Four Rules of Financial Literacy That Every Dad Should Teach His Kids

Some of us treat money just like sex. We want it, we need it, and we’ll make a ton of mistakes trying to get it. 

The problem started when we were kids. We saw our parents work and pay bills, but no one talked to us about specifics, so we grew up figuring that money just sort of happens. We owe it to our kids to give them better financial guidance.

The key is to transform money from a concept into an actual thing, one that can be controlled by deliberate, sober choices, but also something that you’re going to screw up repeatedly. It’s like teaching them to ride a bike again, but this time with money (and a few less shin scabs).

“You gotta watch them fall on their face and do it in a safe way,” says Joe Duran, head of Personal Financial Management at Goldman Sachs.

The following four rules can help give you direction. 

Remove the mystery.

When a restaurant bill comes and your kids ask, “How much was it?,” tell them everything. “Your meal was $X. Mom’s was $X. The tip was $X.” Use terms they can understand. Older kids will get the exact amount; for younger ones, it might be, “The whole meal was worth seven Dragon Ball Super Packs!”

Do that with everything — their sneakers, coats, school supplies, games — to strip away the wonder and get them to start asking questions like, “What does my life cost me? What does life cost my parents?”

Give them money.

If they don’t have skin in the game, their attitude is, “Oh well,” when something breaks or gets lost. And if you replace something? They have no reason to be more responsible the next time. 

“We rob kids of their own power by handing them things rather than having them reach for things,” says Marilyn Wechter, a St. Louis psychotherapist and financial therapist. 

She suggested not having an allowance be their payment for chores. Otherwise it becomes an endless debate over “sufficiently done,” says Wechter, and it can devolve “into a pissing battle.” 

Instead, figure out an amount that covers their weekly expenses, such as ice cream, movies, hanging out with friends. That amount doesn’t deviate — they have a budget and they have to stick to it. Whatever they don’t spend, they can hold on to for the next week. 

It gets them to view money and the stuff that it buys as theirs, says Duran. “It’s an owner’s mindset over a renter’s mindset.” If they want something extra like lunch at school or cool sneakers, it’s on them. They’ll have to figure out — with your counsel — how to get there. 

That’s what builds two blue-chip skills: prioritizing and delaying gratification. And if they’re short, that’s where chores can come in. You set the price and you get a clean garage, Wechter says. 

Let them discover the benefits of saving first-hand.

Have monthly meetings with you kids to discuss their finances and help them see what’s coming in and what’s going out — that is, the balance sheet. This is the time to ask about the things they’re looking to buy and the trade-offs they’re willing to make to get there, Duran says.

Some kids will naturally over-save, but with others, since their long-term brains aren’t fully formed, you want them to realize there’s more beyond the right now, and it’s good to sock a little away for the unexpected. 

These are ideas that you’ll never be able to impart on them with lectures, or even real world examples from your own life. Intellectually, it’ll make sense to them that you could only afford that emergency car repair because you didn’t spend the cash on other things you wanted. But unless it’s something that they want, or that they’ve denied themselves to save for some future expense, it won’t truly sink in.

They need to feel risk.

Put a small portion of their money into a savings account and an equivalent amount in S&P 500 stocks. It’s just enough for them to see the difference between safety and risk. “It’s a trade-off they’ll be balancing their whole life,” Duran says. They’ll deal with decisions that don’t always work and learn their tolerance by experiencing how gaining and losing money feels. 

“No words you say will have the impact of watching their money go up and down,” he says.