…and now for a post on parenting from a woman who knows. Tara Doker balances two kids, her own business and a full time job with apparent ease (although I know it can’t be easy). Below, she shares some insight into how to turn a simple childhood pastime into a teaching moment about macro and personal finance.
If you ran a business and did not have to pay for the product you sold, I imagine you would be living the good life and have earned a spot on the Forbes wealthiest list. What do you think Apple’s annual profits would rise to if they got all those IPhones, tablets and computers for free only to re-sell them for the full amount? If only life was so simple. Well, since real life does not operate like that, why would we expect our children to learn anything by operating in such an environment?
It all started with a simple lemonade stand my son wanted to set-up. Off to the store we went and bought lemonade mix, cookies, cups, napkins and more. His stand was a raving success as a hot day combined with a sweet smile is a perfect marketing tool. His take for the afternoon was over $25. I could have let my 4 year old take that and run and I would have been very proud that he earned money by working for it. Or, I could take it to the next level and deduct the supplies from his gross income which would have still earned him over $12. This was the perfect opportunity to teach him not only about earning money and working but about financial skills in general. Very few parents I know would actually deduct the supplies. The problem is that they seem to stop teaching at the profits and having the child work for the money is “good enough” in their eyes. Here’s the problem with that approach: we are doing a disservice to our children by not preparing them early to be financially savvy.
Teach Your Kids Through the Use of Cash, Not Credit
Recently, Forbes posted an article about “How to Raise Financially Savvy Kids.” In it, there are some great suggestions including how to talk to you kids about money. The article mentions that kids are more likely to do as you do versus do what you say. Mary Hunt, personal finance expert and author of recently released Raising Financially Confident Kids, offers up tips such as using cash instead of credit cards. “Cash is very visual, clear cut and not confusing, “she says. We have increasingly become a credit using society so people may have difficulty accepting this. But stop and think about how a child may perceive what a credit card actually is. To them, it is a square piece of plastic that you present and magically a store lets you take whatever you want.
Needs Vs. Wants and Why
Another key topic is understanding needs and wants. It can be difficult to not give in to every just-for-fun whim or request your child makes, especially if it is something small. However, if you do have the self-control to resist these purchases, you should be aware of the language you use in explaining your reason. Hunt warns against saying “We can’t afford it.” A child could interpret that as “we’re poor” and that could cause anxiety. Instead she suggests saying, “We choose not to spend our money that way.” Another solution to the constant stream of “can you buy me this?” would be to institute an allowance system. Hunt believes that giving children an allowance is one of the best ways for them to learn how to handle money on their own. She suggests starting at age six and recommends $1 per week for each year of their age. Having their own money teaches them about making good choices, budgeting, saving and consequences of bad decisions. It also reinforces the understanding of using cash referenced earlier. We recently began this system at our house with $5 per week for our 6 year old. It has had immediate success and I am impressed with how quickly my son is learning to budget his funds and think through his spending decisions. He even saw how he could combine his money from the tooth fairy (“a bonus”) with his allowance for the week to balance a larger purchase.
Why is This On-going Discussion Important?
It’s our job to constantly teach our kids how to intelligently and responsibility handle money. We should not be making decisions in light of our desire to be nice or be their best friend. In the case of my son’s lemonade stand, he went to the store with me to purchase the supplies, he saw the money exchange hands and he understood that those supplies were bought with my money and he needed to pay me back. Had I not enforced this, I would have created a future “Lemonade Stand Millionaire” who grows up to falsely believe that a product is given to you free of charge in life to resell. I could not have asked for a better teaching event!
Tara Doker received her BBA in Finance from Georgia State University and her MBA from Kennesaw State University. She spent over 10 years in corporate finance for companies such as Cinnabon and McDonald’s, specializing in financial planning and analysis in a franchise environment. After the birth of her first child, she made the decision to be a stay at home Mom. During this time, she made use of her business skills and opened her own franchise, Sweet & Sassy (www.sweetandsassy.com) in Atlanta. In addition, she is currently working as a technology solutions consultant for Technisource. Tara and her Husband live in Atlanta with their two children, ages 6 and 2 years old.
Anita Roddick, founder of widely popular Body Shop stores