“Working to help parents raise money-smart kids.”
Hello, friends!
I’m excited to share with you my recent conversation with financial industry leader Samantha Paxson.
Just as we did in our popular recent episode with Kelly Mindell and the financial journey she’s on with her 6-year-old, Robin Taub joins me to answer Sam’s questions about raising her 11-year-old son money-smart.
— 1 —
Decoupling Chores and Allowance: Sam asked us about the difficulties she’s encountered tying chores to allowance. I suggested, as I do in The Art of Allowance book, that she decouple chores and allowance. As Robin Taub astutely pointed out, kids ought to do their basic chores not for money, but because we want them to learn to help out around the house.
I explained that chores serve a different purpose than allowance. Allowance is a tool that helps our kids learn to manage money through their own experiences. Chores teach our kids that work is required to earn money. This is a useful, but altogether different, lesson. Our kids can learn this with summer jobs or doing “above and beyond” chores, those you might do yourself or pay someone else to do.
Decoupling includes an important side benefit. When we require kids to do basic chores like making the bed or clearing the table in order to “earn” their allowance and they don’t do them, we use money as punishment. One key goal of allowance is to foster open and ongoing positive money conversations. When we use money punitively, we jeopardize this goal.
— 2 —
The Obstacle Is The Way: Sam’s son thought he was rich when he realized his bank account held $850. Then he listed out his wants, one of which is a Mookie Betts Dodgers jersey (list price of $135). That’s 15% of his “wealth” gone with one purchase. 🤯
In our chat, Sam told us another spending story in which her son, Finn, made an altruistic choice to help his friend buy a gaming gift card he wanted. When Sam later asked him how that purchase made him feel, Finn said he had mixed emotions. While he was happy to help his friend, he wasn’t thrilled a quarter of his current spending money had evaporated.
Both of these short stories underscore the value of personal experiences. And while we can and should guide our kids on their money-smart journeys to help them avoid big mistakes, they are almost certainly going to learn more from their own experiences than they will from our guidance alone. Low-stakes mistakes are part of the process.
So, while it’s tough for us as parents to see our kids flounder, it’s important for us to recognize that often the obstacle is the way. While our first instinct might be to shield our kids from the discomfort of making an uncomfortable choice, it’s only by experiencing the discomfort that our kids will become empowered to use money more productively.
— 3 —
Investing vs. Gambling: Kids are becoming interested in investing earlier and earlier. This can be a tremendous opportunity. While Sam is an experienced pro in the world of finance, she was shocked when her son initiated the investment conversation. Finn’s friend had been very lucky (and apparently very vocal) about a short-term investing win. This inspired Finn to want the same opportunity.
It’s not easy to get across to our kids that short-term investing is largely gambling. On the other hand, long-term investing (and the power of so-called “boring” investing) doesn’t create that buzz in tween or teen brains like the potential for a quick hit.
For an excited burgeoning Buffett, we can introduce them to what we’ve called the “Grow” jar, or what Robin calls the “Invest” pillar. We might take a page from the Intelligent Investor Jason Zweig and set up a “mad money account” to limit their short-term investing to 10% or so of their investing dollars. We might then make a rule that the majority of their investing is made into more stable and long-term-oriented investments like an index fund. The “mad money” account allows you to capitalize on their excitement (which is great), and help them learn from their experiences (win or lose), but limit the potential damage.
I hope you take the time to listen to my full conversation with Robin and Sam on a morning walk or on your next commute. I’m confident you’ll walk away with useful knowledge that will make your family’s money-smart journey that much easier.
Until next time, make sure to enjoy the journey!
John, Chief Mammal
P.S. Please consult with a financial or investment professional before engaging in any decisions that might affect your own financial well-being.
Like what you just read? You can sign up for the newsletter here.