Show AND Tell: How to Raise Financially Responsible Kids

How to Raise Financially Responsible KidsThis is a guest post from WellHeeled of the Well Heeled Blog. If you like what you see here, please consider subscribing to her RSS feed or following her on Twitter.

My earliest memory of personal finance (though I didn’t know the term at the time) was when I was in middle school. My mother had always told me the importance of saving, but one afternoon, she pulled me aside and took out a few sheets of paper – the amortization schedule for the 30-year mortgage on our first home.

She then showed me how much interest we could save over the life of our loan if we accelerated payments on the principal during the early years of the loan. Although my mom first framed the session as an applied math lesson (percentages! subtraction!), that would be my most memorable lesson in financial decision-making.

Many experts say that leading by example is the way to show your kid show to be financially responsible adults. Show, don’t tell, they say. I agree that action is important, but my experience with my parents lets me know that parents should show AND tell. Kids learn from your actions, but they also benefit tremendously from words that explain the reason behind the actions.

Growing up, frugality was the normal state of things for me. My mother was aggressively paying off our mortgage. Every month whenever there was something extra, she put it into the house. As I grew up – and as I ventured into the homes of friends or classmates and become more exposed to malls and advertising – I come to realize that my parents led a very frugal lifestyle.

They bought reliable cars new, but then drove them for over a decade; they almost never went out to eat; and they refrained from buying a DVD player until a few years ago, when it was utterly clear that VCRs were truly machines of the past. Married for almost 30 years, my parents have rarely been on a vacation by themselves.

So I grew up in an environment where saving money is normal. Had my mother not told me later the reasons behind her aggressive payment of the mortgage (financial freedom, she would explain to me patiently), however, that lesson may not have stuck with me for all these years.

Even when I was a little kid, looking at the papers and the rows of figures under the Interest Saved, Years Remaining, Principal Paid columns, I knew I was looking at something powerful. Those numbers were the reason we sat in faded fabric couches when my parents might have upgraded to leather, and had the thermostat set 66 degrees instead of 72 in the winter.

Because of the choices my parents made, they were able to ultimately pay off their mortgage a decade early, invest in other real estate ventures, and pay for my college education. I didn’t quite realize it then, but I realize it now – that amortization schedule was much more than an applied math lesson.

It was a show and tell of a careful weighing and calibration of dreams – of choosing to forgo something (nicer cars, bigger TV, more stylish clothing) in exchange for gaining something else that my parents deemed more important – the ability to pay off our home years ahead of schedule, thus freeing up cash flow for other goals. To this day, I think that amortization schedule explained to me the essence of personal finance more than any expert every could.

Note: Also check out GetRichSlowly’s post on how to raise money-smart kids. JD Roth polled readers who provided tips on how their parents helped prepare them for financial independence.

12 Responses to “Show AND Tell: How to Raise Financially Responsible Kids”

  1. Anonymous

    This is an excellent article! Thanks for sharing it.

    The topic of teaching financial lessons to children is a fascinating one, and can pay dividends to your child for his or her life. Habits can be learned at a young age, both good and bad. And habits can be changed as kids get older and become adults, but its harder to change established habits than get them established at a young age in the first place.

    Save and invest. Those are the words I tell my 6 year old once in a while, and I make it seem fun and positive. She doesn’t really comprehend it as an adult would, of course. However, she has decided on her own that it means keeping some money in the bank so it can grow into more money for your retirement. Not that banks pay much these days, but hey, it’s the concept that counts here!

    Now, I have to say that for the most part I believe that kids need to be kids and shouldn’t focus their minds on money but rather on school, socializing, family, activities, and playing. Being a kid was great for some of us, and I wouldn’t want my child to have anything other than a happy childhood. But much like how kids can learn to regularly brush their teeth at least in the morning and at night, for example, they can learn to take an allowance and save part of it. Establishing good habits early can help build a foundation for a child to eventually grow into an adult who is able to think intellectually about money.

  2. Anonymous

    Thnx for your thoughts. It is amazing how much our parents influence us. I feel it almost everyday in my spending habits. They were so frugal, and our incomes are so different, it’s kinda strange.

    Best, Sam

  3. Anonymous

    My wife and I have been teaching our kids from a young age how to manage their money. We set amounts for what we will pay for clothing, shoes, etc. If they want something more expensive than our budget amount they have to pay the difference from their allowances. Our teenagers chose to get cell phones and they pay for them from their allowances. They have learned to make decisions by deciding between buying lunch at school or packing, paying an extra $10 for shoes they like vs. something else that they want. They have learned to find deals on the internet and sales ads. We have also used the show & tell style. They assist me with completing our tax forms each year and we have shown them how saving in our 401k’s and savings accounts has prepared us for retirement and emergencies. Most importantly they have chores to do to EARN their allowances.

  4. Anonymous

    I admire how your parents showed you all these things from a young age.

    A quote from one of my favorite movies, A Bronx Tale: “It’s not what he hears, its what he sees.”

    Your parents not only told you how to spend, but also showed that they really believe in what they preach.

  5. Anonymous

    Your parents sounds very wise!

    I hope I’m as successful raising my kids as they were with you!

    I should show my amortization spreadsheet to my son so he gets a feel for it! He’s only 9 but really good with math already!

    Thanks for the great idea, awesome article!!!

  6. Anonymous

    Great post Well Heeled. I personally was always appraised of my family’s financial situation, thought I have friends in their twenties that had always been kept in the dark.

    I agree with you strategy. A combination of showing and telling is definately the way to go.

  7. Anonymous

    Hi FCN – thanks for including my guest post. 🙂

    Anthony, Mike S, and Petunia – thanks for your kind words about this post. I thought about it a lot and realized that basically all of my personal finance leanings came from that first lesson, and I’ll always be grateful to my mom for it.

  8. Anonymous

    I could not agree more, we need to explain to our kiddos as well as demonstrate by example.

    My children are currently 19 and 14. One day a few years back, my younger child made a comment regarding my use of my credit cards. I do buy lots of things with my credit cards (love those rewards) but carry no credit card debt. I realized that my child did not see that I am consumer debt-free, my child only saw that I regularly reach for the plastic. “Telling” was definately in order!

  9. Anonymous

    Great article!! I also have a daughter, who’s 2, and have wondered the best way to educate her on personal finances. I never really got that when I was growing up, just trial and error as an adult.

    I agree that the best way is show and tell. I fully intend on showing my daughter our budget when she is old enough to understand.


  10. Anonymous

    This is an amazing article. My daughter is only 11 weeks old now, but I have been thinking about the best way to teach her about financial responsibility, savings, frugality, etc. I agree SHOW and TELL.

    I am fortunate because I willed myself to learn about all of these things. I started about 2 years ago… and I am in a MUCH better financial situation because of these things.

    My parents were not great savers. We bought cars after cars (albeit used), but we had a car for each of us: At one point, we had 6 cars in the yard! My mom owns her own business now, but even still, I fear that she’s not saving and will work until she dies.

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