152: How to Teach Your Kids About Saving: #2

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments… Here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey. Welcome back to Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I am Austin Wilson, Research Analyst at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

Well, first of all, we’d love it if you would subscribe, if you’re not subscribed already. So, any podcast platform you listen to us on, hit the follow, subscribe, whatever button that is, so that you get every new episode when it drops each and every Thursday. Secondly, we would love it if you’d visit our website and sign up for our weekly newsletter. That way you get an email from us each and every Thursday, where we give you a little bit of a rundown of what we’re going to be talking about, as well as give you a link to listen directly from your device. So-

Josh Robb:

Perfect.

Austin Wilson:

… those are things you can do for us. But today, Josh?

Josh Robb:

Yes.

Austin Wilson:

We are going to be talking about how we teach our kids about saving and investing. Similarly, in continuing what we had talked about in our previous episodes.

Josh Robb:

That’s right.

Austin Wilson:

We’re continuing the series.

Josh Robb:

Yep. I encourage everybody to go listen to that first episode. In there, we focused on the different mindsets that they may have, more of a sending-saving mindset and how each of those has their own advantages and disadvantages. Today, we’re going to continue that, where we’re going to look at some actual practical steps that you can do to help your kids start learning about money.

Austin Wilson:

So today, we are going to give you four…

Josh Robb:

Four.

Austin Wilson:

… four things you can do to help your kids start to learn about how money works. So Josh, hit us with number one.

Josh Robb:

And these are all with the mindset of helping build positive habits. Right?

Austin Wilson:

Absolutely.

 

[1:48] – Help Your Kid Understand Wants vs. Needs

 Josh Robb:

So, the first one is, help your kid understand the difference between wants and needs. Now first, you need to understand the difference and-

Austin Wilson:

That’s right.

Josh Robb:

… Yeah, that’s important. And again, this comes down to the best way you can teach your kid about money is setting a good example yourself. So, if you’re always running out of money and you living paycheck-to-paycheck, you’re going to be setting that example for your kids. But if you’re able to save and have that emergency fund and have that extra cushion there, you can use that as a teaching moment. Teaching them these wants and needs is the idea that there’s certain things you have to buy.

Austin Wilson:

There are.

Josh Robb:

And then there’s other things that you want to buy.

Austin Wilson:

Yep.

Josh Robb:

Now, the hard part is, depending on your kids’ age, they don’t have many needs, because, in reality, kids, their needs are taken care of, right?

Austin Wilson:

Yep.

Josh Robb:

They have their shelter, they have food, they have clothing-

Austin Wilson:

Yeah, so if they have money-

Josh Robb:

… transportation-

Austin Wilson:

… they don’t need to spend their own needs.

Josh Robb:

… all that’s taken care of because they’re in this family unit, right?

Austin Wilson:

Yep.

Josh Robb:

And so, one of the things you could do is just highlight that, right? You’re driving in the car, if this is beginning the topic to say, “Hey, this car helps our whole family, but we had to pay for that, and it costs us every month-

Austin Wilson:

So you’re saying-

Josh Robb:

… We have to fill up the gas-

Austin Wilson:

… charge your kids for an Uber?

Josh Robb:

It’s an option. And actually, that is something I have on there, which we’ll get to in a minute. But just acknowledging, as you use different things, wants and needs. When it’s cold out in the winter, you can talk about how, “If we don’t save money, we wouldn’t have money to pay the utility bill and we wouldn’t have heat, which is important.” So, you could just highlight that to them. The other thing is, find something that’s a need of theirs that maybe you’re covering, but boost up their allowance or their amount of money they get and have them pay you back for that.

And so, clothes is a great example. You’re still going to be buying their clothes, but maybe every time they get paid, they got to pay you a dollar of their paycheck to help cover the cost of the future clothes. And in a sense, you would’ve given them a dollar less than your allowance, but you’re just using that as a teaching thing. So, you actually could charge them, maybe not Uber, but charge them, in a sense, to say, “Hey, you know what? We’re part of a family and everybody’s kicking in.” Now, it’s still your money. You’re giving them the allowance-

Austin Wilson:

It’s all the-

Josh Robb:

… since they’re giving right back. But the concept there is, it’s teaching them that a portion of their income, if we want to use that word, is going towards the needs and what’s left are further wants.

