It’s best to learn how to use money while in a safe environment: when you’re a kid. This is a lot better than trying later on when it really matters! Kids are natural learners, but we need to give them the space to explore their own desires and their environment; to try things out and fail and succeed.

In this episode we discuss:

  • Allowing freedom for kids to spend their own money
  • Don’t couple chores with allowance: allow children to be a part of the family duties
  • When and how to talk to teenagers about college expenses

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Transcript
Matt:

Welcome to real financial planning, broadcast on WK XL available wherever you get your podcasts.

Matt:

I'm Matt Robeson, I'm joined as always by Mike Morton the, I can't say proprietor anymore I've said this the last few episodes and Mike, you ripped me a new one for my choice of words.

Matt:

You operate your own business, your own consulting business, where you work with clients Morton financial advice.

Matt:

But look, it's like in the matrix, there is no spoon, it's not really about the financial advice you work with clients on how to navigate all kinds of life problems that also relate ultimately to their own financial planning.

Matt:

Mike, Morton welcome back.

Mike:

Yeah, thanks, Matt.

Mike:

It's funny.

Mike:

You mentioned it that way because that's exactly how I feel as well.

Mike:

I have people reaching out to me and they see, oh, financial advisor, right?

Mike:

And suddenly they get this, sit up straight.

Mike:

They're going to meet this wealth manager and talking about all the jargon and the stock market and the economy and what we're going to do.

Mike:

And immediately we're diving in, how's your family, how do you want to spend your time and your energy?

Mike:

What's most important to you?

Mike:

And I feel like I'm just doing a sneaky backdoor way of trying to improve their lives, not really on the finances that comes in.

Mike:

And so it is a bait and switch when people walk in the

Matt:

door.

Matt:

Yeah people in this kind of line of work, they all have the really good ones.

Matt:

All have an element of that.

Matt:

If you hire a personal trainer, you're trying to outsource a number of things, right?

Matt:

Like you're trying to outsource your own motivation to work out, you're trying to outsource some of the consistency and someone to kick your butt, anyway, I think you provide a lot of that and I'm going to come to you right now with my own question for you.

Matt:

We have not rehearsed this.

Matt:

We have not talked about it in advance.

Matt:

So this will be interesting, this is like Michael Jordan.

Matt:

We're going to jump and decide what to do in the air.

Matt:

I hope it's going to be a dunk.

Matt:

All right.

Matt:

And one final one final upfront thing.

Matt:

My, my wife told me that I sometimes bring in the example of our own family a little bit too much, and maybe I shouldn't do that

Mike:

see you just did it again,

Matt:

That's actually what I'm going to jump off from.

Matt:

So here we go.

Matt:

So I have been wondering recently, I've been talking to friends of mine about how do you teach your kids some basic ideas of how to value money of how to save money, how to plan what they want to spend their money on?

Matt:

How do you do that?

Matt:

Especially as they get into that, like tween phase, where they really do need to learn to make their own decisions with money and you want to tie the money, you give them to work and so that they're earning, they're not just getting, I'm sure in all of your conversations with your clients, this comes up what do people do?

Matt:

What you advise people to do?

Matt:

How do people handle that?

Mike:

Yeah, it's a very interesting topic and there's a number of different ways to go about it.

Mike:

And of course, again, with the personal finance, it's very personal.

Mike:

And so your family situation, you might have more or less interest in some of the things that we might discuss today.

Mike:

How you want to go about encouraging your kids in this learning opportunity.

Mike:

So kids are growing up and learning all the time.

Mike:

And this reminds me, even at the younger age, we'll get to the tweens as well.

Mike:

But at a younger age, kids don't even know how to spend money.

Mike:

And so just like many other teaching opportunities.

Mike:

Give them more reign than you might want, because they're trying to figure out how to spend their money.

Mike:

Like my daughter will go in and spend just all her money on candy.

Mike:

And it's is that really what you want?

