In his book The Opposite of Spoiled, Ron Lieber describes a conversation that occurred between Chris Rock and Jon Stewart back in 2012. In an interview on Stewart’s show, they got around to discussing the challenges both faced in raising children who could remain grounded amid wealthy surroundings.
Rock described how his own modest upbringing differed from the comfortable life his children were enjoying. “My kids are rich,” he said. “I have nothing in common with them.”
Stewart agreed. “I had jobs since I was 14 years old.” That, he said, cemented his work ethic. But his own kids, for better or worse, didn’t have to work. They faced no hardship. As a result, he worried whether they would ever develop a strong work ethic of their own. “Maybe there should be like an Outward Bound that we should send them on,” he mused.
Rock concurred. There should be a camp, he said, where kids “get their lunch money taken and get beat up…”
On one hand, this was good natured banter between two successful people. But their concerns were also real. And as Lieber notes, you don’t have to be at the level of a Hollywood star to share these concerns. If you’re a parent, this may be a topic you’ve thought about.
In the absence of an Outward Bound—or “Camp Kick-Ass,” as Rock put it—what can strengthen children’s financial skills? Below are five strategies that have worked well for many families:
The big picture. When it comes to financial details, many parents—myself included—are wary of sharing too much with their children. I wouldn’t show my kids my tax return, and I wouldn’t expect most parents to. But that doesn’t mean you can’t share some details—the mortgage or the car payment, for example. This can be educational, I think, because it gives kids some sense of what life costs. As they think about their own future, this can be helpful information. It’s also an opportunity to educate kids on some basic concepts in personal finance. For example, I’ve walked my older children through my mortgage statement, explaining the basic elements. If you have a 401(k) or 403(b), that’s something else you might share. Show them a statement so they can see how these plans automate the saving and investing process.
Credit. Credit card companies are notorious for inundating college students with credit card offers. More than one parent I’ve spoken with has described seeing their children get in over their heads. The solution? It’s unrealistic to prevent children from ever signing up for a credit card. Instead, and maybe counterintuitively, I suggest getting them started early with a credit card. That will give you the chance to keep a close eye on things while they’re still at home. And it will give you—rather than the credit card company—the opportunity to teach them how to manage credit. Your kids will also start to build a credit history. There’s no shortage of credit card companies, but some offer features, and associated apps, specially designed for kids. These include Chase, FamZoo, Greenlight and GoHenry.
Allowance. In most families, allowance is pretty straightforward—a few dollars every Sunday, for example. This is fine, and it does help build budgeting skills. But there are steps you can take to make allowance even more educational. In The Opposite of Spoiled, Lieber suggests this setup for young kids: Give them three jars, labeled Spend, Save and Give. It’s up to each family to decide how allowance is allocated among these three categories. But however you choose to split things up, the exercise itself provides kids an invaluable lesson in managing money. Also, Lieber says, the jars should be clear plastic. That’s to help kids see their progress tangibly. Some parents take additional steps to maximize the educational value of allowance. One idea: Let kids decide how much to allocate to each jar, but to encourage saving, pay “interest” on the balance in the Saving jar each week. Also, and importantly, give kids periodic raises, to further prepare them for the day when they’ll need to manage a real paycheck.
Taxes. When your kids do begin to receive real paychecks, they’ll need to file their own tax returns. That’s an excellent opportunity to give kids an introduction to income taxes. You may not feel comfortable sharing your own tax return, but you can definitely walk your kids through their own tax return. In most cases, kids’ returns are simple enough that you needn’t be a tax expert to understand it yourself and explain it to your child. I’ve done this. I’ll confess that my son didn’t find it the most fascinating conversation, but I still think it was worthwhile, and I’ll continue doing it.
Major purchases. Another way to help kids learn to budget their money is to take a partnership approach to big purchases. For younger kids, it might be a special toy. For older kids, it might be a cell phone or a first car. Even if you can afford to, and are willing to, buy these items outright, you might consider splitting the cost. It need not be 50/50. Even if a child has to contribute just 10%, it will give them an incentive to save and start to familiarize them with the idea of making choices. You could also apply this idea to an investment account—ideally a Roth IRA—for your children, matching the dollars that they contribute.
Over the years, I’ve asked parents with adult children what factors contributed to their children’s success. In most cases, the answer has been the same: “I really don’t know.” It’s possible that they were just being modest, not wanting to give themselves too much credit. But I think there’s another interpretation: In the end, there really is no single magic formula. As Chris Rock and Jon Stewart lamented, it would be difficult to artificially impose hardship in order to build resilience. Instead, what many parents have told me is that they simply employ strategies like the ones above whenever they have the opportunity for a teachable moment.