Austin Wilson:

And I think that that understanding of needs versus wants is something that if you have a good understanding of it at a young age, it’s really going to help you as you get older. Because I don’t know if this is mind blowing for young people, but you can’t buy everything you want all the time.

Josh Robb:

Yes.

Austin Wilson:

You have a finite amount of money.

Josh Robb:

Yes. Delayed gratification. That is huge.

Austin Wilson:

And it’s not something that comes natural, especially towards younger generations, who we’re very used to, I’m lumping myself into this category, as a millennial, very used to instant gratification.

Josh Robb:

Yes.

Austin Wilson:

Where you click a button and something’s at your door the next day, and it’s very easy to do. Or, you push a button on your phone and you get-

Josh Robb:

Entertainment-

Austin Wilson:

… to watch that show right away or whatever.

Josh Robb:

… and get anything you want. Yep.

Austin Wilson:

So, delayed gratification, in general, is not something that we’re wired for right now. And to teach that, and that you have to save up for things and you have to prioritize certain things is really going to be helpful.

Josh Robb:

Yep. So, the second thing is, and this comes back to what I was talking about, allowance. In order for your kid to learn about money-

Austin Wilson:

You have to have some?

Josh Robb:

… you got to give them some money.

Austin Wilson:

Yeah?

Josh Robb:

Right? But depending on their age, they could probably, maybe, go out and get a job, paper route, all those fun-

Austin Wilson:

Which is a great thing.

Josh Robb:

… things you did as kid. Teaches good habits, teaches good work. But maybe you have a eight-year-old and they’re not quite old enough to get a job yet.

Austin Wilson:

Not till they’re nine.

 

[5:09] – How to Teach Your Kids Good Spending Habits

 Josh Robb:

But you can kick out some money here or there. So, there’s a couple different ways to do that. You can be as creative as you want, and what works for you and your family. But one is the tried and true, the allowance, right? Every week, you have a set amount of money that you get. And so, growing up, if you’re a kid and you got an allowance, you knew on Friday or whatever, at the end of the week, I got-

Austin Wilson:

$5 and that was-

Josh Robb:

… that was it, because I did everything I needed to do. Right?

Austin Wilson:

Right.

Josh Robb:

So, allowance is great, because it teaches that mindset of a paycheck in a sense. If I do what I need to do, I get paid at the end of the week and that’s the money I need to last until the next time I get paid. Allowances are great. The other idea is a paper job type of thing. And I’ve thrown these ideas around myself, with the idea that you almost motivate them, for the ones that are eager, they can make more money if they want to do more jobs. This idea of, maybe at the beginning of the week, you post all the jobs available, sweeping and picking up the leaves outside or whatever they are. Put a price tag on it, it’ll be paid at X amount of dollars, and whoever wants to do it will get paid. That’s an option. It really is.

Austin Wilson:

And if it doesn’t get done…

Josh Robb:

Yep.

Austin Wilson:

… we’re going to be in trouble.

Josh Robb:

Yeah. But maybe it’s a negotiation thing. There’s all different habits, depending on your kid’s personality. Some maybe more appealing to others, or maybe it’s a combination. They have a set allowance and here’s the things that have to get done, then anything above that is an extra dollar or whatever.

Austin Wilson:

Right. Josh, I think your point is valid. You have to have money to learn it. Because if you’re not giving your kids some way of having money, and that can also be from things, like birthdays and whatever, baptisms. Some people get money for baptisms or whatever you get money for. If they have that money, they have the ability to learn how to use it wisely. And really, it’s all about setting them up for future success. We’re going to talk about this later, but they’re not going to do the things you would do with your money and that’s okay. And there’s also, probably going to be a relatively small amount of money in the grand scheme of things. So, yes, don’t be giving your kids money that you need to use for bills.

Josh Robb:

Right.

Austin Wilson:

This is an addition to that. But this is something that they can learn for. And if you’re learning these things by maybe making mistakes or doing whatever, when you’re 8, 9, 10, 11, 12, you’re going to be set up a lot better with a good understanding when you are 20 or 30. So Josh, we’re halfway.

 

[7:22] – Dad Joke of the Week

 Josh Robb:

Halfway.

Austin Wilson:

Halfway through. (singing) Bon Jovi.

Josh Robb:

Bon Jovi.

Austin Wilson:

Bon Jovi. Bon Jovi aside, I got a dad joke of the week for you.

Josh Robb:

I am ready.