Mike:

Do you really want that thing?

Mike:

We've all had that experience as a parent of a, say a five-year-old who's like, I want this thing, it's do you really want that thing?

Mike:

So allow them a little bit of space, to go ahead and experience.

Mike:

I spent my money on this thing and I find this, even with my 13 year old, I spent my money on this thing.

Mike:

Did it really bring you the value?

Mike:

So that's all the kind of the spending side they're still trying to figure out how to spend money and how that feels and what brings them joy, just and hey, as adults, we're trying to figure that out too.

Mike:

Is it the experience?

Mike:

Is that the thing?

Mike:

Oh, it turns out I bought this thing.

Mike:

It was great for a few months and then it kinda, yeah, just sitting on the shelf now.

Mike:

So we were still practicing that as well, but that's the first thing that comes to mind as a kids like they're really learning what it feels like to spend money.

Matt:

You can end up with a situation where the kids are a little torn between two parenting impulses.

Matt:

One is want them to have an experience where they blow their cash on candy and they regret it, but you don't want them to become so gun shy that all they worry about is buyer's remorse.

Matt:

I guess the question.

Matt:

Taking a step back here, what problem are you trying to solve?

Matt:

What is it that you want out of it?

Matt:

You want them to have that incentive to do more work and effort?

Matt:

Not like you're trying to turn your kids into workaholics in the future, but you don't want to be lazy layabouts either.

Matt:

So one thing that I I think parents are always trying to solve for is how do I tie doing chores, doing what's expected of you to some kind of financial reward for that.

Matt:

But then the problem that I feel like I'm always running into and the other parent they're always running into is how is that meaningful?

Matt:

If on the other end, there's no sense of, you know, this money that you have is limited.

Matt:

It's valuable.

Matt:

You really want to have it because if they're not then spending it on things that they value if there's not that tie, I'm not trying to turn my kids in a little concern.

Matt:

It sounds bad.

Matt:

Like I'm not trying to turn my kids into little consumerists, but I mean, ultimately this is somewhat about the financial planning aspect and what you want them to come out with on the other end is being wise spenders.

Matt:

Let's talk about the first end of this first.

Matt:

Do you have any recommendations for how to manage this?

Matt:

Like for example, one friend, who's a listener to this show, one friend of mine uses an app for chores, and you do the checklist of your weekly chores.

Matt:

Those are your expectations.

Matt:

The kid has the responsibility for checking them off when they're completed.

Matt:

And then they get a payment, it's all cashless and it's like an apple pay type thing.

Matt:

And then they have that money to use.

Matt:

Do your clients use stuff like that?

Matt:

Do you recommend stuff like that?

Mike:

Yeah, a couple of comments there.

Mike:

You definitely can do that.

Mike:

And I've had clients do that.

Mike:

I've tried that myself.

Mike:

I have tried a number of systems myself over the years to varying degrees of success.

Mike:

I would caution the tying of chores to the money or the allowance, because you also want to encourage your kids to be part of your family and your commute.

Mike:

And to run a household just takes effort.

Mike:

And if they put away a dish, do they get a quarter, or do they just have to put away the dish just cause you just use the dish and put it in the dishwasher when you're done.

Mike:

It's polite to get up at the end of the meal and take your plate into the kitchen, rinse it and put it in the dishwasher, right when you're at your house or someone else's house.

Mike:

Or, putting the groceries away.

Mike:

Hey, we just got a whole load of groceries they all need to get put away.

Mike:

Are you going to pay them to do that chore?

Mike:

Or is that just part of being another, the household?

Mike:

So each again, each family can make their own decisions, but I've definitely read that you want to be careful, could be careful about tying the money to your expected household chores.

Mike:

And maybe those are decoupled.

Mike:

Hey, you get an allowance because I want you to have your own money and I'll talk about that in a minute.

Mike:

But we also expect you to do these things around the house to just help out and be a good part of the community.

Mike:

And I think they're super valuable lessons in that as well.

