Here’s What Your Kids Need to Know About Money … and What They Don’t

On this episode of The Long View, author and co-CEO of Ariel Investments discusses her relationship with money growing up, ways to teach kids good financial habits, and lessons from her new financial education book for children called Priceless Facts About Money.

Here are a few excerpts from Hobson’s conversation with Morningstar’s Christine Benz and Amy Arnott.

What You Should and Shouldn’t Teach Your Kids About Money

Amy Arnott: You mentioned earlier how hard your mom worked when you were growing up, and you also write about how your mom worked to impart financial knowledge when you were growing up. What were some of the lessons that were most meaningful to you? And is there anything that you wish she had taught you that she didn’t?

Hobson: Well, I’ll give you the good and the bad, because I’ve spent 55 years thinking about this. The good was my mom exposed me to everyday costs, every day. And so what I mean by that is, starting when I was very little, if we went to McDonald’s, if we went to a restaurant, she would have me pay the check. I remember going to diners and standing at the counter, giving the check, reaching up to the counter at a McDonald’s, handing the money at a grocery store. She always had me pay. And her way of having me pay was to learn what things cost. So, I knew that McDonald’s was cheaper than a restaurant with a tablecloth, as an example. I was very clear on that. And then she had me grow in my contribution to paying with my age and my sophistication. So, what I mean by that is, in the beginning, I literally just put the money on the counter. Then it was me counting the change when I could count. Then it was me calculating a tip when I could do percentages and the like. It became an escalating math problem.

At the same time, it became an escalating point of knowledge. I remember going to the bank with my mother for her to deposit a check in the bank, and she stopped. And she deposited it. We were at the teller, and she said, “Before you leave this counter, Mellody,” and I remember being like 11, “you look at the receipt that they gave you and you look at your account number and you make sure they match and that this actually went into your account.” I mean, who tells that to a child? My mom. And I could give you more and more things. She always had me look at the light bill, the phone bill. When my mom wasn’t home, I mean, this is totally not right. I’m on the board of a bank, so I can tell you. But if she wasn’t home, and we needed food, she’d say, “Take a check out of the checkbook and write a check.” And so I knew to write a check when I was like 12. I mean, I’m telling you these things that … were just so unbelievable.

Now, I also knew if the bill was late. I knew what the light bill was supposed to be. I saw all the disconnection notices. I knew where our rent was. So, the good part was I was exposed. The bad part was I was exposed. And part of that exposure that created great anxiety for me was the fact that I had a mom who had great gifts, so many—unbelievable, incredibly hardworking, all of those things. But my mom would buy Easter dresses instead of pay the light bill. And as a result of that, we looked great at church, but we didn’t have any lights. And that was very upsetting to me.

Why Financial Education for Kids Should Start Young

Christine Benz: I wanted to follow up on all that great learning that you got from your mom and get your thoughts on what is the right age to start teaching kids this stuff? It sounds like yours came at a very young age, but how would you suggest that parents or other adult influencers of children, when should they start teaching financial concepts, and how should they do it?

Hobson: As early as possible. I’d say that it’s like a language. The best way to learn the language is from birth. That’s just a fact where your brain gets wired to think in two languages, and you’re actually not learning and translating. It’s intuitive. I want money to be intuitive and the language of money to be intuitive for kids. I want them to start early. People say to me, what is reasonable? Well, first of all, I gave you my example of my mom just handing me the money. I think it’s very helpful for kids to see parents use cash, because I think the idea of credit cards and phones for payment, while extremely convenient, sometimes much safer—clearly—and useful, so I’m not in any way saying it’s a bad idea. It’s just hard for a child to understand. It’s very hard for a child to understand money spitting out of a machine or a card because there’s no finality to it. Versus when you have cash in your wallet, it runs out. And that’s something, again, just when you think about advanced reasoning, that’s very hard for a child to do. So using cash is helpful. Doing what my mom did while letting me handle that cash is helpful.

The other thing is you can teach very simple concepts. We get at one in the book that I like a lot that you could do with a 4-year-old, which is barter. Barter forces a child to assign value to something. And so you could say to a child, you have a choice between Barbie and a cupcake. And the child then decides. Within the book, it’s John and me with the airplane versus the cupcake. And John says to me, we’re deciding if we’re going to trade. I have the cupcake; he has the airplane that he’s drawn. And he says, but if I give you the airplane that I’ve drawn, you get to have it forever. And if you give me the cupcake, I’m going to eat it and it’s going to be gone. Well, he’s starting to put value on that experience versus that item. Valuing things is, I think, something that’s extremely important for children. Because oftentimes there is a disconnect between price and value. There are things that are very, very valuable to you that don’t cost a lot. There are things that are very, very expensive that maybe you don’t value. And so, these are things that are important to learn, and you can do it so early.

How to Talk to Children About How Your Financial Past Is Different From Their Financial Present

Arnott: Your daughter, having two very successful parents, is growing up with a lot more privilege than you had as a child. What are some of the other concepts you’re trying to teach her about money?

Hobson: I’ve been very direct with her about her circumstance and how it’s different from mine. Without her having to relive my history, she’s aware of that. I don’t want to saddle her with my money anxiety, but at the same time, because of the resources in her life, I certainly don’t want her to grow up to be frivolous. And it’s interesting, I have a child, they come out a certain way. It’s not explainable. It really isn’t. There’s nature and nurture, but part of her nature is I have a child who’s not frivolous. I don’t know, maybe it’s the me part of her. I don’t know, but my husband isn’t either about certain things. So she doesn’t ask for things. It’s just a very interesting experience. If you go to a store with her or anything like that, she’ll look at something and she’ll look at you, but she’ll never ask. She’s been like this since she was very, very little. She doesn’t like to have a lot of things. And so we don’t have to do as much work. Now, this could change. But right now, she’s been very, very good about being very measured when it comes to money. She loves Sephora, like all 11-year-olds, I’m told, globally. I don’t know where this came from, but this kid likes her skincare. And because people know she loves Sephora, a lot of our friends for Christmas or things like that give her Sephora gift cards. So, she’s got a stack of them. And I remember recently she was like, “Well, I don’t need any more Sephora gift cards.” You know, she was just very “I don’t need anything more.” Now, I’m not trying to make her into some kind of saint. She’s a normal kid, so please don’t get me wrong. But that part of her, I think we have kind of buttoned down.

She asks a lot of questions, and I explain them, and I love that. We were at McDonald’s. We’re at the drive-thru window. And it’s French Fry Friday—which she then canceled because she decided it wasn’t healthy; I was the one who missed French Fry Friday. So, for French Fry Friday, we’re at the window, and they said $5.40. It was a large fry with tax. And she says to me, “What is tax?” I thought, I mean, brilliant, right? Just asking questions. And so the brilliance was that I got to explain taxes to her. She was 9 years old, and I explained taxes from beginning to end, how much we pay at work, what the taxes are used for in our communities, why we pay taxes on goods. And it just led me to realize the whole world through her eyes, everything about money is new and must be explained. And she welcomes that explanation.

I think one of the things that I’m trying to do is put everything in context for her. And some of that context is: You’ve grown up a certain way; it doesn’t mean that you will have these things one day. She said to me, “Where will I live?” I said, “Well, you’ll have a house.” And she said, “Well, how will I get it?” I said, “You’ll have a job.” And I said, “You’ll have resources.” And she said, “Where will my resources come from?” She was like, 10 years old. This was a great conversation. And I said, “A little bit from us, but you’ll take care of yourself.”