Raising Financially Literate Kids

By Hatem Dhiab

Email: hatem@gerberkawasaki.com
Twitter: hatemdhiab
LinkedIn: hatemdhiab

Most parents agree: raising kids is the toughest job you’ll ever learn to love. But then you have teenagers. We dote over their finger paintings, we teach them not to be mean to others on Twitter, but what are we teaching our kids about money? What real-world financial survival skills are we passing down? For most parents, the answer is: not enough.

How does this happen? Even our schools offer little to no financial education. We teach kids to read Shakespeare but not to balance a checkbook?! Our kids are drowning in student debt, but we don’t explain interest or time value of money. It’s probably because many parents aren’t particularly financially literate either. And the cycle is self-perpetuating. Less than 50% of adult Americans save and invest their money.

Just like charity, wise money habits begin at home. Parents need to pass on their personal experiences about money; good and bad. No matter what kids are taught in school, money habits are highly psychological and deeply ingrained in our family history. Everyone makes money mistakes. Why shouldn’t our kids learn from them instead of repeating the cycle?

If you really want to raise savvy savers instead of spenders, here are some protips learned from my years of experience as a parent and financial professional:

Start Early and Don’t Avoid
For some of us, talking about money can be stressful. Many parents avoid the subject altogether for just that reason. But that does both you and your child a great disservice. If your kids aren’t engaged early on (as early as 5 years old), they’ll have no sense of what things cost. They won’t grasp basic concepts such as budgeting, saving, and investing. It’s important to reinforce the idea that, when it comes to money, knowledge is power. Teach your kids how having a firm grip on their finances ensures independence. What kid doesn’t dream of doing whatever they want? And guess what? If they start early enough and manage their money well, that’s exactly what can happen.

Teach Restraint
Spoiled kids aren’t well equipped to cope with the highs and lows of life. It might make us feel good to give our kids everything they ask for, but doing so can have long-term negative consequences. A young adult unaccustomed to hearing “no,” might find it especially difficult to exercise rational control over their money. The best way to avoid “affluenza” is to teach kids from an early age that financial choices are ultimately about tradeoffs. How important is that thing you want? What are you willing to give up to get it? Even when it was ice cream, my parents made me choose between the things I wanted. I hated this exercise growing up, but now I understand that my parents were teaching me an important lesson: you can’t always get everything you want. This taught me to prioritize and decide what was most important to me personally.

Working It
There’s nothing more important for kids than appreciating the value of work. Kids who are assigned chores or work part-time to earn money typically value those earned dollars much more than gifted dollars. Earning builds a sense of pride and builds awareness about divvying up funds for savings versus spending. It’s never too early to learn how to be entrepreneurial. Let your kids pitch you on ways for them to earn money. Something as simple as running a lemonade stand will teach them resourcefulness. They’ll learn to understand the relationship of cost to profit. These concepts will last them a lifetime.

Save for Big Buys
Whether it’s an X-Box or a car, bigger purchases should never emerge from an impulse. Teach your kids to plan and save for big-ticket items. Create a savings plan instead of just giving them the money in a lump sum. Set a good example and save along with them. Lessons that teach patience and accountability will last way longer than the desired item. Inboxes, television and social feeds constantly bombard us with new “must-have” products, making saving both difficult and counterintuitive. If we adults find it difficult to resist being pushed over the edge to consume more and more, imagine how our kids must feel. Kids of all ages need to see saving as gratification, not deprivation. So help your child set a goal, then create a reward for saving.

Parlez-vous Kid?
Introducing the concept of investing is one of the most important financial lessons you can teach your kids. But don’t just send them a Warren Buffett podcast. Capture their attention by making the message age-appropriate and based on your child’s interests. Read “The Little Red Hen” with your young children. Why? The hero of the story “invests” time and effort in turning wheat into bread and ultimately reaps the benefits.

When you take a child to a Disney movie, or step into a Starbucks or buy Nike shoes, you can explain how they can own a piece of companies they “know and love”. Kids today are smart and savvy. Once they see their own money grow and compound, they will get hooked on investing.

Teach them about gratitude and generosity
One of the best ways to lower anxiety levels about money is to focus on what you’re thankful for and be grateful for the life you have. Encourage them to use some of their money to contribute to the causes they care about and show them how you decide your charitable donations. By cultivating gratitude and generosity in your kids, you’re teaching them that money is about so much more than getting, spending, or holding onto.

Hatem Dhiab is a Playa Vista resident and a Managing Partner of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $1 billion in assets under management as of 11/27/19. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures the success or protects against loss. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.”