by James A. DeGaetano Jr., CPA, CFP, author of “The Fruitful Retirement”
Studies have shown that children who are not taught good money habits at a young age could pay the consequences for a lifetime. With a majority of schools offering little in the way of financial education, especially in an unprecedented year of virtual learning, it’s up to parents to ensure the formation of solid habits around money.
Through thousands of conversations with clients, I’ve determined that financial success is most often rooted in behavior. Behavior is learned through habits, and since research suggests most of our habits are formed by age seven, we absolutely need to cultivate strong habits around money from a young age.
Don’t worry, it’s easier than you might imagine, especially if we start when our children are young. Children learn basic skills by imitation and induction. I can personally vouch for the imitation side as I watch my five-year-old son imitate my mannerisms (both the good and the bad) and while my seven-year-old daughter creatively acts out her favorite TV show characters.
Inductive learning is the process by which our children observe their environment to understand the world by creating cause and effect relationships. For example, many parents have experienced their children disregarding warnings of dangers like a hot kettle until they burn their finger and never try to touch it again. In the simplest terms, they see and hear everything we say and do and can quickly induce lessons from active experiences.
So, how does this all relate to teaching our kids about money? Well, think about the responsible financial steps you take on a daily or weekly basis and explain them to your children. Something as simple as moving money into a savings account can come with a lesson on how instead of spending everything on stuff like ice cream now, you’re saving it for something BIGGER like a family trip! If we as parents can instill solid money habits through learned behavior now, we are putting our children in a position to succeed with their own money when they become adults.
I’ve developed a system to teach my children about money and I wanted to share it with you. My goal was to create something that was both easy to remember and adopt.
Delay it.
Teaching children patience is important for many parts of life, including money matters.
Example: The next time your child wants to play with you “right now,” tell them yes, but in five minutes. It teaches patience.
Play it.
There are teaching moments in everyday activities. Playing is a great way for kids to learn about what money is used for and how it works. Play reinforces learning and is fun for them. I let them play the restaurant owner while I use play money to purchase the wonderful food being served.
Set up a system for them to put their money after they earn it with separate jars for Savings, Sharing, and Spending with money from chores or gifts being deposited in that order. When my kids are older, I may even go further by matching them up to a certain saved amount. Just as we teach them to prepare for exams by doing homework and prepare for games/matches with practice, using real money to practice saving it will prepare them for life on their own.
Say it.
It’s important to speak to our children as we are doing certain activities like paying the bills and reconciling our bank accounts. This is the reason I wrote “Larry the Bunny Saves His Money”. I was looking for a better way to introduce the concept of savings to my kids and thought a book would be a great place.
Display it.
We as parents need to be sure we are walking the walk and not just taking the talk. One of the questions I always ask people that reach out to me for financial guidance is “Who most influenced you about money?” The response is almost always their parents. For better or worse, our parental influence reaches far, and money habits are no exception. We can set the stage for our children’s future success by having an organized financial life and setting goals that lead to a fulfilling, purpose-driven life. There is no time like the present. Our children are watching.
James A. DeGaetano Jr., CPA, CFP, is the author of the recently released “The Fruitful Retirement” and the Amazon best-seller “Larry the Bunny Saves His Money“, a children’s book that teaches kids about money and saving. He is president of Diamond Wealth Advisors and JD Media Company in Carlisle, Pa., and can be reached at thefruitfulretirement@gmail.
