(And no, the answer is not to give $50/week allowance to a six year old!)
Last week our minivan's transmission bit the dust. (Thankfully it bit the dust in our driveway.) Over the next couple of days my wife and I discussed what to do: whether to fix our car, whether to buy a new-to-us one — buying a new car didn't enter the picture! — which kind to buy, and how to pay for it.
We had a very level-headed discussion about the whole matter. I'm glad that we've learned a thing or two now that we're approaching our tenth anniversary. At some points in the discussion, when it was getting serious and when we were trying to make sure that we understood each other, our daughter came in to ask this or that, and at first we asked her to let us finish the discussion privately.
After we got through that part of the conversation, we called her in to let her know that nothing was wrong and that we needed to think carefully about what to do because it was a lot of money.
At some point, either my wife or I made the observation that this topic really wasn't over her head, or something that we needed to shield her from. We really didn't have to discuss the financial questions of getting a car privately.
So after that point, we involved our daughter in buying the car. My wife took her to CarMax and she got to ride in the cars, and tell her which one she liked better and why. But probably the more important part was that she learned that we were going to borrow money to get the car. We explained that we were going to ask our credit union to lend us money to buy the car, and that we had to pay it back or else they'd be able to take the car, because we didn't really own the car until the loan was paid back.
Then tonight my daughter asked me, “Daddy, why are you getting a loan for the car?” Music to my ears — not necessarily because we're borrowing, but because this is the most advanced money question my daughter has asked about to date. I got to explain some things about investments to her. I explained that we could sell some of our investments to pay for the car, but at this time we didn't want to. I got to explain the concept of interest to her, and that it wasn't free to borrow money. I also got to explain the concept of creditworthiness to her; because Mommy and Daddy pay their bills on time, the bank didn't charge us much interest on the loan. (We got approved for a very good rate on our used car loan.)
It was great to see her asking questions about personal finance. I think the trick was not to hide the family's personal finance from her.
I think it’s increasingly important to educate kids about financial matters these. days. You were right not to insulate her from this stuff, as I’ve seen so many people get in trouble who said that money just wasn’t a topic that was brought up in their families.
I love this story! When it clicks for kids and they start to understand money, it’s almost amazing. My much younger brother came up with the funniest money-making schemes when he started to understand money. I laughed at his creativity, but I was impressed that he was applying money principles to his “job prospects”.
Sorry about the van! My kids were involved with everything we did. I would take to my restaurant on Saturdays or vacations. They worked and learned that the customers came first. They learned by watching me making decisions. This was true in everything we did. A few years ago, I asked my adult children what we did, if anything that helped them become successful? Was it the expensive private school, the long talks, the family meetings or outings. To my surprise, they told me they observed how we handled problems and how we resolved them. The kids are watching, you better model your best PF behavior.
Good for you for involving your kids in the financial aspects of day to day life. I had only wish my parents did that for me. But… their generation tended to keep matters like that quiet from everyone.
@Lisa and Eric: I figured out that my parents were frugal, but there wasn’t a whole lot of discussion about bigger things until I was in high school, and then not really a complete picture. I turned out all right, but I’m hoping that my daughter has a wider array of “making money” options than I was aware of.
@Crista: What schemes? 🙂
@Krantcents: Kudos for running a restaurant. I’ve heard that’s one of the tougher types of businesses to run.
Congratulations on the new automboible. It sounds like you guys did a great job of EXPLAINING what was going on, instead of simply COMPLAINING or IGNORING what was going on. Rock on!
-NCN
As long as you build a system at home where every can ask questions, you have a healthy atmosphere for every one to learn and grow. Like this tale very much.
Despite the many suggestions not to bring kids in grocery, I still do. It is my way of teaching them how we spend money properly. We bring the list and I ask them to get the items on the list. If we still have money left on the budget, then each of them can get one item on the aisle. But normally, nothing is left on the budget, so we end up with “next time”. Several “next times” after, they brought their own savings from their allowance so they can buy what they want.
Nice work getting her asking questions and teaching her about money and loans. I think it’s really important for kids to understand money matters and the importance of saving. -Sydney
What a great way to involve your daughter in a financial discussion! You made it relevant and age appropriate. Kudos to you and your wife!
I laughed at the $50 a week comment for a 6 year old because we have a 6 year old and have not started an allowance yet. We’re not sure how to implement it so we haven’t started. But, I hope when we do it leads to productive conversations about money. I do feel teaching your kids about money is insurance that they will *hopefully* be responsible with it.
Involving kids in financial questions is motivational. This help them learn about how money was earned and how should it spend