Austin Wilson:

Did you hear about the kidnapping?

Josh Robb:

Oh, no.

Austin Wilson:

He’s fine. He woke up eventually.

Josh Robb:

Oh, he was napping.

Austin Wilson:

And that is-

Josh Robb:

Kid was napping.

Austin Wilson:

… something that young parents take for granted, I want to say.

Josh Robb:

Napping.

Austin Wilson:

Kids napping.

Josh Robb:

Oh, it’s huge.

Austin Wilson:

Our daughter’s five. She does not nap anymore.

Josh Robb:

Nope, naps are over.

Austin Wilson:

And we miss some aspects of that, because it was a time to get things done around the house. So it was a time to-

Josh Robb:

Relax.

Austin Wilson:

… start dinner, or just take a break and put your feet up. And you don’t have that at a certain age. Kids napping, enjoy it while you can.

Josh Robb:

It’s good.

Austin Wilson:

Because it’s not forever. All right, so we got two more.

Josh Robb:

Yes.

Austin Wilson:

Number three and number four. So, Josh, what is the third way to help your kids learn about money?

 

[8:24] – Help Your Kids Set Up a Budget

 Josh Robb:

Yeah. They’re getting allowance or they’re giving some form of income, somehow, whether it’s their own job or what. Help them set up a budget. Now again, they don’t have a lot of needs, because they’re probably still living at home and you’re buying the food and all that stuff. You’re driving them around. So, I broke it down into three buckets for the kids, and it still teaches them those habits that you need for a budget when you get older. But the idea is, there’s a saving bucket, money set aside for a future event. Now, when you’re heading out of college, you’re starting to save for retirement. This is not retirement savings.

Austin Wilson:

Correct.

Josh Robb:

This is saving for something they want or need in the future that you can help set that goal for, a bike, something like that, whatever.

Austin Wilson:

Let’s just throw this out there.

Josh Robb:

Mm-hmm.

Austin Wilson:

If you can brainwash your kids to start investing at eight-

Josh Robb:

That would be huge.

Austin Wilson:

… that money can compound for another 15 years before their peers. Whoa. I’m getting a little excited just thinking about that.

Josh Robb:

Yeah. My daughter said she’s saving for college and she’s 10. So, some have that mindset, I guess-

Austin Wilson:

I know. That’s like super-saver mindset.

Josh Robb:

But the idea there is, it’s an achievable goal, but you help them put money aside for that. Second one is give. So saving, then giving. And the idea there is that you need to teach those habits early on. Yes, everything’s limited, but if you are diligent in planning, you should be able to have an outward look, in that you have an abundance mentality that, hey, some of this can go towards others that are maybe not as fortunate.

Austin Wilson:

Absolutely.

Josh Robb:

Help them pick something that they’re passionate about, right?

Austin Wilson:

Yeah.

Josh Robb:

Let’s say they love puppies. All right, the Human Society, “We could donate there.” Find something that they could be excited about and use that.

Austin Wilson:

And one thing that does is that instills that as a part of what they do with their money, that they will hopefully continue with as they go on, and it just becomes a part of who they are.

Josh Robb:

Correct. And then the third one is, what’s left is the spending bucket.

Austin Wilson:

That’s the fun one.

Josh Robb:

That’s the fun one. That one’s the freedom for whatever they want to do. They may say, “You know what? I’m going to save a little extra of this.” That’s fine. Great. But the idea is that becomes their choice. They can blow it on whatever they want.

Austin Wilson:

Candy.

Josh Robb:

Then you just be careful how much they eat. But they can buy all the candy they want, but it’s going to sit on a shelf while you decide how much they eat. But yes. And the key there is, again, the spending becomes their choice, because you got to let them learn. And so, you can provide some oversight, some suggestions, but they got to be able to learn on their own. If they don’t see this as their money, it’s really not going to matter to them what happens. If they think, “Well, this is just mom who’s letting me hold the money,” that doesn’t help. Right?

Austin Wilson:

And I think as a parent, you’re also at that point going to learn about your kid. You’re going to learn what’s important to them, what they’re interested in, what they’re passionate about. And that can actually be a really cool thing to watch.

Josh Robb:

Yeah. So, one of those buckets was saving. So the fourth piece of this is, now that they set up a budget, help them with that savings piece. And here’s the one thing that I had read on a couple different places, but I thought it was great. When you talk about investing, growing your money, compounding, for an eight-year-old, their whole life is driven into an eight-year period. And of that, they probably will remember about five of them. And so, for them to look and hear about these 20, 30-year compounding thing, it’s irrelevant.

