In this episode of ThimbleberryU, we continue our conversation about teaching kids financial responsibility, focusing on debt, budgeting, generosity, and investing. Jag and Amy Walls provide practical strategies for helping children understand money in an age-appropriate way.
We start by tackling the sensitive topic of debt. Amy shows us her “suitcase” analogy to explain tailoring financial discussions to a child’s age and capacity. Younger children benefit from relatable examples like borrowing toys or Halloween candy trades to grasp the basics of borrowing and repayment. For older kids, it’s about introducing concepts like credit cards, interest, and student loans while sharing real-life stories to provide context.
Next, we cover budgeting, where Amy suggests turning it into a game. She shares how activities like shopping for a food drive or handling a pretend shopping trip can teach kids about choices and trade-offs. By guiding children through small financial goals and allowing them to make mistakes in a controlled way, they learn the value of planning and accountability.
Amy also emphasizes the importance of generosity. She explains how encouraging kids to give, whether through charitable donations or thoughtful gift-giving, can foster a sense of responsibility and connection. She suggests matching their contributions to amplify the impact and reinforce positive habits.
When it comes to investing, Amy recommends starting with simple concepts. For example, using well-known companies like Disney or Apple can make stocks relatable. Analogies, like planting a tree to illustrate the slow growth of investments, help demystify the process. However, she stresses the importance of having a solid cash reserve before diving into investing.
Jg and Amy reflect on how money conversations were often avoided in previous generations. By fostering open discussions and age-appropriate financial lessons, parents can better prepare their children for a healthy financial future.
Jon Gay (00:08):
Welcome back to ThimbleberryU, I'm Jon Jag Gay. Amy Walls from Thimbleberry Financial joins me as always. Hey, Amy.
Amy Walls (00:13):
Hey, Jag. It's good to talk to you.
Jon Gay (00:15):
Yeah, and we're going to pick up where we left off in our last episode. We were talking about kids and money and the different things to talk to them, different subjects about money. We covered everything from allowances, savings, and more.
Today, we're going to pick up and talk about debt, which can be a tough subject with kids. How do parents talk about debt and credit without making it too overwhelming for the younger ones?
Amy Walls (00:35):
It's a big question, and it definitely can be heavy, but I don't think it has to be scary. There are a few ways that we can break this down.
One of the things we talk about with our kids is suitcases, and I'm going to step away from debt and finances, but what's the right size suitcase? Our 8-year-old gets a smaller suitcase when we travel than the 16-year-old, than us as adults. So, we talk to them about the amount of information we're going to share also needs to be suitcase appropriate.
Jon Gay (01:08):
Okay, I like that.
Amy Walls (01:09):
So, I think here, that suitcase analogy can work. Do you scare an 8-year-old with mortgages and student loans and credit card debt, and, “Oh my gosh, your life will be ruined if you have debt?” Probably not. The reality of all of those concepts belongs to an adult.
Jon Gay (01:33):
Agreed.
Amy Walls (01:34):
My 16-year-old is starting to understand (because they're looking at colleges) student loans and thinking about the impact of that, and thinking about, “Oh, if I take out credit cards in college, what does this mean, and what does that mean for my long-term future?” My 8-year-old doesn't need to be aware of that, so we want to make it right sized.
So, one way to do that is use some simple comparisons, things that they're comfortable with. Maybe it's borrowing a toy from a friend. You borrow a toy, you can borrow money from someone, but you have to give it back eventually. And there's a cost associated with having borrowed it.
Maybe it's like Halloween candy. In trading, I know that we have a set Halloween practice or date with some friends, and there are certain candy my son can't eat for his teeth, but he trades with a friend. But guess what? He gets less back when he trades the things he doesn't like or that he can't have, I should say, because she knows he can't have them. So, why is she going to give him as much good stuff?
Jon Gay (02:45):
She's been paying attention, okay.
Amy Walls (02:47):
Yeah. So, it's understanding what you're giving and getting there. So, for older kids, understanding that credit cards are short-term loans, talking to them about paying off a balance each month means you don't have to pay extra interest.
I know sometimes with my kids, we've been out and about, and they don't have their money with them. This has especially happened with my older one on trips when they were younger.
Jon Gay (03:13):
We talked about that previously, yeah.
Amy Walls (03:13):
Bring your money, bring your money. And, “Okay, I want this stuffed animal.” “Alright, do you have the money at home?” “Yes.” “We'll buy it, and we'll remind you once when we get home, after that, this is going to cost you a dollar a day for every day you forget, and we'll just silently keep track.”
It makes it real for them. And then I think you can also share some real-life stories of what good and bad debt looks like. Of course, we all prefer to never have any debt, but they need to understand that there's a range. There is gray area here, and so what's the reality? A mortgage is different than a credit card. That way they just have a point of reference to be able to make decisions and have context.
