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Question of the Day – How Much Should Kids Know About the Family Finances?

By JLP | August 27, 2010

Here is today’s question of the day:

How much should kids know about the family finances?

This question has been on my mind for a couple of years now. Our boys are (nearly) 15 and 13.5-years old (our daughter’s still too young to be interested in this stuff) and I want them to have a better understanding of how family finances work. I want them to see how eating out more often means that there is less money for other things. Although I know they don’t really think this way, it’s like they see the family income as just pouring in and that there’s enough to do anything we want to do.

So…

I think I want to take steps to educate our boys on the basics of family budgeting. What I’m struggling with is just how much information I want to give them regarding our finances. I don’t see a problem with the budget. I’m just not sure beyond that. I don’t see that it’s necessary for them to know 401(k) balances or details like that.

What do you guys think?

I’ll detail my “plan” in another post. I have some ideas that I want to share with you on teaching kids personal finance.

Topics: Budgeting, Kids and Money | 20 Comments »


20 Responses to “Question of the Day – How Much Should Kids Know About the Family Finances?”

  1. Paul Williams Says:
    August 27th, 2010 at 9:12 am

    Hmmm, interesting question, JLP. I can see why you might be wary about sharing the 401(k) balances. They’re at an age where $100 (or maybe $1,000 if they work) seems like a lot of money. They might mistakenly assume you’re rich based on the 401(k) and that could make it difficult to share the other lessons you want.

    On the other hand, it could serve as an opportunity to teach them about saving for retirement and just how much it takes. Maybe you could show them how little they’d have to save if they start early versus waiting until they’re 30 or 40 (or later!). That might have a good effect on them and get them to save early on.

    I think it’s great you want to teach them about money now. I sort of figured stuff out on my own at that age. I understood the need for a budget and making choices/trade-offs, but I could have done a lot better with some guidance.

  2. BG Says:
    August 27th, 2010 at 9:13 am

    I say “a lot”, my wife says “none at all” — so we meet in the middle.

  3. tom Says:
    August 27th, 2010 at 9:16 am

    One man’s opinion…

    Detail the budget. Explain where everything goes, and if you spend more in one category, it takes away from others (generally savings).

    I don’t think they necessarily need to know how much you bring in each year/month or what your 401(k) and savings balances are, but cover those at a high level. Explain what they are, why they are there, and how they’ll be used. Maybe tell them %s of income that go there. They are old enough to grasp it at a high level.

    Good luck… I know I never got this talk officially, I would have liked to. I picked most of it up after years of discussions between my parents.

  4. JJ Says:
    August 27th, 2010 at 9:26 am

    If you make enough for your spouse to stay home with the kids, should your spouse not stay home so the kids will have the understanding that in most cases both spouses now have to work?

    This is the thing I’m more fearful about getting across to the kids (more so than how eating out affects our ability to spend on other things).

    I’m fearful that they’ll get the idea from our imprint that only one parent needs an income.

    If your wife stays home with the kids, you could start by explaining to them how you made that decision and how you were able to be sure it was the right one.

    Same with starting your own business. How did you make sure that was the right decision for you family? How much did you have saved at the time? How big was the risk you were taking? Did you have a position you could easily go back to if you failed? This will tell them much more about managing money and risk than eating out. Then again, my kids are 6 and 3 (it’s easy for me to say). I’m most worried that my kids will get the impression that only one parent needs to earn an income in the traditional way (via a job).

  5. JLP Says:
    August 27th, 2010 at 9:43 am

    JJ,

    I have a one track mind. The eating out comment popped into my mind because our kids love to eat out. They have no idea that the $70+ it takes for the family to eat out is money that can’t be used elsewhere.

  6. Stacey Says:
    August 27th, 2010 at 9:51 am

    I’d be wary of providing too much info. You don’t want to have a Mendoza brothers sequel…(even tho’ I know you do have good kids!!)

