Dave Says – Let kids make mistakes

Need some financial advice? Debt and income crisis? Pay off the house mortgage first? Check cashing? Taxes? Credit Cards? Check out what folks are asking Dave Ramsey.

Let kids make mistakes (and learn from them)

Dear Dave,
We just started teaching our seven-year-old about money. He’s very eager to learn, and he seems to be grasping the basic ideas quickly. He’s young, though, and of course he makes mistakes from time to time. Should we step in and fix things when a mistake he made means he can’t do something he wanted to do?
Ethan

 

Dear Ethan,
It’s always hard on parents when they see their children suffer because of a choice the child made. But sometimes it’s best to love them so much that you’ll let them make mistakes, and make sure they learn from them, while they’re still under your protection. Reality can be a great teacher when it comes to learning how the world works, and sometimes one sting from a bad decision when you’re young is all it takes to teach a kid a lesson that will last a lifetime.

As a parent, you’re always looking for teachable moments. First, make sure you’re giving him a chance to earn some money. That means work, no allowances. We’re talking about kid-sized, age-appropriate tasks. There’s a ton of value and self-esteem that go hand-in-hand with being paid for a job well done. Once you pay him for the work he does, then you have chances for more teachable moments about saving, spending, and giving—and the importance of each.

If I were you, I wouldn’t run in and fix things. By this, I mean I wouldn’t just hand him money he didn’t earn so he can still get or do what he had in mind. But don’t fuss at him or brush it off, either. Gently explain why things didn’t work out the way he hoped. Then, talk through what he might have done differently to help make the situation better next time.

Kids are smarter and often have more understanding and comprehension skills than we give them credit for. My guess, Ethan, is you won’t need to have this kind of conversation more than once or twice!
—Dave

 

READ: Dave Says – Try to help him, but move slowly

 

Do some of all three, and enjoy the ride

Dear Dave,
I was talking to a friend the other day, and I couldn’t remember what you said about the three good uses for money and why each is important. Would you go over them again?
Albert

 

Dear Albert,
I’ve been doing this for a lot of years, and after all that time studying finance and teaching people about money, I can still find only three good uses for money—spending, saving, and giving. You should be doing all three while you’re working your way out of debt and towards wealth, and after you become wealthy.

The kid in us likes the spending part of this equation, because it’s so much fun. The problem with most people is they can’t really afford the fun they have. You should have some fun no matter where you are on the financial scale, but it should be inexpensive fun in the beginning. Then, the fun can get bigger, better, and more frequent once you’re out of debt and building wealth.

The grown-up part of us likes investing and saving, because that’s what can prepare you for retirement and make you wealthy. After a while, though, investing can feel a little bit like Monopoly. You can be up, or you can be down. Sometimes the market fluctuates, but a mature investor will ride out the waves and stay in for the long-term. If you have quality investments with long track records of success, they will come back up. Start investing 15% of your income for retirement once you’ve paid off all debt except for your home and you have three to six months of expenses saved for an emergency fund.

The most mature part of you will meet the kid inside when you give. Giving is the most fun you’ll ever have with money. Every financially, mentally, and spiritually healthy person I’ve ever met has been turned on by giving. I’ve met and talked with thousands of millionaires in my career, and one thing all the healthy ones have in common is a love of giving.

Someone who never has fun with money misses the point. Someone who never saves or invests money will never have any. And someone who never gives is holding on too tight. Do some of each, and enjoy the ride!
—Dave