Why Summer Is A Good Time To Talk Cash With Kids
MICHEL MARTIN, HOST:
We're switching gears now. Back here in the U.S., most young people and their parents are settling into summer routines. For younger children, that means summer school or visits to grandparents or camp. But for many teens, that can mean a first job and a first paycheck. And for many parents, that can mean a great opportunity to impart some lessons about financial management and financial discipline.
In a minute, we'll check in with some of our regulars and our parenting roundtable to hear about how they've been doing this or how they wish they were. But first, we want to speak to our money coach Alvin Hall. He's written a number of books about financial literacy, including one for kids. Alvin Hall, welcome back. Thank you so much for joining us.
ALVIN HALL: Glad to be here.
MARTIN: So I'm thinking about my first summer job - I thought I was rich. And I thought that money was mine, mine, mine, and I was not terribly interested in anybody else's opinion about how I should spend it. So first - the first question I wanted to have for you, or allocate it I should say, is there kind of a first conversation you think parents should be having with their teens before they start that job?
HALL: Yes. They should be having a conversation about the importance of saving money. You can spend part of what you own, but you need to also save part of the money you earn so that you can build something toward the future.
Most parents think that kids are fairly naive about money or learning the lessons early on, but in reality, kids have been observing the parents' actions all along. And talking about savings and making it a priority is very important.
MARTIN: You know, there are people who have the argument that letting your kid make the wrong choices about money or just kind of figure it out for themselves, particularly with that summer paycheck, is really the best way to let them figure it out for themselves because if they, say, blow it all on sneakers in the first week and then have to borrow money for the bus, then that's a powerful lesson. What do you say to that?
HALL: I say that is a powerful lesson, and they're going to make that mistake whether you are on message or not. So you can say, save, save, save, but they may choose not to. If they fail, let them fail. But do not try to pick up the pieces for them because they will gain the wisdom that failure. But it's important, Michel, for the parents to be consistent in the message that they give the child.
MARTIN: Well, what do you mean by that? Like, tell me a little bit more about that.
HALL: So although the child may not be saving, you need to say, why aren't you saving? You know, this is important. You can spend part of your money, you can save part of your money. What are you using the money to - what are you spending your money on? Have you set priorities?
I think it's important for parents to ask simple straightforward questions. The child may not have the types of answers that the parents want, but it will at least start them to think about these things.
MARTIN: Well, you know, I have to tell you that - and I'm sure you know this - that a lot of people will just find this very conversation ridiculous, you know...
HALL: I know.
MARTIN: ...Because in a lot of cultures it's just assumed that a child is going to turn that paycheck over to the parents.
HALL: Oh, I know.
MARTIN: Right, that's just an assumption. So even if you are not part of that kind of mindset, do you think that parents should enforce savings? I mean, should you start out by saying, you know, we're opening this account, if you don't have an account already, and this much is going into the savings or whatever, you know, half or something like that, or whatever you deem appropriate, or set a specific sort of savings goal. I mean, do you advise parents just to make it a rule?
HALL: Yes. I do advise parents to make it a rule, but don't be surprised if your child decides to rebel in some way, in some small way, to show their independence. But I do think it's a rule. But I was raised where I had to contribute to the household. When I got my first job, my mother made it imperative that I had to give her part of my money, and I did not like that at all.
But from that, I learned a very, very important lesson that became useful to me many years later. And that was about how to allocate my money. My mother and I, we would often just sit there and I would steam when I would have to give her my money that I had worked so hard for. But in the long term, it did prove to be a very, very good lesson about how to allocate my money toward necessities and then use the rest of it to get some of the things that I wanted.
MARTIN: If you're just joining us, I'm speaking with our money coach, Alvin Hall who writes about and teaches about personal finance. He's written a number of books about financial literacy, including one for kids. We're talking about summer jobs and teens, and whether teens can learn lessons about financial management from that first summer job and that first paycheck. And I'm glad you've raised this question, though, because it is important to point out that a lot of teens work summer jobs, not because they necessarily want to, but because they have to or they feel that they have to, and it really is expected that they should contribute to the family economy, you know, overall.
I'm wondering if you have some opinion about how much of that should go into kind of the family pot. I mean, 'cause some kids really - literally do turn over the entire paycheck. I mean, do you think that that's OK, or do you think that kids should - this is kind of a lesson for parents now - do you think that you should allow the child to have some of that money for himself or herself?
HALL: I think it's fair to allow the child to have some of that money for themselves. After all, they're going out, they're doing the work, they should have some of the reward from that. My mother would've argued, your reward is living in my house, and I understood that. But over time, we negotiated it so I did get to keep some of the money. And I think that's fairer to the child.
MARTIN: How much?
HALL: And also...
MARTIN: How much? Do you have a rule of thumb about that?
HALL: ...I think you negotiate that. No. I think you negotiate that depending upon the family's needs in the end, and how much you think the child will need day-to-day. So letting the child keep a quarter of that money or half of that money seems to be within the realm of reason. Anything less than a quarter or 20 percent seems almost churlish and unfair to the child who's actually going out and doing the hard work.
MARTIN: What about the other side of that question which is, families who are affluent, who don't need the child to contribute to his or her basic support. Do you have some thoughts about how that should be handled? I mean, I know a lot of kids, for example, you know, my working assumption is a lot of kids, what they want that summer job for - I mean, some kids look, it's clear, you are saving for college.
