Recently I received a great email question from a father in Winnipeg, Canada. Justin W. has been teaching his son the "give, invest, save and spend" or GISS Method of Money Management to help him learn the different ways money can be used. Here is the challenge Justin is dealing with:
“My son is Brad is turning 8 in November and is increasingly aware of "things to buy".
We are using the GISS method for financial literacy. One thing I have noticed lately, and this is the reason for my message, is that although Brad is very good at distributing his money into the different banks, I think his notion of Save and Spend are somewhat confused. We have made a list of some items he would like to save for. However, at times, when we are out, he will see something he wants and change his mind about what he is saving for…For him, getting something (often anything) is what he chooses over truly saving for something.
Any advice on this issue would be greatly appreciated.
Thanks in advance! Justin W.”
This is a great question and one many parents commonly face, I just dealt with this situation last spring when Max was seven.
First we need to consider why it is so important for children to learn how to save their own money for something they desire. The purpose is to help our children develop self-control through delayed gratification. Self-control impacts all areas of life, and the level of self-control in young children has been proven to be directly related to their financial security and success in adulthood. Another important reason to allow children to save for their own "wants" is because this how how they begin to learn the value of things, they can't understand something they never experience.
Here are a couple of tips that helped us address the save/spend confusion:
*To start out, make the situation easier and more enjoyable for everyone by ensuring your child is using a wishlist to help them prioritize their wants. This activity helps children learn to make conscious choices rather than asking for everything they see, and helps parents shift the buying decision to the child. The child then gets to decide if they are committed enough to save for the item. This is a great approach to reduce stress for parents, and encourages resourcefulness and entrepreneurial thinking in kids.
*Create a time period for which they are allowed to spend their saving money, perhaps once a month at Brad’s age of eight years old.
*Open a savings account with your child so they have an place to put the money from their savings box/jar at home. This will help demonstrate how important it is to save, and create a barrier to spending - having to withdraw the money.
*To help ensure your child has carefully considered a desired item, request the item be printed on the wishlist before they are allowed to buy it. This prevents the challenging, and often emotional, outcomes of the “shopper’s high” J.W. mentioned. These occur when the child can’t find what they want. Their excitement and anxiety then leads them to want to “just buy anything” in order to fulfill their buying desire, and walk out with a bag in hand.
*Distraction sometimes works, going to another store etc. A great old-fashioned idea is the "sleep on it" concept. It is tried and true for kids and adults because, by going home and taking time away from the item, you prevent those quick emotional in-store decisions.
Either way, it is likely Brad’s interest in toys are going to change every 3- 6 months at this age, so many of his toys will be “obsolete” and sitting untouched on the shelf sooner rather than later. If we can give children the opportunity to think through their buying decisions, the value and use of the item will generally be much higher than if we don't. Most importantly, Brad will develop his real-life critical thinking skills and self-control, both of which will be extremely beneficial to his future success and happiness.
Thank you for the great question Justin and Happy Birthday to Brad!
This month is National Financial Literacy Month in the United States. The goal of the month long series of events and articles is to help raise awareness and action towards helping our youth develop better financial knowledge and skills. The urgency to teach kids financial life skills is greater than ever before because of the increasing ease with which they can spend money (and go into debt), get credit, and as every parent is well aware, due to the expensive items they desire to purchase day in and day out.
The Council for Economic Education in New York asked me to write an article addressing children's money management and I'm thrilled to share it with you here. This is a topic that truly impacts all areas of our children's lives and well-being as they grow and mature.
I hope you find the simple and effective concepts in the article to be valuable to your family as you discuss and teach your children how to manage money effectively in the days and years ahead.
GISS It: Financial Life Skills Can Help Our Children and Our Society
“As parents, we are automatic educators, and we want our children to learn the skills they’ll need to thrive and reach their full potential in life. This is true for parents around the world. With the financial industry and global culture changing as rapidly as they are today, it’s easy to see that our children need guidance; current, effective, honest information, that has their best interest and future well-being at heart.
