There's no getting around it. Raising children who are good with money is critical to their success as adults. And there's no denying it: Many parents stink at this. A litany of young adult money mistakes attest to that.
So how do we change that equation? Ron Lieber, author of the new best-selling book "The Opposite of Spoiled," says the answer is treating your kids like adults at a very young age and practicing "radical transparency" about family finances.
What does that mean in practice?
Parents are in the adult-making business, Lieber stresses, so the sooner the kids can handle financial reality like responsible adults, the better. That doesn't mean sharing pay stubs with your preteen. But by the time your kids are teenagers, they should have an understanding of your family's financial reality.
The college decision-making process, for example, can and should include a realistic assessment of the entire family's financial situation, which teenagers can't do unless they are fully aware of it. So throw open the books for a full family audit, Lieber says.
Some parents cringe at the idea of such radical transparency, but Lieber argues that many kids are going to figure this stuff out anyway, especially with all the details included in college financial aid applications.
"For too long we have responded to questions about money with silence or by brushing them aside ... because we think questions are impolite or rude," Lieber said. "Or we think we can and should protect them from this money stuff. But none of that makes any sense in a world where a 16- or 17-year-old is making a six-figure decision about college, perhaps the most impactful decision of their lives."
Transparency shouldn't start at 16, however. There are ways to introduce kids to money realities much sooner. Sharing family expenses with younger kids is appropriate. One family Lieber interviewed plays a credit card "scavenger hunt" game. The parents show their kids the credit card bills, and the kids then look around the house for evidence to see what the money bought and discuss whether the cost was worth the fun. A game like that can help both kids and parents.
"There's no better way to improve your own (decisions) than to have to lay yourself bare for an inquisitive child," Lieber said.
One suggestion for evaluating spending that works for kids and adults is what Lieber calls the "fun ratio." Have kids guess how many hours of fun a toy might bring, compare that to the cost, do the math and come up with a ratio that informs their decision-making. "It's a math lesson and a consumer protection tool all rolled into one," he said.
Lieber thinks parents shouldn't give kids an allowance for doing chores, but not because he's against chores. Quite the contrary: He thinks kids can do far more than most parents realize.
"Any 10-year-old is capable of making the family dinner and should be," Lieber said. "Most chores parents give kids aren't hard enough."
Lieber disagrees with tying allowance to chores, however. That just invites kids who don't really need the money to manipulate parents, he says. Instead, take away something more precious, like screen time, when kids misbehave. But treat allowance as a teaching tool.
In fact, Lieber thinks kids should get a sizable allowance, but get an equally large responsibility. Kids as young as 9 or 10 years old can be given a clothing allowance that might be several hundred dollars, for example, but then must make it last all school year. If they run out of money prematurely, they've learned a valuable life lesson. "You can put financial responsibility on kids at an earlier age than you think. They can handle it," he said.
As kids become teenagers, move from three-figure decision-making to four digits, such as letting kids help plan thousand-dollar family vacations. Then, when the five- or six-digit college decision comes along, they will be ready.
When parents protect kids from financial decisions–say, when they simply buy their teenager a car without making him or her part of the negotiation–a valuable learning opportunity is lost. It's better to have a child spend foolishly on a used car at 17 than foolishly on a house at 30, he says.
"You want kids to make dumb mistakes while they are still under your roof and aren't facing huge consequences," Lieber said. "You can't really go from kids making decisions about allowance or bicycles to making a six-figure decision with one leap."
Among the biggest surprises Lieber came across as he researched "The Opposite of Spoiled": the number of teenagers who hold down part-time jobs while in high school has dropped by nearly half over the past 15 years. That prevents kids from having rough-and-tumble life lessons before they head off to college, he says. While the larger economy is partly to blame—overqualified adults are taking more of those low-wage jobs that teenagers once held—Lieber also blames the "college admissions industrial complex."
"There is this misunderstanding that colleges don't (regard) part-time work as highly as extracurriculars like theater," Lieber said. So kids skip the jobs and load up on after-school activities to impress admissions officers. What colleges really prefer, though, is kids who stand out. An applicant who has shown entrepreneurial skills or management experience might ultimately get a leg up.
Watching a parent try to buy a car, or a home, can be a profound experience for a young child. While it's not great for parents to fight about money in front of kids, there's nothing wrong with letting them witness real-life tension during negotiations.
"Kids will also learn a lot just by osmosis," Lieber said. "Bring them along to the car dealer for haggling. Let them listen in or read over your shoulder as you attempt to solve a problem with a service company."
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As soon as kids are old enough to encounter math problems in school that are akin to the math problems adults encounter in a negotiation over a new car or a new cellphone contract (probably at about 10 or 11 years old), let them watch and learn. And if you make a mistake, let the kids in on that, too. If a cellphone salesman isn't completely upfront about the charges, say, and you fail to read the fine print before you sign the contract, be candid about it. Both adults and children can learn from mistakes.
Fair or not, a high school kid's college decision has an outsized influence on the rest of his or her life. About two-thirds of young adults graduate with student loans. The average outstanding balance for 2014 graduates was $33,000, and that number isn't going down.
That's why it's so important to spend a good portion of kids' childhoods teaching them the real-life consequences of money. Giving kids the pride of earning a paycheck, and the responsibility to use the money wisely, nudges them further along the adult-making road.
The college choice—and in particular, the mixture of grants, loans, gifts and savings that will go into paying for college—should be the culmination of years of money lessons. That's one reason it's so important for kids to be granted the freedom to make small money choices along the way, says Lieber.
"If you are not teaching your kids about money and trade-offs and values for at least a decade, they may make the wrong (choice)," Lieber said. "Bring them in on spending decisions as kids ... and you won't have this insane wake-up call later."