How to Teach Your Children About Money

How can doctors, and anyone really, teach their children about money?

It’s such a tricky and hot button issue. I don’t have any bullet proof answers as Selenid and I start working on this with our kids ourselves. We talk about money with our 6 and 4 year olds. We discuss how we spend it, save it, and give it. About why it’s important but only as a means to bring good into the world.

But in practical terms, we still have work to do.

teach children money — *What makes it all worthwhile!*

With that in mind, I asked our friend, Brian Zdrowak CPA CFP, for his thoughts. Brian is a financial advisor with one of our key resources, Buckingham Wealth. You may remember him as the one who helped Selenid and me with our initial written financial plan. But he is more a personal friend.

And I really respect how he thinks about money. Particularly within the perspective of family. So I asked him his thoughts on how to teach children about money.

And here they are!

As a financial advisor, I work with doctors to build their wealth, grow their practices and protect their savings. Like most things in life – particularly in the medical field – protecting ourselves starts with education and putting together a plan.

Many of my clients over the years have not just asked for advice on building a successful medical practice – they have also sought practical steps on laying the foundation for their children’s finances. A natural question that comes up.

How should I talk to my children about our finances?

While there is no right or wrong answer, I like to share my own stories with my clients. My wife, Debbie, and I are extremely proud of having raised three financially independent children. When reflecting on the journey, there was not any one action responsible. However there was a series of steps. And, at times, chances we took in teaching our children to become financially independent. Here are some of the most valuable lessons I learned along the way:

1. Give your children an allowance that is not tied to doing chores

Debbie and I wanted to teach our children about money from a young age. While it would have been nice to have a cleaner house in the process, we wanted to keep the focus on money lessons.

Each child had three envelopes: “save,” “spend,” and “share”. The money was theirs to do what they wanted. While it was hard to watch my daughter put $20 into a “Feed the Animals” donation box at PetSmart, this was a chance for her to practice money habits without major consequence.

Someday, when the stakes would be higher, my children would understand that they have the same options to weigh.

2. Trust them with money decisions

We first came up with a plan to entrust our children with money decisions when it was time for back-to-school shopping. As our children grew older and developed their own tastes, shopping for school supplies was not only expensive, but it also became much harder. When they entered middle school, Debbie would take a portion of the money that we had saved for this purpose and give it to our children in cash. We would take them to JCPenney’s and send them off on their own to make their purchases.

Because physical cash is harder to part with than using a credit card, we felt it would be a good way to learn. When the cash is gone, it’s gone, no more spending. And it worked a lot better than we thought. They purchased the clothes they wanted, compared prices and sometimes had a little bit of cash left. When your children have skin in the game when making money decisions, the lessons are more likely to last their lifetime.

3. Work with them to create a budget

The process of budgeting for each of our children evolved over time, starting with our envelope system and eventually moving to Microsoft Excel. Our children expanded the envelope system as they grew older and took on additional financial responsibility. Even as their budgets grew, they all had one objective in common: Cash must be coming in and be enough to pay their bills, with the No. 1 priority being paying themselves first by contributing to their savings.

Before each of our children moved out, they approached us, asking for an extra set of eyes to go over their budget. This helped them determine how much they could afford in monthly rent, utilities, groceries and other living expenses. Throughout their lives, we helped them put together new budgets as their financial needs changed.

4. Encourage them to work part time to cover expenses

Once our children reached age 18, we thought it was important that they start taking on more financial responsibility. By that age, all three of our children wanted a cell phone and to drive, and we decided that required them to work part time.

At age 18, they were each responsible for their own cell phone plans (they could reimburse us or pick their own).

At age 19, they were each required to pay for their own car insurance. We helped them research insurance providers with good rates along with good customer service for young drivers.

Check out my best-selling book, Money Matters in Medicine!

5. Pass on lessons about building credit

As we purchased different homes or newer cars, we would explain to our children how having excellent credit makes these decisions easier and more affordable. Once they reached age 18, we encouraged them to apply for a credit card with a $500 limit and to pay the balance off in full every month. If you had to pay interest, you should not have purchased the item.

For their first cars, we encouraged all three to take out loans with our local credit union to build up their credit score. A timely payment history of around 24 months on a car loan has a very positive impact on a credit score. We also helped them set up autopay on their loans from their checking accounts. Our children are now in their late 20s or early 30s, and each has a credit score above 750. (Of course, we may have overstressed this lesson because now they worry if their credit score drops five points!)

6. Help them become vigilant about protecting their savings

One time, our daughter woke up in the middle of the night to her phone notifications going off. She received emails each time her debit card was used for a transaction, and in a matter of minutes, someone had made three purchases. She had the wits about her to grab her debit card and call the number on the back, reporting the fraudulent purchases and canceling her card without financial harm. We provided these tips to our children to keep their money safe:

Review your online bank account statements at least weekly.
Set up dual-factor authentication with your bank accounts.
Review your credit at least once per year.
Use passwords that are hard to guess.

7. Show them why developing values and leaving a legacy matter

When I was a young child myself, thieves broke into my family’s home one summer while we were on vacation. Although they took off with several cherished possessions, including $5 from my turtle bank, they missed my secret hiding place. In my dresser drawer, I kept an old metal Band-Aid container where I stored my valuables. Despite their looting of my childhood bedroom, the container still held three newly minted 1971 Eisenhower silver dollars that my grandfather had given to me earlier that year.

A few years ago, I sat down with my family, showed them the three silver dollars and told the story behind them. With some emotion, I gave each of my children one of the silver dollars, passing them on like a runner passing on a baton as they plan and protect their own financial futures*.

Wow

Jordan here again.

I have to say, when I read Brian’s response to my question, I loved it. All of these are really practical strategies that I think can really help anyone to teach their children about money.

I recognize some from my upbringing, like working to pay expenses. However there are other lessons here that I wish I had.

While there is never a time too late to start improving your financial well-being, anytime we can give our kids a head start is worthwhile!

And here are some other great posts on financial strategies with children:

What do you think? How do or will you teach your children about money? What lessons did you have growing up? Let me know in the comments below!

*^{For informational and educational purposes only. The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. R-23-6493}