Jon Gay (04:00):
That makes a lot of sense. And I love what you said too about credit cards and teenagers. That is a way better approach than I think back to my freshman year in college: “Hey, get a free t-shirt if you sign up for this credit card.”
Amy Walls (04:10):
Yeah, we need something ahead of knowing … I know you just reminded me; my son and I had a conversation recently (this isn't about debt) – but we were talking about something and he said, “Mom, I don't think I'm going to tell my kids about X, Y, and Z.” And I said, “Well, why not?” And he said, “Because I'm hoping they just never experience it.”
I think it was death, actually, was the topic. And I said, “Well, is death a part of life?” And he said, “Yeah, but I hope they never need it.” And I said, “Well, gosh, you've had pets die. What if you hadn't known that death was a thing when pets died, how would you have felt?” And he was like, “I would've felt horrible. I'm glad I knew about it.”
And I said, “And that's why we don't keep it a secret. You need to know that it's a real thing and have absorbed that before it happens because then you don't know what to do.”
Jon Gay (05:04):
That makes a lot of sense.
Amy Walls (05:05):
So, your credit card story, I think is very similar.
Jon Gay (05:08):
Arm them with the information they need, make it age-appropriate, and go from there. Okay, let's move on to budgeting. Is there a way to make budgeting fun for kids? I know it's not fun for most adults.
Amy Walls (05:20):
Yeah, it's not fun. But again, I think making it light is the key. So, one, turn it into a game. Give kids money, maybe play money and let them go on a pretend shopping trip. They could see how fast that money runs out, and they also get to choose between things, or turn that into a real thing.
So, for example, our school has a food drive each year. I took my youngest one and I said, “Here's the money we would donate,” but they want goods. We could give the money, and they could go shop, “But you want to go pick out the things. Here's your budget. I'll go shopping with you.”
And we had a conversation about before we left, preparing for, “Here's the list of things they said they'd like, these are best. Why is there not chicken breast on the list?” That sort of thing. Why are there dried goods? And he did some comparison shopping and was so proud of himself.
Jon Gay (06:18):
That's right, Amy, you had mentioned that in part one of this episode too about taking your son shopping and how he had to make some changes based on budgets.
Now, as kids grow, parents often wonder how much they should guide their financial decisions versus letting them learn on their own. I know that's true in a lot of areas of parenting besides just money. But what are your thoughts on this?
Amy Walls (06:38):
Well, if anyone has the magic answer, I'd love to know what it is, first of all. But no, it's important to guide. And nobody wants to be told what to do, and we learn best from our mistakes.
Jon Gay (06:50):
Agreed.
Amy Walls (06:51):
And we get value out of doing things well too. So, I think it's finding balance between those things. So, for example, it's really easy to assume that if my child sets a goal to save for a big Lego set, for example, that they know how to apply their money towards that if they get allowance or gift money or however that's going to happen.
But the reality is that without being shown and having it demonstrated and held accountable to reaching a goal, they don't actually know how to do it. We think it's really easy because we've done it a lot, and so, it should come second nature. It's like planning out a school project. They don't initially know how to allocate their time. They don't initially know how to allocate their money.
So, picking something small, not the $200 Lego set to start, and working their way up is into things that are bigger and that take longer is a great way to do that. I think letting them make mistakes and making it right sized, whether that is … I found out my kids taking money in their backpack to school on a regular basis. Well, are they taking $5 that they might lose or are they taking the Christmas gift from grandma of a hundred dollars?
Jon Gay (08:10):
Oops.
Amy Walls (08:11):
Yeah, that they lose. How do we moderate that? Then living with the pain of losing $5. A 6-year-old, an 8-year-old, that's realistic.
Jon Gay (08:21):
And a lot less expensive than losing a hundred.
Amy Walls (08:24):
Absolutely. So, another option might be – and I think of my teenager here and craft supplies, specifically, yarn, as a crochet – sometimes the bank account gets a little low and they want to buy something.
And so, maybe the gentle approach there is, “Well, are you sure this is the project you want or are there some other things you're considering? Do you think before you jump into this, meaning the buying of whatever it is, you might want to build that account up, so you have a little more flexibility first, and understanding the consequences?”
Now, I'm not an expert. I have my two kids, every kid is different, and so I don't want anyone to feel like I'm telling them how to parent. These are just ideas and things I have seen and heard that can work.
Jon Gay (09:10):
Right. That gentle approach, and then tailoring just exactly how gentle to each specific situation, of course.
Amy Walls (09:16):
Yeah, I really think while we're parents, we get to be sounding boards for them, we get to help guide and we have to, I think in some sense … I know for me, it's consciously thinking through what do I know that they don't know, and how can I impart that so that they aren't shocked and surprised later on.