    I’d stick to the expense side of things and avoid too many details about income and retirement savings. Perhaps sharing rainy day savings figures and the fact that your income covers your expenses would be enough (too much!) info to provide their deductive thinking skills sufficient ammo.

    I know my little birds sometimes have big mouths; they may not intend to share the info, but somehow Grandma always knows the scoop… “I can’t you believe you spend $xx,xxx on vacation!”

  7. Tracy Says:
    August 27th, 2010 at 9:56 am

    As a single parent (who struggled much of the time when the kids were young) I shared a LOT about our family finances with the kids as they grew up. Sometimes I wonder if it was “too much” or not, but I don’t see any ill effects.

    The budget for sure (we didn’t have any savings most of the time I was raising them, so that wasn’t even an issue). Show them “this is how much income we have, and I have to reserve this amount $$ for rent, this for gasoline for the car, etc. – that’s why I cannot budget for you to get that new computer game you would like to have” (my kids had no allowances)

    As a side note – sharing all this with them doesn’t mean they each “get” it equally. My kids are all in their 20’s now. My oldest son is so frugal to the point of squeakiness (no dime leaves his pocket!) while my daughter is the opposite. They both got the same information growing up.

  8. JLP Says:
    August 27th, 2010 at 10:03 am

    Excellent comments so far. Thanks everyone.

    Stacey,

    Yeah, I’m more worried about the loose lips than the boys doing something sinister with the information. They let sensitive information slip to the wrong person and it could spell trouble. You never know.

    Tracy,

    I remember you venting your frustrations to me when I worked at Leekers. I think I remember telling you to focus on what you COULD do instead of what you couldn’t do. That conversation really stood out to me.

    Anyway, it’s awesome that you made it through those tough times. I’m sure they have made you a stronger person.

  9. Jennifer Says:
    August 27th, 2010 at 10:19 am

    My husband and I use a cash envelope system to pay for most things. Our kids(age 7 and 3)see us pay for restaurants,clothes, etc and know that when the envelope is empty, we are done spending until payday. Our 7 year old even has a few envelopes in which he “budgets” the money he earns for a few jobs he has around the house. As he is learning to budget his own money, questions come up from time to time about certain things in our budget. We try to answer the question in age appropriate terms without overloading him with too much information.

  10. Beeg Says:
    August 27th, 2010 at 10:55 am

    I will teach my the philosophy and importance of a balanced budget (unlike our govt).

    I will not share detailed personal financial info (like income or assets/liabilities) with children until they are much more mature (I’m thinking like 25-30 yr old). I still don’t know what my parents have officially or make. And, for now, don’t care. It’s their business. When the time comes that their health is poor enough that they don’t need to worry about it then us kids will learn more and help.

  11. Zach Says:
    August 27th, 2010 at 12:00 pm

    I’d say a certain amount of knowledge helps. In early highschool I was bitterly angry with some peers and my parents because I thought their family had a lot higher income. Turns out my family just has a far better sense of economic responsibility. It seems like you’re already doing a good job of that.

  12. Dave Says:
    August 27th, 2010 at 12:12 pm

    Part of our financial education of our children included having them help pay the bills. I’d sit down with one of them, together with the checkbook and the stack of bills that had accumulated for the last couple of weeks. They would write out the checks (I’d sign them, of course), stub them in the checkbook and calculate the new balance, put the bill and check in the return envelope, add postage and return address sticker.

    They would see how much things cost that they normally wouldn’t think much about. “Wow! I didn’t know that the electricity costs $180 per month!” “Car insurance is expensive.” “We pay $100 per month for cell phones?” etc etc etc. It helped them realize that their minimum-wage summer job won’t go very far in the real world of adulthood.

  13. Lynn Says:
    August 27th, 2010 at 4:27 pm

    My girls are 3 1/2 and I plan on teaching them about personal finance but not necessarily exact numbers. Not sure how we are going to do that but I don’t necessarily want other kids to know about our family finances. I like the idea of having the kids help pay the bills. I don’t think I would share how much we made or how much is in a 401K because I wouldn’t want them getting the wrong idea.

