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One of the recurring themes that comes up when talking with parents is how to best help their children learn about money.
It is the role (and the burden) of parents who love their children to prepare those children to be independent and self-supporting in a world that is indifferent to them.
Parenting is a noble vocation…but also a tough gig. As a father of 3 (now adult) children, I say this from hard-earned experience. It is simple (but not easy) to teach children about money.
The best thing you can do for your children’s financial education costs nothing…and that is to role-model living within your means.
The best way to encourage your child to work hard, save hard and invest is just to do that yourself…whilst they are watching.
On some level, all children are students of the behavioural school of psychology. Every child knows on some level that talk is cheap.
So children may well ignore what you tell them about money. But they won’t ignore your actions, your example and your role-modelling. They are like magic sponges, absorbing your actions as well as your words.
Sure, you can open up a junior ISA and buy them their first global equities tracker fund…but for them to get maximum educational value it’s best if you sit with them and do it together.
If you just do it by yourself so that the money arrives when they are 18 then what have they really learned other than FREE MONEY JUST ARRIVES AS IF BY MAGIC?
Make it real and make it visible for them. Show them the process!
You are the biggest influence on your children’s money blueprint: their operating system, their values and their beliefs around money.
Children have two ways of reacting to their parent’s example of how to treat money. In most cases they (mostly unconsciously) repeat the patterns of their parent’s behaviour (and often make similar mistakes).
But in a minority of cases, children who are pissed off with their parents example and their way of interacting with money vow to do everything the opposite of how their parents did it(!).
We now live in a world where pretty much everything in the media is fake, lame and soft-focussed.
If you have achieved any sort of success in your life, you will know that this success did not come easy. You had to do hard things to get where you are.
All of the magic happens outside your comfort zone. We live in a world where it is important to develop resilience and generally harden the fuck up.
The classic mistake that loving parents are prone to make is to try in vain to protect their children from all of the hard edges of the universe. Even when it was these same hard edges that made the parent’s successful!
The same parents that achieved success via The Skool of Hard Knocks and The University of Life will try to helicopter-parent their children and intervene to protect the kids from all the external forces of the world that might harm or even just disappoint them.
We can empathise with the intentions. It’s just a shame that feather-bedding children harms those children in the long run.
Being a parent means learning to say no a million times. And then say it again. Parenting is a noble vocation but no one said it was gonna be easy.
I don’t think its too much of an exaggeration to say that the Big Tech / social media companies are out to get your children with their brainwashing and dopamine-frying devices.
Your children’s introduction to a hard budget constraint comes with pocket money. Pocket money is like the deals at LIDL: when it’s gone, it’s gone!
Bailouts are for investment bankers (2009 vintage joke) and other losers…not for your children. Once they have spent their pocket money on sweets (or some crypto shitcoin) you must never crack. No means no.
Like I said, it is the role and the burden of parents who love their children to get them to the point where they are independent and self-supporting.
My contribution as Dad to three children (now all over 18) was to be prepared to play the role of Scrooge / pantomime villain / bank manager in the family.
I also played the role of recruitment agent, helping / encouraging each of my three children to get jobs working in our local pub as waiting staff / glass collectors / washers up. I knew from my own time working in various factories (including making pork pies, electrical components and tomato packing!) that nothing teaches kids the value of money like a minimum wage job.
If there must be a bad guy, then I was prepared to play that role. Some would say that I enjoyed that role a little too much.
Although I have a lot of personal experience on this topic, that’s just my experience (N=1). A case is more persuasive when you have evidence from independent data with a large sample size.
For anyone interested in this subject, I highly recommend chapter 5 “Economic Outpatient Care” of the classic book The Millionaire Next Door
Using a compelling mix of data and case studies, the authors show how feather-bedding your children will probably backfire and make both you AND the children poorer in future.
The short version is this: the more we subsidise children over 16, the more we skew / blunt their incentives and their understanding of how the world works.
From Chapter 5 of The Millionaire Next Door
“Economic Outpatient Care (EOC) refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren.
Many of todays distributors of EOC demonstrated significant skill at accumulating wealth earlier in their lives. They are generally frugal with regard to their own consumption and lifestyle. But some are not nearly as frugal when it comes to providing their children and grandchildren with “acts of kindness”.
These parents feel compelled, even obligated, to provide economic support for their adult children and their families.
What’s the result of this largesse?
Those parents who provide EOC have significantly less wealth…and in general, the more dollars adult children receive, the fewer they accumulate, whilst those who are given fewer dollars accumulate more. Adults who sit around waiting for the next dose of economic outpatient care typically are not very productive.
What can you give your children to enhance the probability that they will become economically productive adults?
In addition to an education, create an environment that honors independent thoughts and deeds, cherishes individual achievements, and rewards responsibility and leadership. Yes, the best things in life are often free. Teach your own to live on their own. It’s much less costly financially, and, in the long run, it is in the best interests of both the children and their parents.
Why don’t the financial advisors of under-accumulating gift receivers emphasize thrift in their messages? All too often financial advisors have a narrow focus. They sell investments and investment advice. They don’t teach thrift and budgeting. Many find it embarrassing to suggest to clients that their lifestyle is too high.”
We live in a strange time in history when it seems difficult to have honest conversations in public about child-raising and all sorts of other things that actually matter A LOT for your journey to financial freedom.
These subjects deserve much more nuanced (and respectful) conversations than are typically seen in online debates.
There are many ways to bring up children and I don’t push my own way of thinking on everyone else. The one thing that doing financial coaching over the past 10 years has taught me is that everyone is different; everyone has a unique set of circumstances, limitations and opportunities.
But the evidence is clear that the more we subsidise children over 16, the more we skew / blunt their incentives and their understanding of how the world works.
Love to everyone
Barney
If you’d like to discuss career coaching or financial coaching, please hit reply or set up an introductory call with me here.