New York Times personal finance columnist and The Opposite of Spoiled” author Ron Lieber touts the benefits of teaching financial decision-making at an early age”
Ron Lieber, personal finance columnist for The New York Times, is trying to change that mindset in his latest book, “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money.”
In it, he touts the benefits of leaving behind the “none of your business” era — the one in which kids wouldn’t dare discuss money with their parents. Instead, he says, by creating an environment in which children are encouraged to ask questions, we can ultimately teach them to navigate financial decision making from an early age.
We spoke with Lieber to get his thoughts on kids and money.
RON LIEBER, AUTHOR,
‘THE OPPOSITE OF SPOILED’
Author and New York Times columnist Ron Lieber encourages parents to set up a regular allowance schedule with their kids. It teachs them an important lesson: Money management involves doing things over and over and having a system.
Q: What inspired you to write this book?
A: The biggest thing was the realization, based on the reporting for my day job, that we’ve come to a place in America where teenagers are now making six-figure decisions about their educations and how much to spend and borrow on those educations. This is insane, but it’s unlikely to change anytime soon. Some of the student loan problems may well be coming from kids — and they really are still kids — making decisions without having made financial decisions of any great size or import before. We parents have no choice but to get them ready for it, and that means taking a decade or so and introducing them into bigger and bigger amounts of money and letting them make some of their own choices about how the family spends it.
Q: Since the book is aimed at parents of kids up to age 16, you don’t get into credit cards too much. But which lessons would you say are related to being a future responsible plastic user?
A: One of the nice things about the three-jar system of allowance — one to save, one to spend and one to give — is that it encourages delayed gratification. It encourages kids to not buy things until they have the money saved for it. When my daughter announced that she no longer liked pink on the walls of her room, we sat down and explained to her that new paint is not a need, it’s a want. We said if you want it that badly, you can save up. She took her save jar and asked for money from family members on the holidays and her birthday. About a year later, she had enough saved to pick out the exact paint she wanted, and to hire the handyman to come paint her walls.
The moral is you’re never in a situation in which you have to go into debt to pay for the things you need. But you want your kids coming to the conclusion that in their early 20s, they ought to be saving for wants like vacations, so even if they charge it, hopefully they’ve got the money saved up in a savings account and they pay it off right away.
Q: Do you think having an allowance system as a kid helps one make better financial choices in general?
A: There is some longitudinal research that does show a correlation between the regular receipt of allowance and better financial habits as an adult.
When starting an allowance, make sure it’s always happening each week on a regular schedule. Have the containers that can hold the money and make sure you’ve got the singles so you can hand it out. Set a calendar alert on Saturday or whichever day you choose so that you remember to do it.
When you think about responsible credit use, it’s doing things on time, meeting a deadline and having a system. This idea that we do regular things with money in order to be responsible with it is the beginning of establishing a pattern where you’re also paying your bills regularly each month and meeting your obligations and doing that in a systemized way.
Q: What would you say to students who graduate with student loan debt, have to begin saving for retirement, pay for their own health insurance, etc. Isn’t it natural for them to feel like they work hard and deserve to have nice things?
A: It’s so hard and completely emotional. It feels like you’ve done everything you were supposed to do. You went to college, got a job, you’re saving for retirement. And so there isn’t a lot left over for fun. You have to remind yourself that the debt later on will not be fun either. Try to focus on the things that social scientists have proven will make us more happy. Experiences over stuff. People over products. Spend time doing awesome things with the people that you care about. Go to free concerts. Train for a half marathon. These are things you can do with other people that feel good, bring joy and don’t cost a lot.
Q: What’s your take on allowing teens to be authorized users on their parent’s credit account?
A: Parents still sometimes will put the child’s name on a credit card just in case of emergencies. But kids tend to define emergencies as, ‘I don’t want to walk home because it’s raining or snowing.’ Or in college, there are keg depletion emergencies. Hopefully, the parent brings the hammer down.
When they’re a little older, I do think it’s important to have a credit card and use it once in a while to boost the FICO score. But student loans are going to be able to start the clock and attach some age and history to their file as well.
Q: You’re a big proponent of being very open about money with your kids. How can you use family spending as a teaching tool?
It feels like you’ve done everything you were supposed to do. You went to college, got a job, you’re saving for retirement. And so there isn’t a lot left over for fun. You have to remind yourself that the debt later on will not be fun either.
A: One family I spoke with for the book does an AmEx scavenger hunt each month. They keep all of their receipts and then the kids reconcile the receipts with the charges on the card. The kids are then allowed to ask questions about anything, like, ‘Does anyone even remember what we ate at PF Chang’s that night? Couldn’t we have put $50 into the Disneyland fund instead?’ You could do a similar exercise to think about what was the “fun per dollar” we managed to extract from a particular purchase. It could make you think twice about making a similar purchase in the future.
The idea is not trying to encourage people to be cheap, but to only spend on the things that are awesome, and to concentrate on ending mindless wallet behavior.
Q: Any tips for parents on teaching their kids about the importance of protecting personal information? And do you do anything personally to protect your accounts?
A: Kids love shredders. You can explain to them that sometimes people take the mail and use it like a puzzle to make it easier to steal money from people, so that’s why we use a shredder.
I don’t think kids need to learn about credit scores until senior year in high school — the point at which they’re contemplating student loans.
For us, we keep credit freezes on all of our credit reports so it’s one less thing to worry about. I don’t want to worry about new account fraud, and freezes are the best tools you can use in that respect.
Q: What’s been your personal experience with credit cards?
A: When I got to college, it was still in the era where you would get a bag from the bookstore and there would be some credit card solicitation in it. And it was before the widespread use of debit cards, so you couldn’t just go to the store and use your ATM card. I got a credit card as a matter of convenience. I never ran it up and kept to a strict budget.
But not long after I graduated, I became obsessed with frequent flier miles. I was in a long-distance bicoastal relationship, and it was the golden age of triple points. I knew that if I channeled as much spending as I could on my card, it could earn even more miles. I’d go out for group dinners and work lunches and put it all on my credit card, and then collect the cash or get reimbursed. I became sort of obsessed with it.
In part, that’s what the credit card companies want, but many times people end up carrying a balance. I never did. I never spent money that I didn’t have or wasn’t getting back. I’m still very aggressive about my pursuit of points. We use the Starwood Preferred Guest American Express card now because it works best for us. We can stay for free at Starwood hotels, and it has a pretty good value per point.
Q: Any credit regrets?
A: There’s a lot of research saying if we were using only debit cards or cash, we’d probably be spending a bit less. It’s possible that it’s true. We’re pretty disciplined, but that does give me pause about our own habits.
Q: Last thoughts on kids and their financial future?
A: Getting allowance right and doing it on a regular schedule is the beginning of instilling in kids this idea that managing money and using money carefully is part of what you learn to do in the course of becoming a grown-up. Then by the time they are grown-ups, they, too, set aside some time and set up some systems so that everything always goes the way that it’s supposed to.