In our experience, we find the wealth building journey is less about head knowledge and more about our relationship to money.
My wife’s grandmother was a saver. She grew up on a farm and lived frugally. My mother-in-law once said she always thought, growing up, that their family was not as well off as some of her friends because of the way her parents pinched pennies.
I remember seeing an example of this a few years back when we went to visit her in small town Illinois. When we visited her home, we noticed she had scratches on the side of her car. We asked her about this, and I remember the embarrassed look she got on her face. In her funny way, she said she didn't want to talk about, but we could tell she did. We had to hear the story, we knew it would be good, so we pressed further. She then shared how a few weeks back, she noticed that it was about to rain. Not wanting to miss out on an opportunity for a free car wash, she decided she would back her car out of the garage and into the driveway. Unfortunately, as she did so, she cut the edge of the garage a little too close and scratched up the side of her car!
After laughing off this unfortunate occurrence with grandma, I was struck by something. Grandma was age 91 at the time and had a significant net worth. She lived on the second story of her home and yet, despite her wealth and age, she saw rain in the forecast and the thought crossed her mind that, despite the work it would take to walk down all of those steps at her age, this could be an opportunity to save $6 on a car wash.
I share this story because Grandma grew up during the Great Depression. She was taught as a young child what it would mean to save money and live frugally -- her family’s survival depended on it! This savings mentality carried through the rest of her life to the point where, even at age 91 she was still looking for opportunities to save her pennies.
How early is too early?
As we meet with young parents, one of the topics that often comes up is, how early should I be teaching my children about personal finance? While financial concepts are often difficult for kids (especially young kids) to understand, the relationship they have to money can be taught very early on.
A good rule of thumb for knowing if your child is ready for these concepts is to ask yourself, is my child able to learn other relational values? Are they able to learn how to share? How to be kind? How to show empathy? If so, they are ready for this too. There are 3 personal finance concepts we encourage parents to teach their toddlers. This can be accomplished with 3 jars labeled: Saving, Spending, Giving.
Teaching children to save early on is laying down a foundation they will take with them the rest of their life. Similar to how my wife’s Grandma saved early and diligently throughout her life, this concept can be taught to your children as well, but you have to give them reasons. Try and help them see the importance.
Dave Ramsey encourages parents to use a clear jar for saving rather than a piggy bank. He says it is helpful to give kids a visual. When they can see their dollars, pennies and quarters stacking up, it is a very important thing for the child to see the growth and feel proud of their work.
Children need to know that the money they have earned can be spent on the things they like to enjoy. Why is this important? So they can see the immediate fruits of their labor! The key here, is not that they were given a toy to play with, but that they earned that toy. This teaches hard work pays off. It teaches sacrifice, that they have to put in some work to receive a benefit. It also helps them to understand that not everything in life is free.
Perhaps the most important thing you can teach your children is the concept of giving. A spirit of giving is a recipe for a happy and joyful life, and who doesn’t want that for their children?
A study performed in 2006 by a team of biologists at the National Institute of Health actually proved the biological connection between giving and happiness. They concluded when we give, our brains release endorphins which leads to an improved mood and state of mind, social connection, a “warm glow” effect, and overall happiness!
Even despite the biological affect it has on the giver, having a spirt of generosity benefits everyone and this selflessness is what will lead to a positive impact on the world.
So how do you teach these things?
Have 3 jars labeled Saving, Spending, Giving. Provide an allowance based on chores they must complete, even if it is just 3 quarters, 1 for each jar. Toddler’s won’t understand the value of money just yet, and that’s okay. My 4-year-old recently traded a dime for a penny because she thought pennies were prettier. Most important are the concepts behind what they are able to do with those three jars.
Be sure to show the child the results of the jars. The savings jar will continue to grow. Perhaps set savings goals with them. The spending jar can be used to buy candy, toys, whatever they would like. The giving jar should be used to give to others, perhaps identify a charity with the child. It could be buying food for starving children, Toys for Tots, or buying non-perishable food for homeless shelters. Be sure to explain to the child the reasons why you are giving.