The Lessons Must Have These Key Elements
These core financial life lessons must involve a combination of… (read entire article)
Here is a guest post I had the privelege to write for Lora Sasiela's Financially Smitten blog today. I hope you find it helpful in releasing those guilty pangs!!
Do you dream of the day when you can look at your child and know they have all the skills and abilities they’ll need to successfully navigate adult life, including the financial part?
Well if you do, you can get rid of that thousand pound weight on your shoulders that makes you feel like you should buy your kids everything “so-and-so” has. As it turns out saying “no,” and explaining why, may be the best thing you can do for your child’s financial future.
There are several reasons for this. The first has to do with the importance of letting children learn how to think through their choices and learn to prioritize. Financial success is ultimately determined by the small decisions a person makes with their money each day. If you continually give your child what they want with no discussion, they won’t learn why you make the spending decisions you do and they miss out on experiencing the process themselves. This robs them of a critical series of lessons that begin to teach them reflective thinking, the value of things, how to make choices and what the consequences are of those choices. In addition, by not demonstrating your own decision making process clearly, your personal and family values may not be getting communicated as effectively as you think they are.
The second reason has to do with developing self-control and personal responsibility. Self-control has been shown to be one of the most important characteristics in children when predicting future financial success in adulthood. Saving is the best way a parent can help their child learn financial self-control. That said, it’s important to give your child the opportunity (and that’s just what it is) to learn to set savings goals for their own wants and desires. You are not depriving them, you are helping them prepare for adulthood by allowing them to learn what’s important to them, begin to set goals for themselves and discover the steps necessary to achieve those goals. This is a critical part of their personal development - it also really inspires and motivates them! Then they’ll want to learn more about how to manage their money effectively.
Third, by giving them consistent and regular experiences handling money on their own, they will continually learn from their successes and mistakes and become more capable at managing their money over time. Be supportive but don’t do it for them and don’t bail them out. Just as you can’t teach your child a sport by playing the game for her, you can’t teach her about money without letting her get hands-on practice regularly. The money must go through their hands in order for them to understand its value and how to manage it wisely. It’s far better for your children to learn these lessons at home while they’re young and using small amounts of money than during early adulthood when the risks are far greater.
In the end it may be more fun and easier to say “yes” to a request, and it may make your ego feel great, but as a parent your child’s well-being needs to be what motivates the action you take. So the next time you’re faced with a “please mom...,” think about whether the item is a need or a want, and consider how important it is for your child to “get in the game” so they can develop personal responsibility for their choices. By choosing not to make the purchase and explaining how they can go about making it themselves, you may have just given them the best gift yet!
Have you had an experience like this lately that had you wondering what to do? How did you handle it and were you pleased with the outcome?
Young women need to be given advice about the basics of personal finance just as much as young men do, but unfortunately they often miss out. If you have a pre-teen or teenager in your life who you would like to help guide down the path towards financial independence, here is an article that briefly discusses some of the key topics. Some points included are:
1. The importance of understanding that they can control their life and their successes by taking action.
2. They don’t need to be a math or investing genius to build wealth.
3. They should divide all income into Give, Invest, Save and Spend categories as they receive income.
Read full article: Criticial Financial Life Skills for Our Girls, Focus on Women Magazine, Jan/Feb 2011 pg. 29
Garage Sale Princess by BarGal @flickr
Have you ever been to a seminar or course that changed your life academically and emotionally? It's a powerful experience and a happy one because you know your life has just been enriched. Through the corporate world and through business school I have been fortunate to participate in numerous high caliber presentations and courses and I've taken away a great deal from each one.
T. Harv Eker's Millionaire Mind Intensive course has been fantastic for bringing out all kinds of very valuable information in an incredibly dynamic environment. They use a method called "accelerated learning" which is fun, energetic and uses techniques that allow you to get the most out of your time at the course.
