It just wasn't enough money. Chris Hogan's oldest boy was 6 years old and was short $7 to buy the expensive Transformer toy he wanted.
It would have been so easy for Hogan to pay the difference. But Hogan isn't just a dad. He works in Nashville, Tenn., with financial get-out-of-debt guru Dave Ramsey, and he knows a teaching moment when he sees one.
So they left the store without the toy.
A week later, Hogan brought his son back. The boy had earned the extra $7 on his own and bought the toy. Gratification delayed. Lesson learned. “I praised him for it,” Hogan says. “He still has that toy two years later.”
As Father's Day approaches, children reflect upon their dads' influence. Studies show a large part of that influence deals with personal finance.
Simple experiences like Hogan had with his son are how children learn about finances. Parents teach children how to manage their finances, not just by talking to them, but by modeling appropriate behavior. A study at the University of Arizona funded by the National Endowment for Financial Education found that among freshmen entering college, “Direct teaching by parents had the most influence — more than work experience and high school financial education combined.”
As the study authors put it, “Parents matter.”
The National Foundation for Credit Counseling found that 33 percent of adults say they still learn about personal finance from their parents.
But it isn't always that way.
Alan Wolan, who lives in Los Angeles, says his dad never talked about money at home. “He didn't think it was appropriate to talk about money with a child,” Wolan says. “I ended up going to college without knowing anything about money. … It was all shrouded in mystery.”
Wolan has decided to try to make sure his son, Manix, who is 14, and daughter, a toddler, will know more about finances than he did growing up. He wrote a book called “Moneyology: A Kid's Guide to Money,” but the main things he did were, like Hogan with his sons, through example and looking for teaching moments.
Manix says his dad gave him a bank when he was younger that had different compartments for saving, spending and investing. Later, he says his dad encouraged him to figure out his own ways to make money. Manix decided to sell things at school.
With his dad's seed money, Manix bought some exotic Japanese candy. Each $1 package contained five candies, which he sold to friends at school for $1 each. He even had a friend sell some of his candy for a 40 percent cut. “I felt pretty proud of myself,” Manix says.
Wolan was not finished there. He opened a custodial investment account in 2008 and encouraged Manix to invest his profits and other money the boy had saved into stocks.
“I told him he could do what he wanted with the money,” Wolan says. “He bought Apple; he sold Apple. He bought Disney; he sold Disney. He bought Berkshire Hathaway; he sold Berkshire Hathaway to buy Bitcoins. He is buying and selling as he sees fit. I don't know where he gets the ideas to do this or that, but he does. … As long as I don't think it is a mistake, I don't even give my opinion.”
Manix says some of his friends now ask him for advice on investing. “I'm extremely grateful that he thought these were things he should teach me,” he says. “It isn't all that common that a father would teach a son about investing and saving.”
It is common, however, that kids want to know about stocks. T. Rowe Price's 2013 Parents, Kids and Money Survey found that 1 in 5 kids are interested in learning about investing and stock markets.
It makes some sense that dads would talk about bigger financial things with their kids. T. Rowe Price's survey found that “dads take the lead in family financial activities such as purchasing life insurance (53 percent versus 40 percent moms), saving regularly for their kids' college education (46 percent versus 36 percent moms), and having an up-to-date will (31 percent versus 21 percent moms).”
But financial lessons can be found everywhere.
Paul Golden, media relations manager for the National Endowment for Financial Education based in Denver, found that his two boys, 10 and 7 years old, loved playing a Legos game on the Xbox. The boys would accumulate coins in the game to buy new characters — but never would save enough coins to get the “cool guys.”
The best way to cut back on impulse buying and increase savings, he says, is by modeling the behavior.
“Whether you realize it or not,” Golden says, “your kids are learning by watching you. They are watching you and they will mimic those behaviors. That is one of the challenges we have as parents; always setting the positive example.”
He says his kids will invariably ask for some impulse purchase in the store.
“There are plenty of things at the store that I would like to have right now,” he says he tells them, “but I don't need them. And that is why we are just getting this stuff that we need.”
He admits, however, that he has been guilty of being in the store with his kids, seeing something he wants that he doesn't need and just buying it.
“I'm trying to be better,” Golden says with a laugh. “If I want to buy something I want but I don't need, I try to buy it when my kids aren't around.”
Being that good example is also difficult in a virtual world.
“One of the challenges that we all have as parents is that the concept of money is so less tangible than it has ever been,” Golden says. “Everything is electronic. We get our paychecks deposited electronically. We swipe our cards. Very rarely are we actually doing stuff with actual money. Kids are not seeing money.”
He recommends using cash for allowances and having the allowance come regularly like a paycheck.
Hogan with the Dave Ramsey organization thinks it is important, however, that kids learn that money comes from work. This is why he ties allowance to work around the house, such as cleaning their rooms, picking up toys, washing and putting away dishes and so forth.
“All the boys have separate savings accounts,” Hogan says. “They are all very proud when they walk to the bank to save their money.”
Everything needs to be age-appropriate, however, he says.
One way Hogan and his wife draw their kids in is by going over the budget at the kitchen table and calling them over to give them their allowances. Each kid then takes their allowance and divides the cash up into envelopes that say “save,” “spend” or “give.”
Golden says the allowance is also a great way to let the kids learn from their mistakes. If they want to blow it all in one day, he lets them do it. “This is an important thing for parents to do,” he says. “Let them make mistakes while they are still safe under your wing and guidance. … Let them struggle with having to wait for the next allowance.”
Other aspects of personal finance should also be open to children, Hogan says.
Hogan encourages fathers to talk about their jobs, for instance. “Help them understand how it fits into society and how it helps people,” he says. “Kids can understand that, and it helps them be proud of their dad.”
Part of that openness means talking about the reasons for stressful times as well.
Hogan says fathers should let their kids know if there is a tight deadline or if there are things going on at work that require more attention than normal. “Talk with them about it,” he says, “Let them know that you've got several projects going and that Daddy is going to be working really hard over the next week or so. It helps them understand if you are not yourself.”
Golden says the conversations parents have with each other about money should be as calm as possible, “so kids don't think that money is the stressor of everything,” he says. “Talk about it frequently and openly.”
Wolan takes it one step further with his son Manix. He doesn't just talk about money with his son. He asks him for advice.
Wolan owns a 46-unit apartment building in New Jersey and was planning on refinancing the mortgage. “I was confused whether to go this way or that with the type of loan I was getting,” he says. “So I laid it out and asked him for his opinion. You'd be surprised, without a lot of pre-knowledge, there is often good common sense.”
Manix asked questions that clarified the issues for his dad and together they came up with a good solution.
“I like that he values my opinion,” Manix says. “All this financial stuff is going to be one of the most useful things he taught me.”