Family

The Secrets of Raising Financially Savvy Children

'If your kids can manage cash flow, there is no reason to go into debt,' says author of new book

The hardest thing about upward mobility, the so-called American dream, is attaining it.

Perhaps the second hardest thing is this: Once you’ve risen from a hardscrabble upbringing and gained financial success, how do you pass the traits that helped get you there — hard work, accountability, passion, and discipline — on to your children?

“The real story is if the parents don’t do the job, who will?”

The natural inclination is to give them all the things you never had — and to shield them from the worries you experienced growing up. But that won’t help them long-term.

“The large majority of the population is financially illiterate, and instead of figuring it out, they avoid it,” says Chris Felton, co-author with his wife, Marlow, of the book, “Couples Money: What Every Couple Should Know about Money and Relationships.”

“Most parents’ relationships with money is that of stress and struggle and money not working for them. So who wants to teach something that equates to stress and struggle as well as admit that they really don’t know what to teach? They feel it is so much easier to avoid it altogether.”

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Parents want to give their children every advantage, the Denver, Colorado, couple says, and that’s just what you’re doing if you prepare them to better deal with real-world financial decisions.

Related: Smart Money Lessons for Kids

“You want to teach children from an early age the basics of earning, spending and saving with their own money,” Felton says. “Kids are 50-percent programmed on everything, including money, by age 4, so be careful what you say around your kids in regards to lack of money or limitations.”

Felton shared more of his thoughts with LifeZette in an interview.

Question: Why is financial literacy such an important skill for parents to teach their children?
Answer: Money is something you have to deal with your entire life. It impacts a significant amount of the decisions you make your entire life. The real story is if the parents don’t do the job, who will? Schools don’t, the financial services industry won’t, the government won’t. If parents don’t teach, then they often learn the hard way, and costly mistakes can be avoided by the parents’ being proactive and teaching these concepts.

“Your example is everything. Make sure that is squared away.”

Q: Why is it so natural for parents to want to give their children the things they never had rather than make them work for it?
A: People personally prefer comfort to pain, and most frame challenges as a negative vs. a positive. If we equate challenges and hard work as a negative, then we will want to help our kids avoid this and will prefer to “feather their nests,” but long-term, it will be destructive to their confidence as they will feel that they are not able to overcome challenges. One of our wealthy mentors told us not to rob our kids of the challenges they need to go to the next level. It’s one of the reasons kids of wealthy parents who are given everything end up miserable, because they lack the confidence and view themselves as not capable.

Q: What is the most important thing for parents to teach their kids about finances?
A:
Respect for money. People who struggle with money don’t have a healthy respect for money. Cash flow is the most important. Understand how much comes in and what is going out. Most people lose the money game small dollars at a time. If you can teach your child to save 10 percent, tithe 10 percent, spend for fun 10 percent, and the rest can go to bills and living, they will be on their way. If they can manage cash flow, there will be no need for debt.

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Q: When should you start teaching kids about finances? How young is too young?
A:  I think you can start with your own example right away. The old saying is, “I cannot hear what you are saying because what you do is ringing so loudly in my ears.” Your example is everything. Make sure that is squared away.

Q: How do you teach your kids about needs vs. wants?
A:
 Ask them questions of what the difference is. Don’t give them the answers — get them to think.  It’s different for every person … Money is something you exchange your life energy for. So if you pay your child $5 per hour for chores and he goes out and spends $100 on something, he just exchanged 20 hours of his life energy for what he bought. Was it worth it? If it brought value and enjoyment to his life, then good. It was a want that was worth it. If it didn’t, it was a wasted want and not a need either.

Related: The Secrets of Family Financial Fitness

Q: How much should kids participate in family finances? How much should parents tell their kids about their family finances?
A: We think it’s important to explain to them what your goals are — income, net worth, savings, etc.  Also, if we hit some financial goals as a family, then we get this trip or whatever. They can also brainstorm with the kids on what they can contribute to it. Also, letting my kids know that with our fun fund, there is an amount to spend but once we go past that, no more. Therefore, on the fun side they can decide what they want to do and not to.

‘Use Real-World Examples’
When it comes to teaching your children about money, Marlow and Chris Felton stress a focus on these seven ideas:

1.) Use real-world examples. This can be accomplished with age-appropriate household chores to show kids how money is earned. You can store that money in a piggy bank or even open a bank account. You can take the money and, in time, buy stocks with your children to teach them about investing.

2.) Overcome old beliefs. There is a variety of scenarios that contribute to how adults view money, and many of these stem from childhood. Do your kids a favor and educate them wisely while they are young. You do not want your children to develop skewed mindsets based on scarcity or excess. In today’s economic climate, anyone can become financially independent regardless of her upbringing or education. First, one must believe it, then use the tools available.

Related: The Best Money Advice for Teenagers

3.) Redefine money. Essentially, money is a form of energy. It is passed between parties to represent intent. Contrary to popular belief, this is not an inherently negative thing at all. Your relationship with money is determined by your beliefs about it. Redefine the value and intentions behind your money. Whichever actions you take with money is that of upmost value for you, consciously or subconsciously. To instill positive understandings of money into your children, lead by example. Establishing a positive relationship with money through modeling is the best way to teach your children.

4.) Don’t be intimidated. Rather than being scared by the concept of money, embrace it for its positive freedom-bringing properties. There are complex methods for money management, but explain it to your kids in simple terms. Even for the older kids some concepts of money and investments can be overwhelming. KISS — “keep it simple, stupid” — reigns true. First, establish the basics, then grow their knowledge from there.

“When you apply hard work and dedication to a passion, the money will come.”

5.) Do what you love. Plan for the future, but live in the now. Believe in yourself and your passions. When you are doing something you enjoy and lose track of time, that is your flow. When you apply hard work and dedication to a passion, the money will come. Kids need to understand and embrace this idea.

6.) Keep an open mind. There are endless perspectives to take on the topic of money. One of the best lessons for adults and children alike is, “Live within your means.” In our possession-driven society, many individuals take on mountains of debt to keep up with the latest trends and buy the newest gadgets. Have common sense and track your finances. This is a great skill to teach your kids early. They can develop this habit to carry them into a healthy financial future.

7.) Continue learning. Educating your kids about finances is a great opportunity for you to learn more, too. It can also give you a fresh outlook on money and reassess your perspective. If you feel you have a pretty good grasp, step it up a notch. Maybe begin an investment portfolio and include your kids, so they can learn throughout the process. It can be a great way to connect and learn together.

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