Mike:

So you can go, again, personal choice, which way do you want to go?

Mike:

Hey, I'm going to, you know, mowing the lawn is something that I'll pay you 50 bucks for, and it's not a household chore.

Mike:

I'm either going to outsource this and pay some other kid, or I'm happy to pay you or washing the car, I'll take it to the carwash or you can make 15 bucks and wash the car.

Mike:

So that's more how I think about it is that there are certain chores that just have to get done.

Mike:

The allowance is not tied to those chores, but then we have another list of chores that if you want to do them and make some extra money, and then you can do that as well.

Matt:

I think one the things that this is pointing out to me, first of all, I think that's clever and we also have used different systems over the years.

Matt:

Again, I'm trying, I'm like, I'm hearing my wife and my head like I'm not, I'm not trying to give away, but I suffice it to say we've used different approaches and I think that's one of the hard things is finding something that you can consistently do yourself because look, we're parents, we all have a lot going on.

Matt:

So it's, you don't want to be running like a super, you don't want to be an addition to everything else the CEO of your household you're kind of, you're trying to manage like the performance of your employees, your kids, and like, here's you have a complicated system...

Mike:

Yeah, I'll pause you there for a sec because that's exactly right, Matt.

Mike:

I've found that so many times I'm terrible at implementing a running a system within my house.

Mike:

And so I've learned slowly trying to learn over the years to simplify what that system is and make it as simple for me and for the family as possible, because I'm not going to check in every day, every week.

Mike:

Week-in and week-out, I can, I barely can get to pay my kids, their hassling me all the time.

Mike:

Hey, when are you going to pay allowance?

Mike:

It's three months later.

Mike:

So just keeping up with whatever you decide as a household, make it something that you can be consistent with because that's what you find too.

Mike:

Everybody listening knows with kids it's all about the consistency.

Mike:

As soon as you give an inch, it's oh man, it's all over.

Mike:

And this reminds me, always use a seatbelt analogy.

Mike:

How often do your kids get in and not put on their seatbelt in the car?

Mike:

Never.

Mike:

Why?

Mike:

Because it's a, non-negotiable like you put it on every single time and I don't get any complaining about that.

Mike:

Whereas, anything else when I've given an inch ever five years ago, I get endless complaining about the next time we have to do that.

Matt:

Kids are natural lawyers because they're so great at remembering and citing precedent.

Matt:

If you could bottle that and take it forward into like, your judicial career or you're a clerk for court.

Matt:It's like, I remember in:Matt:

So that's a big thing, the consistency on the front end.

Matt:

And I like this idea of separating, like, yep, no you just get an allowance here is a, an explicit list of things that are outside of that outside of regular week to week expectations where I'm going to pay you for that.

Matt:

But in order for that to be meaningful in order for the kid to want to do those things, it's like, you can kind of see their point of view where it's like, why should I bother to do this?

Matt:

What does it matter if I have this extra money, you're going to get me all the stuff I need anyway.

Matt:

And so that's the other end of it is like, how do you create the right amount of scarcity on the other end so that they value having some money?

Mike:

So quick story on that.

Mike:

When my kids were pretty little want to say three and six and seven, we would go to some markets and, the markets where there's all the stalls, hundreds of stalls, lots of food stuff, lots of other items.

Mike:

And the kids would go, can I have this?

Mike:

Can I have this?

Mike:

Can I have this?

Mike:

That was the refrain for the whole hour we were there.

Mike:

So then the next time we went, I gave them each like 10 bucks.

Mike:

So this is all the money you have for the.

Mike:

Market.

Mike:

So look around and spend it wisely.

Mike:

So this was teaching them, spend it on something.

Mike:

And of course they would blow it on whatever, but it Matt, it went from, can I have this?

Mike:

Can I have this?

Mike:

Too, how much is this?

Mike:

How much is this?

Mike:

How much is this?

Mike:

Cause they didn't know yet how to even read price tags.

