Tommy: Talking to your childredn about money can be a difficult decision fo r paremys. How young is too youmjh? What is the best way to go aout doing it, doing it too early can be a waste of time, doing it too late you could leaveyour kids unprepare for the real world. Thankfully Lama Farran a personal finance coach, is here to help explain how and when to start talkinf to kids anout money. We were talking earlier this morning, two very different kinds of stories. We have one guy, who watched his parents and didn’t want to do what they did, managed to save a lot of money, $32 000, by the time he was twety six, and another story kids in their 20s totally lost spendin way more than they have, obviously their parents tagught them nothing. So, Lama right off the top, whenit comes to kids, how young is too young to start edcuuatiing your kids about momey.
Lama: I think around the age of five or six is a good time, because this is when they know their numbers, I mean money at the end of the day is very simple artithmetic. They know pluses, they know minuses, they know their numbers, so I say five years old is a very good time to start.
Tommy: Okay, so five or six. What would you teach a five year old or a six year old.
Lama: Well, my son is six years old and he’s had a wallet since last year actually. And the way he earms money, first of all money isn’t free. You don’t get money by sitting on your bum all day, that doesnt work. So, he does things to earn the money. And,
Tommy: GIve me an example of what you do.
Lama: Okay, so he basically he has a list of ten rules, or ten behaviours and whenever he does one of them he get’s a check mark. And every twenty check marks it’s five dollars. So depending on how good he is, he can get ihs five dollars really fast, and if it’s not a good week, well it can take him a few week sto get his five dollars.
Tommy: Okay, so what are some of these check marks, for a five year old?
Lama: Uh, getting in bed by 8:15, now that school is back, pratcicing piano, clenaing up his room, sharing with his sister, I can’t rememebr.
Tommy: That’s good, but what’shis attitude like. Tell me, describe it, when he’s doing these thing, how does it feel when he gets to make a check mark?
Lama: He loves, because the check mark, I have the rules and I have little pictures next to them so he knows what they are because he can’t read yet, and he gets really excited to put his check mark. And by the way, there’s one where he gets a minus, this is when he has a little tantrum. So I say stp this or we are going to have a minus checkmark.
Tommy: And does that work?
Lama: Yeah, it really works.
Tommy: Because he’s worked hard at building it up, he doesn’t wabt cto lose it. Wow.
Lama: And he gets bonuses, and his bonuses are really for the birthdats, the holidays, when the tooth fairy passes by, bonuses. And, uh sometimes you know, old toys he doesn’t want anymore that he’s ready to get rid of, we can put them on Kijiji, and whatever money we get from that it’s his tro spend on another new toy. Right, so we sell old toys and we buy new toys.
Tommy: How much money has he saved?
Lama: He has about $200 in his wallett right now.
Tommy: Youre kidding me
Lama: He has more money in his wallet than I do, because I don’t carry cash around with me.
Tommy: Seiroyusly, all from this point system.
Lama: Yeah, and a lot of garage sales also. He did a garage sale with a lot of toys so that was a big chunk of it. The tooth fairy is passing by a lot these dyas. He lost six or sevens tooths.
Tommy: Wow, what a great story. Thats very intriguing. If he learns it this early, so he has a sense of what it is to make money, what it is to lose money, and he enjoys the fact taht he has tihs amoiund.
Lama: Oh of course, and sometimes he forgets his wallet on purpose, or I don’t know if it’s on purpose when he goes to Toys R Us, and he has to reimburse me afterwards. So, Ill say okay I’m going to lend you th emoney while were at Toys R Us, and yoll have to pay me afterwayfrs. The other thing is not about spending and saving –
Tommy: Okay, tell me about, this is iintruguing, like a kid that young, five or six years old, when he’s at Toys R Us, how does he react when he has to take it out of his money. Like he sees a toy that he really likes and it’s exspensive.
Lama: Well, you really have to, I do othe rthings then just sowing up in Toys R Us. Tere is one ritual which is a daily ritual, which is a gratitude rital, and we go over the things that we are thankful for already and I always mention the toys. So really they are at a point wher ethey go to Toys R Us, and they are like I want this and I want everything, becaise I always reind them of everything that they really have. So, he doesn’t go crazy in Toys R Us, so that’s a good thing. And the othe rthing is he also has to share some ofthe oney. Fo rexample whenever thereis fundrasing in the school, he ha sto givce some. If were passing by and there is a homeless guy, he can pull out his wallet and give a couple of dollars, so there’s always the sharing part, not just the speoimdg part.
Tommy: Have you gotten the parents of the year award yet?
Lama: No, I’m good with money. Im not saying I’m perfect parent wth everything else.
