How should you teach your children about money? What lessons do they need to learn in order to become successful adults? How do you avoid raising spoiled children, especially if you’re bringing them up in an atmosphere of financial stability and privilege?
Maintaining good financial habits as an adult is hard enough; modeling those habits for your own children can be even more difficult. How can you help your children understand the value of a dollar, the value of hard work, or why it’s important to be generous with what you have?
I reached out to father-and-daughter personal financial authors Dave Ramsey and Rachel Cruze as well as Sam Dogen of Financial Samurai to learn more about how parents can teach their children about money — and what lessons are most important for kids to learn.
Why you should model good financial behaviors
Dave Ramsey
“My parents were always super frugal,” Dogen told me. “I remember in the fourth grade being admonished for ordering a lemonade when I should have just asked for water with a lemon because it was free.”
If you want your children to grow up with an understanding of what things cost, teaching them how to compare menu prices is a good start. However, as many parents quickly learn, do as I do is a lot more valuable than do as I say.
Dogen’s early financial lessons stuck because his parents taught him both directly and by example. Not only did they model the frugal life themselves—“my parents drove a 14-year-old Datsun with missing hubcaps”—but they also encouraged the young Dogan to understand investing, showing him how to read stock price tickers in the newspaper over breakfast.
Ramsey and Cruze agree that if you want your children to grow up with both a strong savings habit and a positive relationship to money, you have to teach them the fundamentals of personal finance and model the behavior you’d like them to emulate.
“You’ve got to be on the front line for them,” Ramsey explains. “Teach them to save, budget, avoid debt, and give.”
Cruze puts it this way: “I often remind parents that more is caught than taught. What your kids see you do is a lot more powerful than what they hear you say. Moms and Dads, when your words and actions come together, it forms a powerful statement about that family’s value system they won’t forget.”
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How to avoid raising spoiled children
Rachel Cruze
Dogen is already thinking about how he’ll teach his son about personal finance and the importance of hard work. “At 25 months old, my son is too young to know about the fundamentals of money. It’s all just ‘mine, mine, mine’ at the moment. But I absolutely plan to teach him about the importance of working for what he wants. One of my biggest fears as a father is that I raise him to become a spoiled brat who thinks money is as readily available as the tap water we drink.”
Why is it a bad idea to spoil your children? Because giving them everything they want might prevent them from learning how to work towards their own goals. “Four of my neighbors in San Francisco all have 28- to 32-year-old sons who still live at home with them,” Dogen explains. “They all drive nice motorcycles, cars, and trucks as well. None of them hold steady jobs as well. I have a feeling the reason why they haven’t left the house yet is because their parents didn’t give them the motivation to make it on their own. There was too much coddling and not enough butt-kicking.”
Ramsey offers this perspective: “My friend Andy Andrews says the goal is not to raise great kids. It’s to raise kids who become great adults. I couldn’t agree more. When you teach them that work is good, you teach responsibility. When you teach them how to spend, you teach wisdom. When you teach them to save, you teach patience. And when you teach them to give, you teach generosity.”
The biggest lessons children should learn about money
“The biggest lesson a child should learn about money is to work for what they think they deserve,” Dogen advises. “My mission is to eradicate entitlement from my son’s mind. I cannot stand people who think they deserve to go straight to the corner office without putting in the work. There’s also nothing more satisfying than working hard, taking risks, and seeing your goals come to fruition. I want to give him the gift of knowing what that satisfaction feels like.”
The other half of satisfaction is learning how to be happy with what you have, especially in a world where people are constantly encouraged to remain dissatisfied. “You can’t raise money-smart kids without contentment,” Ramsey explains. “Teaching them a spirit of contentment is like an insurance policy that they’ll win at life.”
“You’ve got to help them to avoid comparisons,” Cruze adds. “It’s the reason I wrote the book Love Your Life Not Theirs. Look, it’s hard. I still fall into the comparison trap. Show your kids how to be grateful.”
When you’re grateful for what you have, you’re less likely to take what you have for granted—which is another important part of financial education. “The other big lesson I want to teach my son is to never take anything for granted,” Dogen told me. “I will tell him stories about all the people I know who were once rich, but who subsequently lost all their money during various downturns. I will teach him about the importance of saving aggressively for an unknown future. I will remind him that as soon as he thinks he’s some type of money genius, that money has a great way of humbling even the best of us.”
Nicole Dieker is a full-time freelance writer. Her work regularly appears on Bankrate, Lifehacker, The Write Life and numerous other sites. She is the author of Frugal and the Beast: And Other Financial Fairy Tales. This article is sponsored by Haven Life Insurance Agency. Opinions are her own.
Haven Life Insurance Agency offers this as educational information only. Haven Life does not endorse or offer the products, services and/or strategies discussed here.
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