Mike:

But it's all good lessons, give them their own money, they've got their $5 or $10 or $50.

Mike:

I had my kids now, they go up to the counter.

Mike:

Oh, you want to buy that pack of gum?

Mike:

Cool.

Mike:

Go ahead.

Mike:

Stand in line, hold out your $5.

Mike:

Put them, put the gum up there, give them the $5, get your change.

Mike:

Say thank you.

Mike:

So even at a young age, teaching them how to spend money, how to interact and be in a store and spend money.

Mike:

And so that has continued in the terms of the spending, money is scarce.

Mike:

So even if my kids get an allowance, and they've got a couple hundred dollars in their bank account and they could do some chores to make, do some of these extra jobs to make more money.

Mike:

They understand that it's a limited resource because we go to the store, I make them spend their own money.

Matt:

so from a planning standpoint.

Matt:

Oh, go ahead.

Mike:

Yeah, just lastly, I make them spend their own money on many certain items.

Mike:

Now, whether it's, food and clothing and stuff, we do that.

Mike:

But many of the other things, oh, I want this.

Mike:

We'll give you some stuff for your sports.

Mike:

Oh, new season you need some new cleats, or whatever it is.

Mike:

But the things that I want.

Mike:

Yep.

Mike:

That's your money, if you want that item and my kids have learned over pretty quickly that they don't have endless supply of money and they need to be careful where they're going to go ahead and spend it.

Mike:

And then it's interesting how you find like the savers and the spenders, amongst your kids.

Mike:

Who's doing what.

Matt:

So what about, and this veers now more into sort of the financial planning aspect of this, we're all we've talked on this show before about.

Matt:

We're all trying to save for college for our kids.

Matt:

To what degree do you recommend?

Matt:

Where do you talk to your clients?

Matt:

Have you encountered systems that they use?

Matt:

Bringing them into understanding of what you're doing Like, Do you advise, Hey look, here's the account we have for you.

Matt:

Here's how much is in it?

Matt:

Here's what we're putting into it every month.

Matt:

It's going to cost for you to go to college.

Matt:

You know, Here's what it's going to look like, we're probably going to need to take some loans.

Matt:

You're probably going to have to do some work.

Matt:

When do you, do you do that?

Matt:

And when do you start it?

Mike:

Yeah, definitely recommend thinking about doing it.

Mike:

And if it makes sense for you and your family, go for it.

Mike:

Recommend doing that when they're more the teenagers when they've gone through, my kids are now 10, 12, 13, so we're in that phase.

Mike:

What we've just talked about, they've got their money, they've got a few hundred dollars.

Mike:

They're learning how to save it, how to spend on things that are important to them.

Mike:

The next phase would be, 14 to 16 to 18, starting to bring in those conversations about college in particular and different again, whatever approach works for you and your family.

Mike:

But think about it one way often frame the college expenses is in, in thirds.

Mike:

All right.

Mike:

Try to pre- save a third of the money that you're going to spend for that child's college education.

Mike:

So that'd be the five to nine.

Mike:

You know pre saving it.

Mike:

One third you're going to pay from your current income.

Mike:

So when they're in college and you're making money, you're going to spend a significant chunk, at, paying for their college.

Mike:

And the last third is the kid's obligation, either working during college or taking out student loans.

Mike:

And the student is going to be responsible for that third.

Mike:

Now that's just a framework to start and you can toggle each of those.

Mike:

But in terms of having your child involved in the conversation, you do that during those late teenage years.

Mike:

And here's how much college is going to cost.

Mike:

And if you want to go to this college or this college that has significant difference in costs, you, my friend might be making up a lot of that difference.

Mike:

We're going to pay, 20,000, 40,000, whatever it is you're going to make up the difference.

Mike:

So if you really want to go to that other school, that's fine.

Mike:

You're going to have higher student loans.