Understanding your money "blueprint" from childhood is critical for understanding why your financial status is what it is, and if you want to change it, how to go about doing that. It all starts with what's inside, not the other way around. The first step to changing something is being aware that it needs to be changed. Remember, beliefs are opinions. Do some of your beliefs about money deserve to be re-examined? For many people, they haven't been thought about or addressed since early childhood.
I read Harv's book two years ago and it was full of valuable information about how to get on the right track financially. It made me want to hear more. As a parent, we have the responsibility to teach our children positive, valuable information that they can use throughout their lives, and that clearly goes for money as well. This is a book definitely worth reading, no matter what your income. If you and your spouse have different money management styles, you should both read it. You'll be able to find answers that actually get to the root of the problem.
If you truly want to improve your financial path, this course is a fantastic way to start. I'm really looking forward to our third and final day tomorrow!
If you do go to it, I would love to hear your feedback!
One of the most frequent questions I get asked by parents and grandparents is, "why is it important to start teaching children about managing money?" Then they often add, "can't we just let them be kids?"
I absolutely believe in letting kids be kids, but if you think they aren't aware of money or aren't learning your money habits, think again. They're learning all the time, just as they learned to walk and dress themselves, they are watching you and learning how to manage money. The stats show it. Most children go to their parents first for financial advice but unfortunately; most parents don’t feel comfortable giving financial advice.
Many schools still don’t have comprehensive financial literacy programs, and often the schools who do teach financial education begin the lessons later than they should. The research shows that people develop their attitudes towards money and their habits with money by the age of thirteen, so starting early is important.
Parents want their children to have all the life skills they need to live happy and fulfilling lives. Financial literacy is one of those skills as the current recession clearly demonstrates. Children with a good financial education will have an advantage in life because it will help them make good decisions throughout their lives. Parents don’t need to feel like they have to be a financial experts to help their children learn about managing money. The first step is committing to take action. A person doesn’t have to know all the answers up front.
When my daughter Natasha was four and a half and my son Max was one I asked myself, “What lessons should we be teaching our children about money?” This question ultimately led me to create my Zela Wela Kids book series. During my research for the books I came across a few easy tips that can help parents begin the critical task of teaching their children how to manage money:
1. It is invaluable for children to learn the habit of allocating their earnings early in life so that it is second nature for them as they reach adulthood. As we all have learned, breaking a habit is very difficult. It’s very beneficial to our children if we can get them off to a good start and help them develop good habits at a young age. Teach them to divide their gift money, allowance and earnings for odd jobs etc. into: giving, investing, saving and spending categories. This is the most powerful concept for building wealth according to many leading financial authors including Robert Kiyosaki, author of the Rich Dad Poor Dad series and T. Harv Eker, author of Secrets of the Millionaire Mind. The first book in my series for children, The Zela Wela Kids Build a Bank focuses on teaching this concept because I also believe it is very important for everyone to learn. Each category plays a very vital role in your child’s understanding of the various things money can be used for. As they place their money into the bank’s sections, it is a wonderful opportunity to talk to them about how they would like to help others, what they are saving for and so on.
2. Use cash in front of your children, it’s hard for them to learn good money habits if they never see what it is. Using cash will also be good for you– a study by MIT researchers found that people were willing to pay up to twice as much for a product when paying with a credit card and typically paid 20% more for the same item. If you use cash, you’ll spend less because you’ll feel more emotion when you hand over the money and you are therefore more likely to make a wise spending decision. This is a valuable teaching moment because your child will see you considering your buying decisions and not just “throwing down the plastic” mindlessly. Remember, your children learn by watching you so even if you aren’t discussing money with them, they are learning by observation.
3. Speak positively so your children don’t develop a negative attitude towards money, if they do, it will be very hard to change. As T. Harv Eker discusses in his book, your money “blueprint” is set during childhood by the people who influence you. Rather than saying “we can’t afford it” try saying something like “how do you think you might be able to earn the money to buy that? Let’s try to think of ten ways.” This will encourage them to work on their problem solving skills and help them use their imagination. If they really want to save for something special, they will be motivated and inspired to work for it.
