
Additionally your children are born with their natures intact. In order to be the best mentor and guide you can be you’ll need to do your best to identify their natures. It’s not as though they can take our survey like adults can, so we’ve created this guide to help you identify their natures as accurately as possible as early as possible. More here…
Jumping in: birth to 3 years is characterized by discovery and massive developmental leaps, something that doesn’t come around again until early adolescence. Your children will need you to be in Assurance all of the time. [Read more.]
Play & Competition: kids from 4 to 6 are fun, playful, and naturally competitive. Playing games introduces them to rules, winning, and losing graciously. When in Assurance you’ll demonstrate the rules of fair play and sharing. [Read more.]
Help & Cooperation: by the time kids are 7 they will want to help around the house. In the 7-9 years children naturally want to please their adults and relate their value within the family to being asked to do things and go places. [Read more.]
Chores & Earn: from 10 through 12 kids can adhere to some routines that help the household function better. The tasks they once helped you with now become chores that are their responsibility. [Read more.]
Work & Save: in early adolescence children go through another great developmental leap. From ages 13 to 15 they are far more socially aware, and often they want to buy the cool stuff or go to awesome places but don’t have the money. [Read more.]
Job & Own: from 16 to 18 it’s important for kids to do something for the world at large and get paid for it. Babysitting, mowing lawns, scooping ice cream, walking dogs- owning the responsibility… [Read more.]
Self-Development & Leverage: there are many ways to continue to invest in our kids and ourselves. In the 19-21 stage kids learn to be interdependent because nobody can accomplish much on their own; [Read more.]
You’ve likely heard the saying, “it’s the journey, not the destination,” and this strategy for helping your kids evolve with their money is a wonderful journey with a fantastic destination. You and your children will appreciate and learn a great deal from this intentional, organic process, and you both win at the end: you’ve raised a kid who has healthy money habits and perspective, a kid who knows herself or himself and understands money as it relates to his/her nature.
Disclosures: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. They do not necessarily reflect the views of LPL Financial.
No strategy or process assures success or guarantees against losses.