Tommy: This texter is syaing, as soon as they know their numbers, I’m a Brownie leades, Girl Guides, age 7 to 9, and every year we do an activity where they get an allowance and have to buy or save toys, fruits and vegetables. This texter says, who will educate them? There are parents that are in debt. But even debted parents can do what youre doing. This point, I love this point system, when I was thinking of this, well you pronanbly give them mobey for everything tha they do, you dont, it takes quite a while fr them to get that 5 bucks.
Lama: Yeah, its twenty checkmarks. It’s a lot of good bheaviors that have to be repeated day after day. Th ething with the allowances you could give it to them right, but it’s a salry at the the endo fth eday, you get that much per week. But you still ahve to expect them to do something at home, not just get it.
Tommy: This texter says, basically getting paid to bhevae properly. What’s that teaching him? I think what that’s teahcing him is that when you grow up you have to behave properly in order to get paiud.
Lama: Okay, again I’m not a prenting expert, some parenting experts out there might say oh this is so wrong, for me as a money coach this is what is working. I don’t always reward him with money beacuse there are other behaviours that are not on the list that I still expect him to do, right. Being polits, saying opkease and thank you ar enot on th elist but they still have to be there.
Tommy: So what other tools can you give parent sto help them educate kids about money.
Lama: Well first of all that’s a thing, give them etheir money, give them something to simulat ethe out side word. And then um, by the way, for the allowance I know i get a lot of questions how uch is enough, usually the rule of thumb is $1 per year of age. So lets say, a 10 year old will get $10 a week, a 12 year old will get $12 a week. But then you ave to tell them what to do with that money, there are 3 things they could do with it, it’s what I call the 3 S’s, spend, save and share. So we talk to them a little bit about the spending, and youu have to tell them wat you expect them to cover with that money, is it just their toys, is it their movies, is it thei rlunches at school. You have to tell them what you expect them to cover with it. The savings part, lets say the 10 year old who gets $10, you tell them that $2 has to go to their saving, but their ha st obe a goal asociated with that savings, otherwise the kid is not goikng to see the point of savinhng. Why am I putting it aside? Well, maybe you want an iPod and the iPod is a coiuple hundred dollars, so your egoing to have to wait a ltllte bit more. So that’ll teach them tha ttehy can’t get it right away.
Tommy: That’s a great lesson for somebody in their twenties or thirties.
Lama: All the lesosns aregood for adults as well.
Tommy: I know, but what I”m saying that the earliewr that you learn it, eevrybody is going to learn that lesson, it could be when their five or six or fifty or sixty, but everyone is going to learn it eventuallt. But unfrotuanetly, sometimes when they learn it’s too late. Do you think there are risks in waiting until your child is a teenager until you start talking to them about money?
Lama: Definitely. Beacuse the um, you know one of the first questons when I ask people when I meet a new client, how wa smoney handled in your household as a kid. When youre five or six years old, they areobserving eveything that youre doing. You think they don’t know what theyre talking about, but this is how they aregoing to deal with money later on in their life. And there’s um a certificate that I just completed, and it’s al about the phchology of money, I go back to gour years old, what do you remember when you were four when it comes to money, so this i sreally wher eit starts.
Tommy: Your wqurestions for our guest, personal money coach Lama Farran. She says, she is not a child care expert, I disagree compeletely, I thikn she is a child care expert. Thi stexter is saying the same thing, you should have this smart woman on your show more often. What a brilliant little system, twenty little points for $5 for a five year old. My guest Lama Farran, a perosnal finalnce coach, check out her website maxworth,ca. Uh, how does, you have a you mentioned the, your son has a younger sister, how old is she?
Lama: She’s four years old, I’mon it for her to learn the number, and when she knows from one to ten then we can start with the money.
Tommy: Does she watch her brother with his pints? How does she fele about it?
Lama: Definitely, she’s always like I want poiunt too, I wenbt to bed early. So we put te check marks, but right now there’s no money.
Tommy: She has to learn how to count to ten first. Okay, now what about the, you mentioned the allowance and the averag eallowans, what do you do when th echild asks for more allowance.
Lama: Well then you can ask them what are they going to do with that money. They can ask for more, but are they going to cover more of their exspenses? Are they going to cove rtheir liunches at school? Or is just for the toys? If they want more sure, but they have ti pay formore.
Tommy: What about when weget to high school and univerity, tennagers, what advice would you ave for them and heir parents?
Lama: Parents, yu think they are doing your kids a favor if tey are at home and youre giving them money and all that, youre really not doing them a favor, they need to be independent early on. Like for myself, I started owkring when I was 16, I don’t think I’ve asked my parents for money after that. It was all loadns, and bursaries, and working in the summer and doin it by yourself. Not because I was forced to, nobody asked me to, but I did it because I though you know, I’m okd ebogh to do this. So the youjger the better.
