Kids and cash: Tips from HFG Wealth Management in The Woodlands
THE WOODLANDS, Texas -- Did your kiddos make some money working this summer? Have you talked to them about what to do with their hard-earned cash?
Referring to Ron Lieber's book "The Opposite of Spoiled," HFG Wealth Management in The Woodlands, answers a few top questions about kids and their cash -- and the popular, give/save/spend philosophy.
Why do we need to talk about money with our kids?
Children see clearly how we react to pay raises, how we spend or don’t spend on holidays, vacations, cars, houses, toys, education, etc. What they don’t see is what we spend on utilities, insurance, charity and savings. By only seeing the “stuff” we buy -- and not the responsible things we have to budget for -- we send a one-sided message: "spend your money on things you want.”
Simplistically, we recommend the give/save/spend method - we give money to charity, save for the short term (like vacations and holidays), save for the long term (like college and retirement), pay our taxes, and then we have money to spend on housing, utilities, insurance, other responsible stuff. After that, books, games, toys, cars and other fun things come into the picture.
To help our children learn this, we recommend an allowance. This isn’t tied to chores, but is solely to help them learn how to manage their own money. They have four jars: charity, short-term savings, long-term savings and spending.
- Spending: they can spend on anything that doesn’t go against our family values
- Long-term savings: goes into their college fund
- Short-term savings: they can spend buying presents at Christmas, and a little on themselves for something “fun”
- Charity: the jar they put their money into first, and once a month that money goes into an envelope and goes with them to church or a cause the family supports
What can we tell children about charitable giving?
If charitable giving is a value you want to instill in your children, they will need to see it in action. For kids, how much money we make as parents is nebulous. They have a hard time fathoming more money than they can see. So, when you are making a good living and things aren’t tight around the house, what your kids see is an endless pot of money, with no need or reason to worry about how much goes to charity and how much you spend. When things are tight and your kids feel the pinch, it’s still important you show your children that you’re giving.
Can you explain the give, spend, save philosophy?
This concept has been around for a very long time. The basic premise is that if it is important that you give and that you save, then you have to do those first, before you spend a nickel. If money is allocated to give or to save, it is unavailable to spend, and we will adjust our spending habits to fit this constraint. Similarly, if all of the money we have is available to spend, then it is incredibly difficult to save or give at the end of the month because your spending habits adjusted upward to the amount available.
How do you cultivate a work ethic in children?
If you decide to give your children an allowance without requiring chores to be done to earn the money, you have to find another way to encourage work. In my family, we talk to the kids about what it means to be a member of the family -- a large part of this discussion is that they are expected to help around the house.