One More Thing About Financial Freedom

Kids and Money: A Series by Jayne PearlOne More Thing About Financial Freedom

You probably have your own definition; your kids may have quite another. I like to tout my own vision or version of financial freedom in my workshops and posts, when the topic pops up. A new book, The New American Dream, says there ain’t no such beast. The feisty author, Penelope Trunk, devotes a whole chapter to the topic: “Financial Freedom is a False Promise.”

She explains, “I think the root of the idea of ‘financial freedom’ means freedom from having to do a job you don’t like. But this thinking comes from the baby boomers who felt compelled to climb ladders doing jobs that destroyed their personal life. Today we don’t do that. Many people of ladder-climbing age today don’t believe it’s worth the trouble. Today you can hold out to get a job you love at the beginning of your career. Financial freedom is not a prerequisite.”

Promotions and measly raises, says Trunk, are so last century. Instead, “Learning new skills is worth a lot more to you than some ridiculous 4 percent raise. If you’re offered a raise, tell them you want something that really matters: training, the new workplace currency. Unlike salary and title, training can fundamentally change how you operate and what you have to offer.”

I still say my definition of financial freedom holds (see previous post). But Trunk is talking about the more usual meaning, in terms of having enough money to do pretty much anything you want–or nothing at all.


How Do You Define Financial Freedom?

Kids and Money: A Series by Jayne Pearl

How Do You Define Financial Freedom?

Most people define financial freedom as some sum of money: enough to do whatever they want. If that’s the case, why are so many wealthy people living unhappy, dysfunctional lives?

What does financial freedom mean to you? Ask what it means to your kids.

Bestselling author and TV talk host Suze Orman defines financial freedom this way: “When you have power over your fears and anxieties instead of the other way around.”

That’s certainly an important thing way to look at it, and an important goal to shoot for. However, I have a different way of defining financial freedom:

Financial Freedom Statement
My Kids and Money Guide Books offer ways for parents to impart the three main ingredients for achieving financial freedom: financial values, financial literacy, and resiliency.


Financial Values

Kids and Money: A Series by Jayne PearlFinancial Values

Every topic I discuss in my Kids and Money Guide Books and my workshops relates to one or more of these financial values:

•  Learn to make trade-offs — your kids need to understand that money is a limited resource, no matter how wealthy your family might be. They can have some things, but not everything.

•  Distinguish between wants and needs — it’s fine to want stuff. We all do. But it’s important to know what essentials we need to survive (our “needs”). Everything else is “gravy.” In fact, if you have small kids you can play the “meat and gravy” game — meat refers to needs and gravy refers to wants. We need meat (and other essentials such as basic clothes, a roof over our heads, etc.). EVERYTHING else is gravy. When you are shopping, challenge your kids to identify things on your shopping list or in your cart that are meat and what’s gravy. When you or your kids find yourself saying something like, “I need a new red blouse” or “I need a new computer game,” ask each other “Is that meat or gravy?”

Tell themselves no — the more kids can decide that they can live without that brand or getting yet another toy, the less you will have to say “no.”

One way to motivate them is to give them a budget for a shopping trip, with a list of stuff you plan to buy and a reasonable price for each item. If they find a brand more expensive or something not even on the list, instead of saying “no,” you can offer to help them find other items on sale to make room in the budget for the extras. They will get plenty of practice this way making trade-offs AND telling themselves no, and you will become a coach instead of a meanie!

•  Develop a healthy skepticism — kids are besieged with ads and come-ons almost every waking moment. They need to learn not to believe everything they see and hear. Sit with them during TV commercials and ask why the print is so small or the announcer is speaking so fast. Ask if products they’ve used are really as terrific as the commercials make them seem, and how they feel when they’ve bought something that didn’t measure up.

•  Tolerate delayed gratification — we all need to develop this, if the current credit card debt in our country is any indication. Kids especially need to be able to leave a store without buying something, if only to check out prices at other stores.