Austin Wilson:

It doesn’t check the boxes in their head.

Josh Robb:

They can’t compute that. They’re not old enough. Their brain is not developed enough to comprehend long term like that. So, help them by crunching down that result for them. Let’s say, that they get $10 a week in their allowance or however they get paid, and you encourage them to save 10%, so they get a dollar every week they’re going to save. Well, if you put that in a bank and it’s earning, even 1%, pennies are showing up, right?

Austin Wilson:

Right.

Josh Robb:

So, maybe what you could do is say, “Hey, I’ll be the bank. All right? Give me that dollar, and at the end of the month, you have four weeks, you have $4, I’ll add another dollar to that. You’ll get $5.”

Austin Wilson:

Yeah?

Josh Robb:

Right? That’s pretty good growth right there for your investment.

Austin Wilson:

It’s 25% bonus.

Josh Robb:

I mean, it’s huge. Can you find that anywhere?

Austin Wilson:

No.

Josh Robb:

No, not in a one-month timeframe. Does it cost you a little extra? Yes. But what does it teach them? Again, going back to that delayed gratification. If you’re willing to give up those dollars, you’re going to have more dollars, and you’re actually going to see the result. Or, let’s say they’re targeting something like, “Hey, I really want this video game that’s $60.” Okay. You’re putting your dollars away every week. “Once you get to 50, I’ll give you 10. And then you’re at your 60, what you need.” You give them this bonus at the end, or an incentive to continue to save, right?

There’s all different ways you can do that. I encourage you to show them the end result of what we’re trying to teach that habit of saving. Because I know, when we’re talking to 20-year-olds, it’s hard for even them to think through, “I’m saving for 60, 65 years old? That’s 40 years from now. That’s a long time.” But if you can help them see along the way, hit those goals and that compounding, they’ll stick with it. And so, the same with these little kids.

Austin Wilson:

Yeah, it’s going to show them that it works-

Josh Robb:

Yes.

Austin Wilson:

… so that they’re willing to, again, stick with it just like the giving we talked about earlier or whatever. It’s going to show them that it works so that they become a saver. It’s not the way they’re wired, but they will be doing some of that, just so that they know that it’s a valid option for them. So, yeah, that’s a great one. I think that people, as a whole, need to be thinking more of the saving mentality, and I think doing it from a young age is going to help people have a little bit more aptitude to do that, in general. Because we know the statistics are, most people just don’t save enough period.

Josh Robb:

Right.

Austin Wilson:

A lot of that goes back to the fact that they weren’t taught to save when they were young.

Josh Robb:

Yeah, you think about kids leaving high school or college, whenever they’re first heading out on their own and banks are more than happy to set up credit cards for them.

Austin Wilson:

That’s great.

Josh Robb:

… and set up all that stuff.

Austin Wilson:

But it’s not.

Josh Robb:

No one’s really showing them the other side of it. And that’s, I think, the key. When we recap, first, they need to know the difference between wants and needs. They need to get money somehow, whether it’s an allowance or a job or something so they can have some money to manage. Have them set up a budget, help them with that. Set up the different amounts. And those amounts may vary depending on what you’re trying to teach them. And then help them with that savings piece by giving them a motivation to save.

 

[14:07] – Give Your Children a Motivation to Save Money

Josh Robb:

Now, couple things to think about. First one is, and you mentioned this, and it’s very important is, if they’re making dumb decisions with their money, go ahead and let them. Let them use that to learn and then remind them. So, for instance, let’s say they get $10 a week and you have them saving a little bit and giving a little bit, so they end up with $8. They put $2 in each of those two things. So you got $8 and they get that on Friday, and Saturday morning they go and spend all $8. And you’re sitting there thinking, “I know we’re going to be going to the zoo on Monday, with school.”

Austin Wilson:

You’re going to want a toy.

Josh Robb:

You’re going to want some money for that. Let them learn.

Austin Wilson:

Yeah.

Josh Robb:

Let them learn. Say, “Are you sure this is what you want?” “Yeah, this what I want.” Then on Monday, you remind them, “Hey, remember how excited you were on Saturday to buy that toy?”

Austin Wilson:

Right.