    The problem we have now is that we pay with everything with a credit card. We give the girls coins to go in their piggy bank but all transactions at a store are on plastic (paid off every month). They rarely see money change hands. I realized this is going to be a problem when I gave one of them an old Costco card and she was pretending to shop and was swiping the card everywhere she went. I know they are starting to understand the concept of saving though since I recently dropped some coins in a donation can and they informed me that we couldn’t do that because we wouldn’t have enough money for our trip to Disney! LOL!

  14. Jack Says:
    August 27th, 2010 at 9:43 pm

    It’s strange, but I never got instilled with the idea that one’s income was “private information.” My dad was military — just look in the tables for rank and time-in-service, and you knew his pay. My mom taught piano, and she advertised her rates.

    My very first job was as at a summer camp, and all the staff members got the same pay. Pay rate was standard moving furniture with United Van Lines. Then I got a GS job with the DoD while I was in college. Same deal as the military — GS rate was common knowledge, and your step was determined by time in service. You just had to make sure you were looking at the right table, since engineers are on a different scale, and particular specialties were on still other scales.

  15. wally Says:
    August 28th, 2010 at 8:18 am

    I think its more important that they learn to budget their own money (that was life in my house growing up and the plan we have for our children) than to know how my budget works. Maybe my way of budgeting won’t work for them. It usually (I cant say always, but pretty close) was better for me to screw up on my own and have to fix my own problems than to have my parents tell me about it. Remember the old saying about how smart your dad is when you are 5, how dumb he is when you are 15 and how smart he becomes again when you turn 23.

  16. Paul Williams Says:
    August 28th, 2010 at 3:28 pm

    Reading through these other comments makes me realize how open I am about money. I feel the same way as Jack (#14). I’ve never really felt very protective of my “numbers”, but I realize many others do.

    Maybe it’s because I’m a financial planner, but I was like that before I followed that career path. Maybe I’m just wired differently. Who knows. I do wonder why money is such a taboo topic for some people though. I’m not so sure that’s a good thing.

  17. Jack Says:
    August 28th, 2010 at 7:27 pm

    “I’m fearful that they’ll get the idea from our imprint that only one parent needs an income.”

    If you make good decisions, then only one parent needs an income.

    One of the cruel realities of the women’s lib movement was the lawsuit that forced banks to consider both incomes when making mortgages. The result of that influx of money into the housing market was to drive up the cost of housing. Also home sizes have increased considerably. In 1970, the average-sized home was 1400 sq.ft., but in 2004 it was 2330 sq.ft.
    http://www.infoplease.com/askeds/us-home-size.html

    So, maybe you need two incomes to live in a 2330 sq.ft. house, but only one income to live in a 1400 sq.ft. house.

  18. Denise Says:
    August 29th, 2010 at 9:51 am

    Like some of the others have posted, I’m also a more open personality. I have one son, whose almost 3. Right now my spouse and I go over the accounts every Saturday, and one or two Saturdays a month we pay bills. Right now we tend to do this during his nap, for convenience sake, but not always. We’ll just always do it in front of him, and sooner or later he’ll be a part of it.

    I would agree that if you are going to share the 401K balances, FIRST I would talk about your goals for retirement and how much money you think you’ll need and SECOND where you are on reaching those goals.

    Oh, and I had NO IDEA how much my parents made until it came time to fill out financial aid paperwork for college.

  19. Vytas Says:
    August 30th, 2010 at 8:02 am

    You could try explaining how much time it takes you to work for the whole family to go out for a meal. Then offer the kids to save up some money for themselves and take you for a meal. Maybe then they will evaluate what you do. I think financial understanding comes very slowly. Only when kids start working and making money they start understanding the price of everything they have.

  20. dall Says:
    August 31st, 2010 at 4:01 pm

    well kids should just be able to know that your family cant afford everything it really depends on the age if they are older (teen) they should know more like if you are in debt or not this comes in along with dicipline like just saying “no you cant buy that” or something like that

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