What’s Even More Uncomfortable Than The Sex Talk?

What's Even More Uncomfortable Than The Sex Talk? Beau Henderson - RichLife Advisors

3 Money Conversations You Need to Have With Your Kids

A recent study by the National Bureau of Economic Research found that 50% of all Americans would struggle if they had to come up with an extra $2,000 for an unexpected expense. Most Americans also report at least $1,000 in credit card debt.

No wonder talking about money has become, for most parents, even more uncomfortable than talking about sex!
Most parents avoid having money conversations with their kids because they aren’t happy with how they are doing financially.

It’s easy to say, “I’ll talk about this when I get that promotion, or when I get a job, or when I pay off my credit cards.” And then it never gets talked about at all. Recently, on the RichLife show, we talked with Danny Kofke, special education teacher and author of, “A Simple Book of Financial Wisdom: Teach Yourself (and Your Kids) How to Live Wealthy with Little Money”.

As a school teacher, I know the education system does a horrible job of teaching financial literacy, and many parents are struggling financially. So how can you teach your children something if you don’t know how to do it yourself?”

Don’t wait until you are financially where you want to be – start having money conversations now.

The consequences of not doing have lasting impacts. Television commercials, credit card companies, and the media at large have their message: money = happiness. Talking with your kids is your chance to make sure you are the one who gives them a solid financial foundation for their RichLife.

If you don’t have these conversations, kids will learn from someone else . . . and we all know what happens when they learn about sex that way!

You can begin teaching basic financial principals as early as age 3. What follows are 3 essential money conversations followed by actionable steps that you can do with your child today to increase their chances of a successful financial future.

CONVERSATION #1: The Formula For Spending Less Than You Earn

It sounds so simple, doesn’t it? Yet we have the tendency to spend whatever amount we happen to have. Kofke has supported his family of 4 on less than $40,000 a year, establishing an emergency savings fund of $5,000 annually by adhering to this simple formula:

Give away 10%, save 25%, and live off the rest

When my daughter was 3, we started her out with some basic chores. When she got paid, we had 3 jars: 10% went into a giving jar, 25% in savings, and the rest in spending. This is such a simple thing to teach and the practice will help establish a good financial foundation.”

Do this exercise with your child by applying this to your own budget as well. I have helped many clients to come up with their own 7 -1-1-1 formula for getting out of debt such as: 10% for savings, 10% for debt, 10% for giving and 70% for living expenses. You can adjust the numbers to fit your budget, but what’s key is paying yourself first. Do that and you will have the freedom to spend the rest!

CONVERSATION #2: The Practice of Wise Stewardship

Regardless of where you are at with your personal finances, you can begin teaching your children good money habits by applying this one, simple practice. Once mastered, this practice becomes the foundation for success in all areas of one’s life, personal, business, and financial.

Stewardship is the behavior of an accountable person. Its root word is keeper, meaning one who cares for and manages people and things

For my daughter who is 8, we opened up a savings account. Every week, we give her a certain amount of money for hot lunch. She has the option of buying lunch twice a week, or saving that money and making her own lunch. This school year, I told her that I will match whatever amount she has saved by the end of the year.”

Teach your children to be “the keeper” of their money by finding opportunities to reward them for taking good care of what they have. This is a good balance between earning and giving that mirrors the way things work in the adult world: the better you take care of what you have, for example, a car, the better it will serve you.

CONVERSATION #3: The Bigger Picture of Needs vs Wants

Learning to distinguish the difference between a need and a want is something we could all use a little practice on. Give it the test of time.

Make a list. And watch how that list changes.

If something stays on the list, then you can make a plan and set about getting it. Most times, our wants are the temporary things. You realize you can go on living without it, and sooner or later, a new want shows up in its place. Needs are more permanent, and they don’t go away so easily.

When it comes time to think about a career choice and college, the bigger picture of needs versus wants can make the big difference between the student who starts out with $80,000 in loans, and the one who doesn’t.

Times have changed. College graduates no longer have the certainty of job placement and a lifelong pension.

I think if your child is passionate about something, they should be able to follow that passion. But you have to be smart about it. For example, say they want to go into social work. You need a college education. But the average social worker earns about $35,000 a year. It doesn’t make sense to start out with the burden of a student loan because then you will be behind for the rest of your life. Maybe start out at a community college for a few years instead, and see how it goes.”

Be smart about your options. Look at the big picture of where you are headed versus only looking at what you want to have now.

Parents, this is your chance to make sure you are the one who gives your kids a solid foundation for their financial future.

Honesty is the best policy. Obviously, if your kids are very small and you’re in a home foreclosure situation, you won’t want to use any language that would scare them. But overall, I think we have to lay it all on the table, because eventually, they are going to learn about it, and we don’t want them to learn the wrong way. You want to help your kids understand money, so they aren’t afraid of it, so they don’t equate it with their happiness, and so they don’t make the same mistakes that you did.”

What opportunities have you found to teach your kids about money? Our next post will share the sage advice learned from our parents, as well as those lessons we had to learn the hard way. We’d love to hear your story and add them to our collection of lessons learned, lessons taught. Visit us at www.richlifeadvisors.com and click on the Ask Beau button to share your story today!

About Beau Henderson

Beau Henderson is a financial advisor, author, coach, radio personality, and CEO of RichLife Advisors. He has helped over 3,000 clients to not just improve their relationship with money, but to live the life of their dreams.

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