Josh Robb:

Remember that, and just use the mistakes to learn. Because it’s better for them to learn on an $8 mistake than an $800 mistake-

Austin Wilson:

Or an eight thousand-

Josh Robb:

… or $8,000 mistake later on. So allow them to make mistakes. It’s their money, so let them know, “Hey, you can do whatever you want with this. If you want, ask me a question. I’ll help you-“

Austin Wilson:

Absolutely.

Josh Robb:

… but it’s your choice.” So that’s big one. And then the other one is, we talked about saving. If you can encourage them to save, you can flip that and also discourage them from borrowing, or show them the result, the impact of borrowing. So, for instance, going back to that $60 video game that the kid wants, and they only have $10 or $15, whatever they’ve saved up, and they just really want that game. You could say, “All right, I’ll pay the rest for you, but you’re going to owe me. You’re borrowing the money from me, and I’m going to take an extra dollar every week from your pay to cover interest.”

And they don’t know what interest is. But because you borrowed money until it’s all the way paid back, you have to pay extra and show them. So, let’s say you’re covering the $50 and it’s going to take 10 weeks to pay back, because you’re going to take half their pay each time. But then you’re going to get a dollar to those. So, you get an extra $10. Show them what that is. So, you’re actually going to give me $60 and you’re going to give your 10. So, you’re going to pay $70 for this $60 thing. “Is it worth it? Or do you want to wait and pay it on your own?”

So, charge them interest. They’re not going to know what that is. You don’t have to call it interest but let them know if they need to borrow money, because they don’t have it all right now and they don’t want to wait, it will cost them a little extra. So it’s just a little, couple things to think about along the way. But high level is, you can’t expect kids to know or understand how to manage money if they don’t ever get the opportunity to do that. Don’t think that once you become an adult, it magically happens. Because it does not. People are leaving high school and college with no idea on what it is to balance and budget and do all that stuff.

Austin Wilson:

And one thing that you hit on a little bit is to encourage questions.

Josh Robb:

Yes.

Austin Wilson:

Because there’s, a lot of these things don’t make sense. You know? You can’t just expect kids to understand it. And if you encourage questions, and if you’re transparent about your own finances, to a point that you’re comfortable with. You don’t want to share every dollar amount of how much you make or spend or whatever but encourage them to understand that what you’re doing costs money, living in a house costs money. You have to pay taxes and see your financial life happening. They’re going to naturally pick up on that a little bit more.

Talk about car insurance and when you pay that bill or whatever, it’ll make things click a little bit more. That’s one of the things that growing up, I felt really blessed by was, my mom, specifically, was just an open book about finances. So she was, if I ever had a question, she’d answer my question. And I knew, I had a little bit of a head start, I felt like, compared to a lot of my peers because of that. That is something that I would definitely encourage is. be transparent, answer questions, encourage them to ask questions and let them watch you live life financially, right? And hopefully, you’re doing a really good job and they can emulate what you’re doing. Learn by watching.

Josh Robb:

Yep. Yeah. There’s a lot of times where, in hindsight, sharing a little bit, like you said, you don’t have to share everything, but just being a little more transparent, open, about your decisions and why will help them later on, maybe avoid some mistakes.

Austin Wilson:

This was a really sweet episode. I’m encouraged. I hope that the next coming generations are going to be encouraged and do better over time. I think that’s something that we are really passionate about. But what can listeners do to help us now?

Josh Robb:

Yes. If you know some parents who are getting to that stage with their kids, where they’re looking at setting up some allowance or finding ways to teach about them about money, share this episode with them. It would be a great way for them to get that starting point. There’s a lot of material out there to use. A lot of different websites have that for helping your kids, which is great. And then finally, if you have any questions or thoughts, shoot us an email at hello@theinvesteddads.com.

Austin Wilson:

And just a shameless plug that I will be hosting a webinar, entitled, Is the Future Electric?, on November 16, 2022 at 4:00 p.m. I’m going to be talking about the history, the present situation, the technology, where we’re headed, as well as share my opinion on why demand for fossil fuels isn’t going anywhere.

If you would like to join me, which I would love it if you would, save your seat by going to theinvesteddads.com, and clicking the webinar banner. If you know someone who might benefit from this event, share with them, and I hope that you will join me. Well, until next Thursday, thanks for listening and have a great week.

Josh Robb:

Yep, talk to you later. Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode, and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast.

There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.