Jon Gay (09:38):
That's fair. Let's change gears a little bit, Amy. We've talked about saving and allowance and money and debt and a lot of serious topics, but on the flip side of it, what about teaching kids to be generous with their money? I've got to imagine there's a little bit of a fine line there.
Amy Walls (09:51):
Yeah, I agree with you. I think this is a really important question. So, some things that can work could be talking about how giving is part of being responsible with money, if that's one of your values. And encouraging them to save for a goal and choose a charity to donate that to.
Along those lines, I mentioned to a charity, maybe they come to you and say, “Hey, so-and-so at school doesn't have lunch money, I want to take the money I have saved and give it to them.” Or “I see someone when we're driving down the street on the street corner regularly, they always have a sign saying they need money. I want to give my money there.”
It's having those conversations about where is the right place and how do you support what's most important to you? And allowing them to think through that.
With giving, many employers have giving programs where the employer will match an employee's donations to a charity, whether that's in time, donations of time or money. And so, I think a great thing to do, just like savings, we can do that on a 401(k) and mimic that for a child – we can do the same thing when they're giving to charity. “You've picked something that's important to you, cool. I'm going to support that. For every dollar you give, I will give $2 or whatever that is.”
And then along these lines, it's about generosity, not charity, but encouraging kids to buy and make gifts for family members so they understand the joy that comes from the giving. Really having them think through rather than maybe, “Oh, I just see this thing and I need to get them something,” or that the parents pick it out and say it's from you. Giving them a voice I think is what's most important here.
Jon Gay (11:46):
Sometimes with the time crunch, the holidays comes around, it's tempting to take that easy way out, but you make such a good point there.
Alright, last question, Amy, comes to investing. When is a good time to start talking to your kids about it, and how do you make it relatable as a parent?
Amy Walls (12:00):
Investing can definitely be one of those bigger suitcases, but there are some simple ways to simplify it. Talk to them about companies they know and like. Maybe that's Disney or Apple, and explaining that when people buy stock, they own a small part of the company.
For older kids, you can consider using a small amount of money to let them buy a stock. And oftentimes, in examples like this, buying a stock makes more sense because they understand the concept of a single company, even though from a diversification standpoint, that's not typically the best place to start.
Jon Gay (12:35):
You'd be remiss if you did not mention that. Okay, got it. We can't have a dereliction of duty here.
Amy Walls (12:41):
Yeah, absolutely. I think a great comparison for investing for kids, it's like planting a tree.
Jon Gay (12:46):
Okay, I like that.
Amy Walls (12:47):
It's about its growth over time, especially a fruit tree. If I plant a pear tree, I'm not going to get pears in the first year. It's going to take a while. And I believe with pears, I'm not a hundred percent certain, but I believe with pears, I need a partner tree. We could swap cherries, and I know for a fact that's true for the pollination to occur.
So, the benefits of having more invested grows, but it's going to take a while to reap the rewards. I think here too, the conversation that I typically hear is, “My kid’s interested in investing, I need to support them in investing.” I'd take a step back from that, or I do take a step back from that because investing doesn't happen until there's a solid cash reserve or it really shouldn't.
Jon Gay (13:37):
Yes.
Amy Walls (13:38):
Sometimes our clients come to us and say, “My high schooler, my college kid is interested in doing this. What do you suggest?” Well, “How big's their cash reserve and do they need it for college?” “Well, yeah.” Then it's probably not the right time for them to do much around this.
If they're going to need that money in the short-term, then buying a stock is not going to make the most sense.
Jon Gay (14:00):
That makes a lot of sense. This has been a really good two-part conversation, Amy, about all the different things to talk to kids about when it comes to money, because too often, these conversations don't happen. I feel like in previous generations, money was this taboo topic that we didn't talk to our kids about. So, I'm really glad we had this conversation.
Anybody who has not heard part one of the conversation, I'd encourage you to go back to listen to that as well. And in the meantime, if our listeners want to talk to you and your team at Thimbleberry Financial about their financial future, any aspect of it, what are the best ways to find you?
Amy Walls (14:27):
They can call us on the old-fashioned telephone at (503) 610-6510 or find us online at thimbleberryfinancial.com.
[Music Playing]
Jon Gay (14:38):
Excellent. Good stuff, Amy. We'll talk again in a couple of weeks.
Amy Walls (14:40):
That sounds great, Jag. Look forward to it.
Voiceover (14:42):
Securities offered through registered representatives of Cambridge Investment Research, Inc, a broker-dealer, member of FINRA/SIPC, advisory services through Cambridge Investment Research Advisors, Inc, a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions.
Securities offered through registered representatives of Cambridge Investment Research, Inc, a broker-dealer, member of FINRA/SIPC, advisory services through Cambridge Investment Research Advisors, Inc, a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.