How to Talk to Your Kids About Money (Based on Your Income Level)
In case you couldn’t tell, I’m not a very serious person. I always liked Margot Fonteyn’s quote, “Take your work seriously, but never yourself.” I like it because I never take myself seriously, and most of the time I don’t take my work seriously either. So it works out, you know what I mean?
But for the past year or so, it’s been the serious work of my life to get out of debt. I like that I am seeing tangible results. I am at the lowest debt level that I have been at any time in the past two years. I am reading books that are motivating me to stay on the path of reasonable spending and being on the lookout for opportunities, like The Richest Man in Babylon. And since I spend a lot of time working on my getting-out-of-debt plan, I also end up talking about debt and money with almost everyone I come across. Which got me to thinking about how money was discussed with me as I was growing up and how I would talk to my own future kids about money and its significance. I think about my future kids a lot. Is that weird? I want the best for them but I also want them to be thoughtful and caring people. So I think about how I would bring up money without making it the most important thing in their lives, but rather making it a tool to achieve what they want in life. It’s a good idea for everyone to talk to their kids about money instead of letting them simply absorb the bad habits or strange inclinations of their parents. Kids are always observing and they understand a lot more about money than their parents may realize. It’s worth it to give them a few tips so that they can avoid some of the mistakes we all make. But the thing about it is, you wouldn’t talk to your kids the same way about money if you were making $20,000 per year versus $200,000 per year or $2 million per year. The basic principles would be the same, but I think you may consider tweaking some of those ideas based on your income level.
(I know it’s dangerous to generalize, so I am only describing how I would talk to my kids at each of these income levels, and only once they are older, between 10 and 12.)
How to Talk to Your Kids About Money (Based on Your Income Level)
Parents’ Annual Income: $20,000 per year or less
Basic Message: Please be the beacon that brings us out of this crushing poverty.
Look kids, we don’t want you to have to work for minimum wage just so you can live a soulless existence where you have lost the will to dream and are forced to frequent check cashing stores and get ripped off at every turn. You’re going to have to work really hard to get out of this socioeconomic level. Education will be a big part of it. We’re not going to buy you fancy clothes just because the other neighborhood kids are wearing them. You’ll have to push yourself when we’re at work, and think of money as something to save, earn and eventually invest. We’re going to support you in everything you want to do (that’s legal) but we won’t be able to put you in all the classes and sports we want to. When you get a little older, you’ll see other kids acting a little wild. The other kids might be able to afford to mess up and get DUIs or blow money on drinking binges, but you don’t have that luxury. Little setbacks for those kids would be big setbacks for you. The world doesn’t care if you push yourself and learn and take as much as you can from it. Only you can care. And we promise to give you anything we can, and be happy when you become independent and able to support yourself and even us, if you want. But take care of yourself first.
Parents’ Annual Income: $20,000 to $80,000 per year
Here is the income range of the majority of households. It’s a pretty big range, and parents in this range can have wildly different money habits.
Here’s what I promise to do:
- Get my kids involved in sports (actually true for every income level).
- Encourage them to choose an art/music/other activity to also learn and develop.
- Tell them why sports are going to help them all through their life.
- Give them an allowance, help them set up a savings account.
- Have them set goals once they are in middle school (12 and up) so if they want to buy a car, go to college, or take a cool summer trip, figure out how they can pay for it. Dave Ramsey has some good ideas on this on his radio show, and he usually advises parents to “match”. If they save $100 for their car, you’ll give them $100 match.
Here’s what I will not do:
- Subtly envy those who have more than me and thus encourage envious behaviors in my kids.
- Make money the major stress factor in our lives. Of course, that’s where I am at right now, but that’s why I am changing my behavior so that my future kids aren’t stressed out by money when they are first becoming aware of abstract ideas. (Funny side story: My boss has a grandchild who is 9 and he told her, “Grandma, you’re rich.” She asked, “Why do you say that?” He responded, “Because you have cable and we don’t.” Kids kill me.)
Parents’ Annual Income: $80,000 to $170,000 per year
Another big portion of the population falls into this income range. Although most of the kids in this range will receive the education that was so important in the first income range, and participate in the sports/activities that are a priority in the second income range, I think what brings it all together is making sure kids don’t feel entitled. Even though this is a pretty good income level, I want my kids to be motivated to go out and explore the world, discover what they want to do and how they might help their communities. I think understanding money, saving, and how it will help them do what they want is going to be an important part of that.
Parents’ Annual Income: $170,000+ per year
The key thing to avoid at this income range is complacency. It’s still easy to be in a high level of debt even with an excellent income, so as a parent I would want to make sure my child knows that we have a great opportunity to save and invest. Budgeting and the philosophy of living well below how we could be living will put our values before a bunch of stuff. We’ll be lucky enough to travel to international destinations but the kids would be involved in choosing a place, understanding how much we’re spending, and setting limits for how much to spend each day. There are lots of great opportunities at this income level, but also lots of ways to blow through money with hardly a thought, and I want to encourage the former and avoid the latter.
*Exception: $1 million+ per year
Basic Message: You can do anything, but you can’t do nothing. (That’s a paraphrased Warren Buffett quote)
We’ve been given a lot in life. Well, you’ve been given a lot in life. I wanted to get a lot in life and I went out and got it. Yeah, I stomped on some people’s heads to get here. But now we have an obligation to society, and I don’t want you to value your money any less just because you didn’t work for it. I want you to live in comfort, but I also want you to consider the value of money and how you can use the money we have for real uses, whether it’s charitable or a business enterprise that’s going to provide for you and your family. It’s not our place to flash our money around and pretend like it’s completely trivial when it defines our whole lifestyle. No. We are not those people. Fortune comes and goes, but your character stays the same. I will help you do whatever you want to do. I promise not to dress you in head-to-toe Gucci at age 4 and scar you for life.
At the end of the day, it’s really what the parents do and how they act that will effect what attitudes their children take about money and everything else. No matter how much or how little you make, you can encourage your kids to view money differently than how it is portrayed in a consumer-driven, hypermedia society. You can help them along the way and show them good behavior, but it will be their decision in the end.
Here’s a little additional reading about the traits that shape us:
What do you think? How would you talk about money with your kids?