If children are allowed to handle money and learn from small mistakes made at home when they are young, they will be less likely to make poor decisions with devastating financial consequences when they are older. As children learn to make good decisions, their successes create more self esteem and confidence and they continue to set and achieve larger goals for themselves. This cycle is a very important part of personal growth and development and parents can help encourage it.
Your children deserve to have the tools they need to pursue their goals and achieve their dreams. Managing their money wisely along the way will help them create the opportunities to do just that.
I recently spoke with a grandmother who had just read The Zela Wela Kids Build a Bank storybook to her two grandchildren. She commented to me in a serious tone that she can now see why it is so important to teach children how to handle money while they’re young. “We didn’t teach our children much about managing money, but now that they are grown, I can see that they kept virtually all the same habits they had when they were young. I want to make sure my grandchildren get off to a better start.”
It’s something I’m hearing more and more as adults everywhere are realizing they don’t necessarily want their children or grandchildren to make the same mistakes they have made over the years. Children who grow up with a strong financial background will have an advantage over those who do not and parents and grandparents alike are thinking about this fact in the wake of the recession.
So why get your children off to an early start?
There are many reasons why learning about managing money at an early age young is important. Three of the main reasons include:
It’s easier to start a habit and stick to it if you start early. If young adults develop bad spending habits, it’s much harder for them to change the habit because they have been repeating it for years. Studies show that children develop their attitudes towards money and their habits with money by the age of thirteen, the same age as many other developmental milestones. Thus, encouraging good habits well before this age should help the child significantly when it comes to making good financial decision as an adult.
Secondly, it’s much better for a young child to have a chance to handle money and make mistakes with a few dollars than it is to send them off to college and expect them to learn on their own. Mistakes are not bad things; they are lessons that need to be learned. If a young adult heads off to college with several credit cards and no financial experience, devastating mistakes can occur that can then put the student into ten or twenty thousand dollars worth of debt. For many students this is overwhelming and the results have turned tragic in more than a few unfortunate cases.
Third, it is critical that children learn to set and achieve goals and that goes for the financial part of their lives as well. As they work towards their goal, whether it’s saving for a bike or a toy of some kind, they learn the steps to achieving their goals. Sometimes they will redirect and change course if something isn’t working and they continue on down their path. When the child does achieve their goal, the self esteem they feel is powerful because it shows them what they are capable of. This is a lasting memory. The experience makes them feel more confident, which then allows them to set bigger goals. This is a fundamental lesson in personal development and success. Parents need to give their children the opportunity to set and achieve small goals so they can become bigger.
One of the most critical things a parent or grandparent can do for the children in their family in this day and age is to recognize that teaching financial skills needs to be a priority and that it’s up to them to do it. Even if the child does receive some financial education at school, the majority of early education on the topic will be at home (keep in mind your money management habits are being observed even if they aren't being discussed.) Establishing good spending habits through thoughtful decision making, discussing values and setting goals, these are all things that need to be encouraged and supported at home.
If you are wondering where to start, here are 15 Financial Life Skills your child needs to learn before they head out on their own. The most valuable habit to develop in order to build wealth is #1 and is discussed thoroughly in The Zela Wela Kids Build a Bank.
photo by turtlepatrol at flickr
If you want to read a meaningful book that will help you and your family move towards financial freedom and happiness, go and get Your Money or Your Life by Vicki Robin and Joe Dominguez. There are hundreds of pearls contained within it which provide the reader fantastic ways to improve one’s financial life. Many of the ideas are especially poignant with Christmas rapidly approaching.
The book is an enjoyable read as it guides you through questions and examples which allow you to “see” what is going to make your financial life better and ultimately happier. One of their many thought provoking discussions addresses our transition towards consumption lifestyles over the last several decades:
“We buy everything from hope to happiness. We no longer live life. We consume it.”
