As parents, one of the toughest jobs we have is navigating the constant barrage of questions that are thrown our way by our children.
No matter the topic, kids have a way of making us uncomfortable with their open and honest observations and questions. “Are we poor?” “How come Jessica’s house is bigger than ours?” “Why can’t I have that toy?” “Why don’t you just use your credit card to buy it?” “Why were you and daddy yelling about money?” While the bluntness of these questions can cause us to pause and panic, the fact is that our children deserve answers to these questions and there’s no better person for them to hear them from than us.
Children begin to build their financial education and money habits from an early age, acting upon observations from their home and surrounding environments, along with the messages we impress on them. As they age, their minds become capable of more advanced information. These ongoing lessons build upon each other and compound to create either an intentional or subconscious money mindset.
Often, when children ask blunt questions about wanting toys, seeing bigger homes, or being rich or poor, they’re dismissed as being “impolite” or told it’s “none of their business” instead of getting a truthful answer. This sets a lesson that money is a topic to be avoided or that it’s rude to seek out financial information that they’re curious about. One of the biggest financial lessons we can teach our children is how to budget responsibly and realistically. By the time a child is in their early teens, they should be more than capable of doing the basic math involved with household budgeting.
Starting at the age of 12 or older, it becomes an excellent time to share your household income with your child and to apply the lessons that come with managing that income. Simply telling a child you earn $40,000, $65,000 or $150,000 a year in your job without providing any context won’t do much good. Instead, there are some unique steps you can take to teach your child about how far a dollar can go and the unique issues and concerns that come with a variety of incomes.
Research career options and salaries
Before sharing how much money you earn, have your child do a simple internet search for what your career and a handful of other jobs pay as an annual salary. Be sure to give them a variety of occupations that will demonstrate a range of incomes available that many Americans must budget with. Some good ones to include are a kindergarten teacher, a therapist, a nurse practitioner, a dentist, an attorney, a business consultant, a store manager and a mechanic.
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Share your number
Once your child has completed their research, ask them questions to understand their thoughts on the information gathered:
- Did anything surprise them?
- Are the numbers higher or lower than they expected?
- Which occupations do they think work the most hours?
- Who do they think would be the happiest based on their occupation or salary and why?
Once you’ve discussed the questions, now is the time for you to share your income. This is also an opportunity to share where you started out in pay during your first job, how it’s evolved over time and the work you’ve put into getting to this point. Discussing how your income is earned and grows with the more experience you have and not just handed to you with your first job is a good precedent to lay down early.
Let them spend it
Before diving into where your paycheck goes on a monthly basis, allow your child to contribute their own thoughts about where the money is being spent. Ask them to create a list of all of the items they think you spend money on each week or month and then to fill in the amounts. (Note: this may cause you to laugh or cry). Once you have their numbers on paper, use that framework to begin building your true household budget for them.
Create your household budget
With your child’s budget in hand, now is the time to reveal where the money is spent in your home. A pen and paper or whiteboard will work great for this, but if you want to go the extra mile and use fake money or even real dollar bills if you can get to the bank, the visual lesson will stick that much more.
First, break your annual salary down into gross monthly pay, and start your lesson with taxes. Federal, State, Social Security, and Medicare taxes all come right off the top.
From there, factor in your mortgage or rent payment, utilities, insurance and ongoing bills that relate to the maintenance of your home. Then factor in car payments, gasoline, car insurance, registration, groceries, clothing, personal items, life insurance, health insurance and expenses, extracurricular activities and costs for the kids, savings goals for retirement, travel, college or big purchases. Deduct each item from the balance so that your children can see the number dwindling and understand where the money is going.
Ask for input
Often times when children want something, they think the money simply “exists” somewhere. If there’s a purchase, activity or goal your child wants to take part in, have them review the budget with you again, and ask where they would make adjustments or reduce spending for themselves to meet their goal.
Allowing your teenager to sit in on household budget reviews makes them an active part of the conversation. It also allows them to build a framework for making decisions on where they’d like to contribute more (by possibly getting a part-time job to fund their own discretionary purchases or interests) or where they’re willing to cut-back.
Keep the lesson going
Building a budget based off of your current household income is an excellent start for your children to learn where your family stands financially and how to work together to make decisions and adjustments. To keep the lesson going, have your children research starting incomes for careers they’re interested in pursuing. Then work with them to build out a budget for themselves on those projected salaries. Areas to discuss and questions to answer would be:
- How will taxes impact their take-home pay?
- Will student loan payments (if needed) reduce their ability to afford other items?
- Would they want to own a home in the future or rent?
- How much will they save for their future (retirement)?
- How will having a family impact their ability to save?
- Is the career they’re interested in worth taking out student loans for?
Whether or not you share your annual income with your child won’t make or break their financial future. However, giving them the opportunity to ask questions and have an honest dialogue can set the stage for an empowered future. Letting your child think critically about how money is spent and managed responsibly (or irresponsibly) will enable them to head into working years with a solid financial foundation and belief system to act upon. You don’t need to break out bank statements to share with them, but you should take the opportunity to give them a course in Budgeting 101.
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Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more.