MARTIN: You might not be saving for food and shelter, but you're definitely saving for college.
MARTIN: But for kids for whom it's maybe not as pressing a concern, do you have an opinion about how that money should be spent or what kinds of conversations those families should be having about that money?
HALL: I do have an opinion about this because I have several friends who have children who are in exactly this situation. The parents are very well to do, they work on Wall Street, they own companies, so the child saving for college is not an issue. What they mostly talk about it is, what are your priorities? What do you want to buy with this money? What goals do you have with this money? And they sit down with the children and they talk about what things are important to you to buy with this money.
If they want to use it to go to concerts, that's fine. If they want it to use it to take a trip with friends or a field trip, that's fine. But they have the children set some goals, both short-term for the summer and perhaps some longer-term goals, so they have a little money sitting there for opportunities that come up during the school year that the child may want but the parents may not want to pay for.
MARTIN: I think one of the reasons, though, some middle-class kids get a job is so that they can get veto-proof stuff for themselves.
MARTIN: Which is a term that our editor Alicia Montgomery uses.
MARTIN: I have a feeling that she's talking about somebody she knows very well, like herself. And things that perhaps her parents might not approve of, like particular clothing, a particular piece of electronics or something like that. I'm just wondering, do you have an opinion about that?
HALL: I think the money that the child keeps for himself or herself, you cannot really control what they spend. You can put some limits on it, but it is their money. And one of the big lessons that I've took away from a lady who worked for me many years ago, her name was Virginia White, she said that when you're young, you spend money getting to know who you are and what your tastes are.
So your child doing that is part of the growth experience. You can't shape them completely as a parent, some things they have to learn on their own. And buying that tube top or those trainers, that you may hate, is part of that learning process.
MARTIN: Well, I think some people's learning process might be that those people who wear saggers don't live in my house. I mean, I think that that could be part of the training process that some people have.
HALL: Yes. And when people put those limitations the child, you know, can rebel and try it and the parents can't stop them. In my parents' house, you were not permitted to wear jeans. It was just unacceptable to wear blue jeans at my parents' house. And when I bought my first pair, I actually hid them from them, so they didn't have to know. And I wore them outside, but I wouldn't violate the rules.
So I think that's part of getting to know your taste. There has to be give and take on both sides. Just because the child is earning the money as an - teenage years, where there's going to be some rebellion there, they must remember that they are living in their parent's households and their parents do set the rules.
MARTIN: I do have to ask you though, about people who might be listening to our conversation and might be saying, you know what, I'm not that good with money either. And...
MARTIN: ...You know, and as you said, you know, your parents are teaching even when they don't think they're teaching...
MARTIN: ...And they're setting an example even when they might not think that they are. What if you have a scenario where you know that you're not terribly good with money and the child knows that you're not terribly good with money and then, you know - obviously relationships are involved here and how you talk to each other are involved here - but how do you deal with a kid who says, look, I might have better ideas about spending money and saving than you do. I'm reading Money Magazine and you're not.
HALL: Michel, when you mention this, I had this completely autobiographical flashback to my childhood. My mother once inherited some money and within six to eight weeks the money was gone. I still remember my grandmother looking at my mother and just shaking her head that my mother had spent all this money. My money - my mother was very bad at handling money.
And sometimes it's best for you, the child, to look at another relative. So I looked at my grandmother, I looked at an uncle, and I looked at a family friend who was a better person at managing money. And sometimes I would actually talk to my grandmother about - why do you think my mamma is so bad with money?
And my mother would say - my grandmother would say - she doesn't like to think about it, and - but you need to learn to think about money. So it was from those simple lessons, by looking at family friends and other people in your community, that you can learn good takeaways.
MARTIN: And finally, though, you know, it used to be that saving was straightforward. You know...
MARTIN: ...You'd put your money into the bank, you'd get a passbook, you watch your money grow, or you look at it on a computer. Interest rates are not high now.
MARTIN: So what do you say to a child who is relatively sophisticated, right, who is reading the magazines or the, you know, financial pages and says, well, that's a loser, you know, I'd be better off putting my money into Nikes and, you know, getting a secondary market on those. What do you say?
HALL: If there is a sophisticated secondary market for certain types of Nikes. I'd say to a kid like that, you need to have a safety cushion. You need to think about what money you're going to need in the middle of the school year, later on in the year, when something could happen to you.
Buy what you want to now, but please put some away so that you can have that little safety cushion because maybe there'll be a period when I may not have that money and you may need it badly and you can do this for yourself. It'll be maybe your first act of real independence.
MARTIN: OK, what's the dumbest thing you ever bought with your summer money?
HALL: Oh, I can still...
MARTIN: Fess up.
HALL: ...In August, we used to have to go shopping and I really wanted a jean jacket. I wanted it so badly. And I bought this jean jacket, and my mother looked at me as if I had lost my mind. I have never forgotten it.
MARTIN: You did.
HALL: And she did not say, don't wear it. But every time I put that jean jacket on, her look would just level. And eventually I just stopped wearing it.
MARTIN: I don't blame you. Alvin Hall writes about and teaches about personal finance. He was with us from NPR studios in New York. Great speaking with you Alvin. Thank you.
HALL: Great talking with you.