Mike:

Or you can go to this school and have lower student loans and, talk about what those student loans are, the monthly, how much it's going to cost per month.

Mike:

All those things to try to help frame it for them and help them understand that, but definitely bring them into the conversation during those years.

Matt:

This kind of takes us back to the top of the show where we were sort of ingesting that part of what you do is sort of, I don't know, anxiety and stress management for your clients.

Matt:

Right?

Matt:

Which is like, you're trying remove source of stress in their lives.

Matt:

Do you find in having these conversations with people about particular topic, which is, you know, you've got kids you're saving for them how do you bring them into the process, et cetera, are you kind of riding a line there where you want to introduce things that are stressful I mean, financial issues are the number one source of marital arguments.

Matt:

Right.

Matt:

When they when they look at what causes people to fight their marriages fights about money is number one, which is, you know, so that's a significant source of anxiety in the world.

Matt:

And, how much of that do you help people to manage?

Matt:

Because you don't want to dump that whole weight of the world on when they're 14.

Matt:

you also, don't want them to kind of blindly go along and think that this giant thing is just something that's handed to them either.

Mike:

Yeah.

Mike:

First is that, when I'm working with a family, making sure the parents are on the same page with the values, Hey college is, a number one value.

Mike:

We really are going to do everything we possibly can.

Mike:

So maybe that last third, that was the student's responsibility won't be, if parents are really make it like that, number one priority.

Mike:

Sacrifice anything.

Mike:

Usually it's a competing priority, yes, it's really valuable, but there's other things you've got to retire.

Mike:

I've got multiple kids, I've got other things going on.

Mike:

So I first make sure parents are really clear with the values and how they want to approach it with the child.

Mike:

So the same as we were just talking about with chores, when they're younger, make sure you have a system that you agree to how you like to have the conversation.

Mike:

The other point is, what is more stressful?

Mike:

Is it putting your head in the sand and arguing and ignoring it, or is it bringing in your 15 year old that understands college and how expensive it is?

Mike:

Trust me, they already know, and just having a conversation starting early.

Mike:

Hey, I know college is coming up in a few years.

Mike:

Here's really what we can afford, somewhere in this.

Mike:

This is what we're thinking.

Mike:

Which of those is going to be more stressful, just ignoring the conversation until they're 17 or 18 and picking a college now and Ooh, I don't know that we can afford that.

Mike:

And then how are you really screwing up your financial plan or having that conversation early and bringing them along for the conversations you're having as the parents, bringing the child into those in a very, ease them in over time and I think that's a lot less stressful.

Matt:

Well, I think what that suggests to me, and this is, it's just kind of a thought that's sparked it's not necessarily fully formed, but it does kind of connect back to what you're saying about what you should be thinking about early, When the kids are a little bit younger, what's the lesson you want them to learn , and maybe the way to strike that balance between you want the kids to value money, you don't want to just, you don't want to too much tie chores and work to getting paid because it's not like they're earning a salary, but one of the takeaways you want them to have?

Matt:

, Is the ability to manage that anxiety that comes later when the stakes are much higher and when the numbers bigger.

Matt:

Right?

Matt:

So what you don't want is for them to be totally unprepared when you first introduced this to them, maybe when they're 15 or 16, it's like, all right, grade, let's start to talk about what the next few years are gonna look like.

Matt:

And you know, we're we're getting an eye on college because all those stressors are coming in.

Matt:

You start to hear about PSATs.

Matt:

They have peers who are, like maybe a greater to a head.

Matt:

So maybe what you're trying to achieve earlier on is to actually set your goal toward here is a larger purchase that we're going to make for you.

Matt:

And here's how we're going to do it.

Matt:

We're going to come up with a plan, right?

Matt:

It's not something we're going to pay for all on our own.

Matt:

We will pay for some of it.

Matt:

We're going to save for some of it ourselves and we'll pay for some of it ourselves.

Matt:

And you're going to contribute certain amount through your extra work.

