Ron Lieber has spent the past seven years penning some of the smartest consumer stories you can read at The New York Times in his Your Money column. The last time you saw him, perhaps he was (politely) arguing with Suze Orman about her personal-branded prepaid debit card (he won), or asking just the right questions (perhaps too politely) about Tony Robins’ new, amateurish best-selling book on personal finance.
Now, he’s written one of the smartest parenting books you can find, "The Opposite of Spoiled,"by taking on the challenging topic of kids and money. By starting the uncomfortable conversations, Ron reveals what a wonderful teaching tool money can be, a tangible way to instruct such virtues as saving, charity and sensible spending. Full of practical, battle-tested suggestions (Ron has a 6-year-old daughter), you’ll find the book both a fun read and a great reference tool you’ll want to have on the shelf near the piggy bank and the TV remote. As a bonus, you’ll finish the book with new insights in how money affects your family and your own feelings about the future.
Ron is also a friend — the personal finance writer circle is relatively small — so you can take my lavish praise with the appropriate grain of salt.
The book was released this week, and I luckily persuaded Ron to sit long enough for a little talk about money, kids and my favorite topics: fighting off scams and getting a fair deal. Today, I’m publishing the first part of our chat. Look for the rest later this week.
Q. It’s great to teach kids to be thoughtful and generous with money. How do you suggest parents teach them to be careful with it — as in, to be careful about a world full of charlatans, snake-oil sales folks, or used-car sales types who will try to separate them from their money? And how do you teach healthy skepticism without instilling unhealthy cynicism?
Lieber: My favorite way to do this is with something I call the fun ratio. It’s a math lesson and consumer protection tool all rolled into one, and it came from an Ohio family that I interviewed.
The big idea is to try to put it to work before you buy. With toys, the question is how many hours of fun do you think you’ll get out of this? And how many dollars does it cost? You do the division and you get a ratio, which you can then compare to other things. It’s good to do this with toys when you’re about to give them away, too. If the ratio is poor, that’s a good lesson.
As kids get older and can understand credit card statements, it’s interesting to look at those too when it comes to evaluating experiences. Do we remember anything we ate at that restaurant? If not, then the pleasure per dollar must not have been very high. You can treat vacations (and the money you spend on them for excursions or activities) the same way.Kids will also learn a lot just by osmosis. Bring them along to the car dealer for haggling. Let them listen in or read over your shoulder as you attempt to solve a problem with a service company. I don’t want my daughter to enter every transaction with a chip on her shoulder, but I do want her to know how to assert herself during the transaction (or afterward) if she needs to.
Q. As a related question, how do you suggest parents talk to kids about the confusing world of charity scams, or mismanaged charities: The idea that, even if your heart is in the right place, giving money to some folks doesn’t always have the intended effect?
With younger kids, up to age 7 or so, I think we should give something to every homeless person who asks if the kids are nearby. It models compassion. After that, they’re old enough to understand that giving money may not always help and could in fact make things worse. But you can give something. I profiled one family in the book that makes bags of food and other things that homeless people might need or find useful and hands them out when people approach them as their car is stopped at red lights in Oakland, California.
Another family I spoke to adopted a good rule for charities after a few years of giving had gone by. They were frustrated by all of the marketing messages and plush toys that various animal organizations were sending out. So they told their kids that all future donations had to go to charities that helped people. Not only did the parade of stuffed leopards cease, but the kids had to really engage with the idea that there were other humans in need, and not just cute animals.
Q. In a world where “money” is slowly disappearing, increasingly replaced by seemingly invisible payments with mobile phones and such, will it be harder to teach kids about money? Should parents try to use hard currency more often as a teaching tool?
Thankfully, we’re not that close to that day just yet. The tooth fairy still brings green cash money. And I think kids should get their allowance in bills and coins for at least three or four years. It helps them learn to count, and there’s something visceral about watching the money pile up and holding it in your hands.
At the same time, you should try to explain the connection between your debit or credit card and your bank and your paycheck. Most parents don’t even bring a pay stub home anymore and may never go to the bank. The whole thing is so utterly abstract that it took my daughter a few years to really understand how it was all working.
Still, once it’s all clear, I have no problem with allowance apps like Allowance Manager and FamZoo that make it easier to track money virtually. It’s easier on the parents, and the kids can try spending on their own with prepaid debit cards that will keep them out of any real trouble with a bank.
Q. Many young kids view their parents as infallible, like gods. How do parents talk to their kids about money mistakes as they make them … particularly if there’s anger involved? As in, “How could you let the car salesman talk you into that, honey?”
Parental anger can be plenty useful in the right circumstance, but I would urge people not to get into money fights amongst themselves (or with ex-spouses) in front of their children and be wary of the kids overhearing any squabbles. We don’t want them to be scared of money or think that it’s a hard thing to get right; it’s already mysterious enough to them.An honest family assessment of what’s on the credit or debit card statement, however, can lead to conversations about all sorts of mistaken purchases. And as kids get older and begin to confront the six-figure college choice, stories from parents can help a lot there, too. How much paid work can a child expect to be able to do in college, and how much student loan debt is too much? It might be wise to show them a retirement statement, too, especially if yours could have been so much larger if only you’d started saving in your 20s instead of your 30s. An older colleague of mine showed me hers once, and she had started at age 22. It made a big impression on me.
Q. At the other end of the age spectrum — plenty of financial advisers warn parents to prioritize their own retirement over their kids’ college. How do you explain that to a 16 or 17 year old who is applying for pricey schools and might accuse the parents of being selfish?
I’ve always found that advice a little misguided. The standard line is that you can borrow for college but not for retirement. Except that isn’t true; you can borrow for retirement via a reverse mortgage and huge numbers of people are going to have to because they won’t have enough money saved. That’s not a reason to skip saving for retirement, but we shouldn’t base our planning around outright falsehoods.
The best way to illustrate your priorities, however, is through storytelling. Perhaps there is a family member who needed a lot of financial or other support, where more savings would have made a difference. Their children may have had to sacrifice a great deal in money or time to care for that elder. If your goal as parents is to avoid ever being a burden to your children, say so. It may not be satisfactory to kids in the moment when their parents tell them that they can’t cut back on retirement saving entirely or at all to spare the child debt or the need to work a lot during college, but it may well be the right thing to do.