This holiday season, don’t buy your loved ones more stuff they’ll toss in a closet. Give a gift that lasts a lifetime; share the gift of financial literacy.
Well, you’ll probably still going to have to buy them some stuff. But you can also share a gift that will help them throughout their life. You wised up about money; this is how you can help other people do the same.
It could be any kids in your life, nieces, nephews, your friend’s annoying kid. Their own parents might teach them about money but it’s almost certain that they won’t learn anything about it in school so they need you!
Even very small children can understand the concept of money and by the time they’re seven, their money habits are formed. So age two to three is a good time to start educating them. I’m for two types of allowances for kids of any age and since I don’t have kids, I know more than parents which is why they let their kids run around like banshees in Target and I would never allow that. Ha!
The first type is kind of a universal basic income. Just money for existing and filling your life with immeasurable joy which parents assure me is what children do. It doesn’t have to be a lot of money even for older kids, but it allows children the opportunity to always be managing money even if they didn’t have time to earn any that week for whatever reasons.
The other type is the good old, money for chores kind. This is especially important for little kids, it teaches them that if you want more money, you have to do more work. Not all chores should be paid though.
Some things, like making your bed are things a kid should do because it’s important to take care of your surroundings. Taking care of pets is another that shouldn’t be paid. Pets are a part of the family and no one should require a bribe to look after them. Things like dishes, setting the table, yard work are more appropriate paid chores.
Now that your kid has some money, what can they do with it? Whatever do they want with all of it? No! That’s how future credit card debt carriers are made. LMM interviewed an expert on children and money and she recommends the GISS system.
GISS stands for giving, invest, save, spend. The child decorates a box for each category. Every week, a certain percentage of the allowance goes into the four boxes.
The giving box is for a charity of the child’s choosing. Once a pre-determined amount is accumulated, make a ceremony of writing and sending a check or even better, taking it in person if the charity is local.
Being generous is something to be proud of and should be celebrated when you’re a kid because kids are inherently selfish. Some people advocate anonymous giving but I’m not among them. Show up with one of those giant Ed McMahon checks!
The investing box is a very long-term goal, a car, college, a gap year trip. It’s up to you to decide the investment vehicle and for little kids, you can keep it simple; if we keep this money at home, it only grows when you add to it. If we put it in the bank, a CD, a bond, Betterment, additional money is added that you didn’t have to earn. As they get older you can explain the finer points of interest and invest.
The saving box is for medium-term goals, an expensive toy, a bike. Something that won’t take years to save for but it won’t happen overnight either. It’s not invested because it will be needed sooner rather than later.
The spending box is for things they want to buy in the short term, a small toy, a movie ticket, a book. This is “walking around money.” It’s nice to have the sense of agency a little money in the pocket provides.
Remember, a child’s ideas about money are set by age seven. If you can implement the GISS system before that, they will be miles ahead of their peers for the rest of their lives when it comes to money. If you have kids in your life, this is one of the most important things you can do for them.
Peer pressure doesn’t disappear once we leave high school and it doesn’t have to mean pressure to make only bad decisions. If your friends are broke, show them your ways.
Break The Taboo
You and your friends probably can’t shut up when it comes to sex, politics, religion, but suddenly clam up when the issue of money is raised. It’s such a taboo thing to discuss and there can be so much shame around the topic.
That lack of willingness to talk about money is part of the reason people are so bad with it. If you wanted to know how to make a cake and your friend knew, you would ask them for advice. Money should be the same. We should share what we know so other people can know too. That’s the entire reason LMM exists.
Someone has to go first so it might as well be you. Talk about the challenges you overcame, how you overcame them, the ones you’re still struggling with, where you learned what you know. It can be as simple as recommending a book, a tool like Mint, or a podcast (ours). No one has to share every gritty detail but sharing the general problem is a start.
Be The Social Director
Socializing can be expensive, dinners out, drinks out, movies, sporting events, concerts. But it doesn’t have to be. Some of those things, sporting events, concerts, are special occasion things and it’s okay to spend money on them but things like dinner and drinks tend to be the default options when the point is to spend time with your friends.
So take control. The next time you’re making plans, you make the plans. Invite friends to your place and everyone can help you cook. Or you can have a potluck, or just order delivery. All of those options are likely to be cheaper than going out.
When you’re at someone’s house you can also stay longer, talk louder, and drink more since you could just crash at their place rather than have to get yourself home.
If you’re becoming uncomfortable with how much you’re spending going out, you probably aren’t the only one in your group of friends feeling that way. But going back to the taboo surrounding money, people don’t feel comfortable speaking up. Your friends will be grateful you did, even if they don’t say so.
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This is the toughest one. We are supposed to go to our parents for advice and guidance, not the other way round. You can do it but you have to be very ginger in your approach.
Have The Conversation
The best way to wade in is not to start out on the subject of money. The day may come when you have to make medical decisions for a parent and while that conversation is more depressing than the money one, it’s less fraught. By starting the conversation with the medical side of things, you can bring it around to the financial.
Do you want extraordinary life saving measures to be taken or do you want a DNR (do not resuscitate) order? If you can’t live at home any longer, where would you like to live, assisted living, nursing home, with me? Now you can tread into money. If they can’t live at home and don’t want to live with you, do they have money set aside to pay for long term care? Is the house paid off? This way you don’t look like you’re totting up your inheritance.
They Have Money And It’s Under The Mattress
Great, they have money, lots of it as it turns out. And every cent is sitting in their savings account. Yikes. It’s understandable even if it isn’t logical. The stock market can be intimidating.
If your parents had a big chunk of their retirement wiped out in 2008, you can understand why even people who have invested might be reluctant to do so now.
In the long run though, those kind of events are rare and the market comes out ahead historically. While your parents may not have forty more years to ride out the ups and downs, they hopefully have many good years left.
And over those years they will make money in the market, certainly more than they will make leaving that money in the bank. If they won’t take your word for it, send them this article that Andrew wrote to help alleviate the fears of nervous investors.
If they just won’t be told, make sure they have every kind of insurance they can get; medical, dental, prescription, life, long-term care and each policy is the gold standard. It doesn’t take long to drain money when medical problems start. The average hospital stay costs $10,000. The average cost for one year in an assisted facility center is $42,000.
Share The Wealth
It’s never too early and it’s never too late for the people we love to learn about money and to improve their financial future. If it’s a gift you can give, share it. Maybe those you share with will share with someone else and we can keep this going until none of us have credit card debt and we all retire early. Ho ho ho!