Matt:

maybe you do that for like a year and you say, all right, look, here is a larger, you know, you need a bike or whatever it is, and here's how we're going to do this.

Matt:

And you kind of model it and in a way, it reduces anxiety later because you've already gone through the process of all right.

Matt:

I know that this is a big number, but I have a plan for how to get there.

Matt:

And actually if I keep chipping away at it, I find that I get there I did it, and it wasn't too bad.

Matt:

I mean, maybe that's trying to model earlier on.

Mike:

Yeah.

Mike:

It's all about having those conversations around values.

Mike:

Okay.

Mike:

So start with the young kids, how do you spend money and getting that experience about spending money.

Mike:

And then as they get older, having conversations that we can't afford everything, no one can afford everything.

Mike:

And so what are the trade-offs Hey, what kind of vacation would you like to take this year?

Mike:

Here's a budget, what would you like to do?

Mike:

What kind of things, you know, they make their Christmas lists and they have an idea of like here's how much kind of we spend on gifts at birthdays and Christmas.

Mike:

Here's the kind of parties that we have.

Mike:

What do you want?

Mike:

What are the trade-offs?

Mike:

What would you like to do?

Mike:

Do you want to go to a baseball game or do you want to have a party with seven friends?

Mike:

So getting them involved in the financial conversations from a family level, It's also just very helpful, right?

Mike:

I You're having the conversations amongst the parents already.

Mike:

So as the kids get older, bring them in and say, here's the, trade-offs, here's what we value.

Mike:

Try it out, that your kids are going to have different values than you and that's okay.

Mike:

But try something out, see how it feels to you.

Mike:

So I think you're right on that, that you want to start as young as you can.

Mike:

And if you haven't start today and bring them into the conversations and allow them to experience spending experience saving experience the trade-offs.

Mike:

Do you want this thing or this thing you can't afford both.

Mike:

and then, as the stakes get higher, you just continue those conversations.

Matt:

it really reminds me of, there was a great documentary about 20 years ago called spellbound.

Matt:

It was about kids in the national spelling bee and actually most of these kids, I mean, it was just, it was incredible what was so interesting was the parents.

Matt:

Many of these kids were the children of immigrants and there was this father from India who, I just, what he said in the movie just stuck with me so much, which was the whole point to him of having his kid.

Matt:

And it was his kids compete in the spelling bee was in his words, to teach them what it is to strive for something and just show them what it takes to do that.

Matt:

And then, you know, what that, what that does for you is you achieve some success and you gain confidence and it leads to an ongoing pattern of success.

Matt:

Maybe that's what I take away from this discussion we're having here, which is what you're ultimately trying to do is while you're still kind of in the sandbox of it.

Matt:

Have them learn what it's like to do what you do, make a plan, execute the plan and gain the confidence of, okay, I can do this I know how to do the mechanics of it and I know I'm going to get there.

Matt:

If I stick to the plan.

Mike:

Yeah.

Mike:

And it's also about everything else with raising kids, allowing them to fail in a safe space and recognize money has its own you know, Of course, as parents we're really tied up on, oh my gosh, you can't spend your money on this or that.

Mike:

Let them get out there and fail.

Mike:

Let them try something.

Mike:

Okay.

Mike:

If you really want that, do your money, let them do that and gain that experience just like in everything else where they climb and they fall, or they do sports and they fail like the same is true with money, give them experiences so that they can learn and and grow out of that.

Matt:

awesome.

Matt:

I, this is actually been eyeopening for me and uh, I hope it's helpful for other people.

Matt:

Mike Morton.

Matt:

Thanks, so much.

Mike:

Thanks, Matt.

Mike:

Thanks for joining us on financial planning for entrepreneurs.

Mike:

If you like, what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts.

Mike:

You can connect with me on linkedin or mortonfinancialadvice.com.

Mike:

I'd love to get your feedback.

Mike:

If you have a comment or question, please email me at financialplanningpod@gmail.com.

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