Tommy: You said you asked your clients, what was monmey lke when they were growing up, what was money like when you were growing up when you were youner?
Lama: I have a very good relationship with moey, it’s what I call a healthy relationshp. I don’t useiit, i t’s there, it doesn’t mean that I have the money I go crazy shopping. Fo rme I have my goals, I have the bigger picture, I ave my needs and wants very seerate. Maybe I’m not a very good exaple,but I’m a cery minimilist person and I’m going to more towards that. When I walk into a mall, all I see is junk junk junk. Like this is what it means to me. So, Ive said, at one of mny workshops when I walk into Homsense, people see home decorations, I see a garage sale. I know myself, this is how I look at it.
Tommy: But dn’t you see some pieces that you would love to have?
Lama: No, I see things tha tI need to undust and make place for.
Tommy: So what does you rhouse look like? What does your living room and dining room look like?
Lama: Its very empty and I try to empty it eeven more.
Tommy: You want to declutter.
Lama: Yes, I’m always in the proecess of devlutering. Especially with kids, it’snot easy, but even with thta.
Tommy: Do you do it for financial reasons, ordo you just feel its better?
Lama: No no, I just feel enery flows better is theres less stuff around. It’s really not financial reason, you do’nt make money from a gara esale. It sjust for me, I feel better if there is less things aournd. Actually there is a website that I really like, it’s called Becoming Minimalist, and I saw an article there the other day why less toys for the kids is actually a very goo dthing. He was saying they become more creative beascue they have to play with whatever they have and they use their imagination better, they have, they develop longer attetions spans because they are not jjumping from one toy to another, you know the kids who are overwhlemed with toys, they are like okay I’m done with this in two minutes and thyen they jump to the other one. And they get to play out side more. So really less toys for the kids is better on all aspects.
Tommy: She sees herself as a personal finance coach, which she is, but she’s also a child care expert, briliant tips and also a decorating expert, Lama Farran my guest, her website maxworth.ca. If you have any quetsions, comments, hoin the duscusion at 514-800, youre listening to the Tommy Schnurmacher show on CJAD. My guest, personal finance coach, Lama Farran, her website maxworth.ca. What about kids, can they tell the difference between cash and credit card? Do they think the ATM machine grows money? How do you deal with that?
Lama: Yeah, I know from my son, he always sees me when we go grocery shopping or whatever, I pulkl out my credit card, he’s like hwat’ sthis. He doesn’t associate it with cash. I rea;y feel kids these days have a disconnect, and I had to explain to him that at the end of the month they are going to add up all of the time I brought up this card, and they aregoing to giv e me on e sum and I have to pay it. And what happens if I don’t pay it, well I told him,lets say the sumn of everything I bought was $100, and if I don’t pay it on time I will have to pay $120, what do you thin is better? Paying $100 or $120, well $100. So he undertood the concept of inetrerst in a sense. The other thing is when I say oh no this is too exspensive, he says, well go to the ATM machine. He thinks it’;s a machine in the street that just spits out money.
Tommy: It isn’t? There are a lot of adults that feel the same way he does.
Lama: You know you just pytr your card, punch numbers and moneys out. I told him no, the machine doesnt just spit out money. You have to work, when you work the work puts money in the bank and then you can go get it. It’s not just money that’s there, that’s infinite.
Tommy: What was his reacytion when he found out that it wasn’t a money tree?
Lama: Yeah, it was very disapointing. You mean I can’t just withdar from this thing?
Tommy: No ou occasionally have to diposit. A lot of people are unaware of that. This texter is syaing, I wish I had all the monmey that I spent on stuff that I thought was important to have in my twenties and thirties. I could be retired already. Poeple are uware of what they spend.
Lama: That’s why I think the number one tool for getting things on track is tracking. Start tracking. Try for a month and your egoing to be so surpsied on where youre money is going.
Tommy: When people do, when yu advise people and they start tracking, what do they discover, what do they find?
Lama: Well lunch is a big one, I had a coiple of clients where lottery was another surprise, they didn’t realize how mnay $2, or $3 or $5 they spent in a week. It’s also, mostly the eating out that,
Tommy: So in a course of ayear they spent $400 a year on lottery tickets, they would have won $400 by not spending.
Lama: Exaclt, thats $400 that can go to the interets on your credit card.
Tommy: Right and they didn’t thin of that. Well I guessthats always why youregoing to have clients, beause people keep making that mistake.
Lama: Oh yeah, I’m busy.
Tommy: Lama Farran, a very smart lady, personal finacne coach. Gfreat advice about what to do with kids as well. Check out her website.