Are You A Good Financial Model?
Are You a Good Financial Model?
In the last post, I talked about my financial independence legacy that was passed down from my parents. I have also written extensively before about how I have my kids on a budget. This idea of teaching our kids about finances and smoothing the pathway to financial freedom comes up over and over again. Questions abound. To give an allowance or not? If so, how much? To pay for college for them or have them take out loans? While I think the fear of not educating our children about this important life skill is well founded, my impression is that most of the tactics we are employing are utter rubbish. You can explain the stock market to your offspring until your face is blue. You can teach them how to budget. My bet is that most of it won’t stick. The single best indicator of whether your kids will be financially savvy or not is you. Are you a good financial model?
Financial modeling can take many forms. Your children are watching everything you do. They are interpreting your attitudes toward money and purchasing. Your behaviors will become ingrained in them. Long after they have forgotten your dry lectures about responsibility, they will remember your actions.
Value
There are many ways to be a good financial model. Primary, among these, is your attitude towards stuff. Kids pick up quickly on how their parents treat material objects. From the beginning, in our household, we have tried to instill the idea of value. We spend money on things that have value and optimize that value over the long term.
A few simple techniques will model in your children a healthy relationship with stuff:
- Buy second-hand when possible, on sale when not
- Fix broken objects before replacing
- Shop for quality in an effort to make stuff last
- Sell used toys and clothes when you are done with them
- Take a few days after deciding on a purchase to make sure you really want it
Although not all-inclusive, this list contains just a few examples of how we create a good financial model for your children.
Hustle and Side Hustle
We work. Hard. And we value the opportunity and economic return that works provides us. From the beginning, it was decided that both parents would continue to work during early childhood. We wanted to instill in our children that both men and women are equal, and can provide.
We also wanted to model, for our children, that front loading and sacrifice have their place in a financial plan. While one should always enjoy their work, there will be unenjoyable moments. Or even years. This is part of being an adult.
If you want to reach financial independence, there are going to be some tough moments.
And that’s OK.
What Money Can’t Buy
Part of being a good financial model to your kids is teaching them that money and things are never a substitute for people and experiences. This is a much harder lesson to teach. You must try to focus your priorities on other aspects of life outside of what can be purchased. How to do this?
Spend a lot of time outdoors, in nature, walking by the lake.
Exercise, jog, and ride bikes.
Have the kids hang out with grandparents and cousins.
Final Thoughts
The best way to teach your child economic responsibility is to be a good financial model. More than any didactic teaching, your kids soak up your actions and attitudes. if your relationship with money is healthy, it is likely that your offspring will follow suit.
So stop worrying about allowance. Stop struggling to find a job for your kids so they can start a Roth IRA.
Lead by example.
And they will follow.
Excellent advice. My plan is to be a good financial role model for my children, just like my parents were good role models for me. Children are always modeling their parents’ behavior and I believe it starts early on (even as early as a few months old from what I can see!)
My kids watch everything we do. I think it eventually sticks.
I would like to think I am a great financial model for my daughter who is 12.
We already have had discussions about how social appearances does not mean that a person is wealthy but could be a facade and they could be highly leveraged.
I discussed the value of passive income and have always kept her in the loop of my commercial multifamily apartment acquisitions, telling her how much each one costs and the expected income from it.
She seems to have developed in interest in finance and she sees the results of what hard work and good choices can bring in terms of stuff we do buy.
Allowing them to see behind the curtain of your hustles and side hustles will pay dividends int he future.
Doc G, You are giving your children great advice and a great role model!
Having grown up in a family where this topic was never discussed. We truly had to find our own way. I have found that even when we are not the best financial role model, not only do we have the opportunity to learn from our mistakes; our children do too. To that end, I have an advice list for each of our two daughters of the mistakes that have been made, what was learned and the better choices and options. Also, in our State there is a mandatory personal finance class in High School that teaches the basics about career, income ,insurance, the stock market, banking, budgeting, rent and real world situations. Everyone needs to know this stuff! Thank you New Jersey!
I like the idea of an advice list.
We try to be a good financial role model for our kids. I don’t really buy any toys for myself so they see that material things are not important. We do spend money on trips and vacations but they can see it’s about experiences and prolonged family time. They have bank accounts so they learn about savings. We comparison shop before buying anything for them so they can see how much each toy costs. We borrow books and DVDs in the library to save money. We discuss what being an entrepreneur and an employee is like and the differences between them. They see us go to work and hustle everyday, including many evenings and weekends. Hoping all this rubs off on them.
The library is one of the best teaching tools. i get hours of entertainment a week reading. My kids see that i borrow instead of buy.
I can talk about this from a different perspective because my kids are grown self sufficient adults. We were very frugal parents and they did not live like millionaire kids even though they were. In fact they were shocked when they got to college age and we opened the books for them and they saw that we had way more money than their friends families even though their friends had a lot more stuff. We did put them on budgets and encouraged them to work. They all had jobs outside the home in high school and college and obtained full scholarships for their four year degrees which cost us nothing, even room and board was covered and that was in spite of having millionaire parents. They paid their graduate degrees themselves without our help. While they have all the issues other young adults do with relationships and life they are very stable monetarily and all are investing for retirement. They all chose degrees that were employable. None had any debt on graduation and all had built a nice savings account by the time they got their four year degrees. Right now one is a college educator, one is an engineer and one is an MD. They still see me buying used cars and staying in Hampton Inns for my side gigs even though I could charge my clients for five star hotels. They get that there is an optimum value for most things and it rarely is the least or most expensive choice.
Awesome! I definitely try to be the best role model i can be. I know kids are watching everything we do as parents. I never want my daughter to be spoiled just because her needs are well provided. I think also focusing on those things money can’t buy are so important like you said.
Cheers!
I think we all worry about spoiling, but I think it is unlikely based on our example.
My parents weren’t overt in their financial lessons to me but they definitely lead by example. For many other reasons, I made many poor money mistakes in my young adult life. But in the end, I came back to what they showed me: live within my means, give, have a high savings rate, pay cash for all cars, and pay off my credit cards in full every month.
The best lessons are always by example and not words!