It’s no surprise that the national statistics also show that our rate of happiness has been declining as consumerism has increased. The reasons for this are interesting and valuable to share with our children. For example, experiences that involve wastefulness and not appreciating or caring for our purchases are actions that create a level of inner guilt, realized or not.
The authors provide “Nine Magical Steps to Create a New RoadMap” for your financial life. These include fundamental insights such as “Three Questions that will Transform Your Life” and “Valuing Your Life Energy – Minimizing Spending, Maximizing Income.”
I would love to see this book become a part of the standard high school curriculum. It discusses so many of the critical concepts that many people are never exposed to when they are young.
If you are looking for a fantastic resource about personal finance that is easy and relaxing to read while thought provoking and effective, this is a book well worth your time.
Today I was reading an article addressing the importance of financial literacy within families and the potential positive effects for us as a nation.
Don Stewart is head of the Financial Task force for Financial Literacy in Canada and head of Sun Life Financial. Earlier in 2010, public feedback was collected across the country by the task force and then documented as of last summer. The final report to the Finance Minister will be submitted by year end. See results here.
At a meeting in Orlando, Mr. Stewart encouraged “ leveraging financial literacy in the family as a way to instill better financial skills in the next generation. Children imitate actions and behavior of their parents and "parents who demonstrate poor financial habits" are passing them on to their children, he said.
"Parents need to acquire the skills and knowledge that their children will acquire so that they can reinforce what should become a lifelong learning process," said Stewart. "If you improve the financial life of a parent you'd be making a key difference to the children and so ultimately to all of our futures."
Mr. Stewart also commented on the importance of globalization and understanding how small the world is becoming as we learn the factors affecting financial outcomes.
“Economies are increasingly becoming synchronized as globalization continues to shrink the world. Now more than ever, (financial) advisors need to keep an eye on the highly linked events of today's world. Keep aware of what is going on in these two major emerging economies (India and China), because it's not something that we are unconnected from."
I look forward to seeing the final plan of the task force and the implementation of financial education into the basic school curriculum for our children. In world that is changing so rapidly, critical life skills such as managing money must be a priority in our educational system.
Tonight after dinner, I watched my eight year old daughter create over half a dozen handmade thank you cards. She was making them to give to friends she had received Birthday gifts from over the weekend. As I watched her I had memories of printing out thank you cards on the dining room table at her age. During those years and into my teens I considered thank you cards something you sent people who gave you presents for Birthday gifts and so on. It wasn’t until I was heading into the “real” adult world and I read Harvey Mackay’s “Swim with the Sharks” in my early twenties that I clued in on the true significance of taking the time to send a thank you card, I just knew it felt good.
In Mr. Mackay’s words “Short Notes Yield Long Results.” As he emphasizes, many of the most successful people are “masters of the short note” including Lou Holtz, one of the most famous college football coaches in history. I think it boils down to the value of showing your appreciation. Receiving a card makes a person feel appreciated and that’s a very strong emotion for all of us. Numerous large corporate studies have found that “feeling appreciated and respected” ranks higher than salary for many employees.
So how does this factor into financial literacy for our children? Well, our kids will undoubtedly meet some great teachers and mentors along their journey. It will really benefit our children to remember to say “thank you” when people do something nice for them, teach them something significant or are special “just ‘cause.” For one thing, people will be much more willing to help again or make an extra effort if they know it’s going to be appreciated and not taken for granted. Over the years thank you cards have clinched major business and career contracts and have been said to be “worth their weight in gold” by some business experts. It’s a personal touch that really means something in today’s busy world. Most importantly, it's the right thing to do and it gives our children an opportunity to reflect on how fortunate they are to have that person in their life.
As is usually the case when you talk about the topic of “giving,” the nicest part of thank you cards is that it’s “feel good” effect benefits the giver and the receiver by imparting the gift of gratitude.
Thank You for taking the time to read this,