Helping your kids learn these five financial values will get them on a cycle of success. Good luck!


Financial Facts of Life

Financial Facts of Life

It’s almost never to early to being teach kids about money. And it’s never too late!

The main indicators of when your child may be ready for allowance are her emotional maturity and cognitive level. The decision also depends on what you want allowance to accomplish. Your child will provide you with plenty of clues. You will know they’re able to learn something from allowance when they:

  • Become aware of the relationship between money and shopping (which generally begins at about age 3)
  • Can differentiate between different coins
  • Are able to count, add, and subtract
  • Have opportunities for spending
  • Begin asking you to buy them stuff when you shop

Don’t confuse a child’s interest in money with his readiness to appreciate its value. The jingle of shiny coins can be very appealing to youngsters well before they may be ready to learn about saving and spending. Susan recalls that when her son was 5 years old, “he loved collecting money but had no concept of its value.” She had not yet started him on a regular allowance, but “oftentimes he would ask if he could have the change in my pocket or at the register. He just loved collecting things.”

By around 7 or 8, depending on the child, allowance can help teach children the meaning of money, how to use it, and how to plan. If your kids are older—even in their teens—and you haven’t got them on allowance, don’t worry. It’s never too late to start.

The ebook, Kids and Money Guide to Smart Spending will help you guide preteens, teens, and young adult children to understand and embrace techniques for reining in any tendencies toward constant consumption, by understanding the cost of cool. It will also help you teach them about one of the topics they most often report they do not understand, which also happens to be one of the more serious traps many fall into: credit card debt.


Saving Incentives

Saving Incentives

Instead of forcing kids to save, consider instilling in them the passion for saving.

Many parents force kids to save: 10%, 30% or even half of their allowance, earnings and gift money. And it works – at least until they hit their rebellious teens, when they’re bound to insist, “It’s my money, I can do what I want with it!” And they’re right! The other problem with forcing them to save is that some kids, when they leave home, will likely sigh with relief and think, “Thank goodness I don’t have to save anymore!” The goal is to get them to want to save. Forcing them may successfully get them to save while they’re under their roof, but it won’t necessarily compel them to do so once they’re out on their own. And that’s just when saving becomes most important!

You can guide your kids to develop lifelong saving habits by helping them to set goals that are meaningful to them.

Use your kids’ natural interests. If your daughter loves skiing or playing guitar, for instance, and she falls in love with a $200 pair of skiis or new guitar, use that as an opportunity to make that a saving goal.

Say she gets $15 a week allowance, $5 of which you’ve earmarked as discretionary money. Help her identify different strategies:

Save all of it: (foregoing DVDs, movies and pizza with friends): It’ll take about 10 months to save up for the item. That’s beyond most kids’ (and adults’) tolerance for delayed gratification. Consider this a benchmark against which to rate other strategies.

Get a job: If your daughter began babysitting or got herself a paper route, earning $20 a week, she could save up $200 in 10 weeks.

Save and work: Add $5 of weekly discretionary allowance to the $20 earnings, and she can save up $200 in eight weeks.

thermometerFor young children: Set more modest goals – things they can save for in much shorter time periods. Offer to let them do extra chores (on top of their usual household chores for which they’re not paid) to help them earn and save a bit faster. Tape a picture of what they’re saving for onto their bank, and chart their progress visually, perhaps with a picture of a thermometer you color in. Goals can be powerful motivators, but kids often need a little extra nudging to keep on track. They are likely to get sidetracked by temptations to spend on a new DVD, or the latest fashion or fad. That’s okay, but you can help keep them closer to their saving program by reminding them how much spending now on a whim will set them back from their goal. What does that mean in dollars and time? But don’t push; this is all a learning experience. The more you try to control their actions (up to a point), the less they are bound to learn.You can also sweeten the pot with some saving incentives. If you feel your child’s goal is particularly constructive and worthy, you can offer to kick in a certain amount. You can double the interest rate at the bank’s where they deposit their cash or you can offer them a challenge grant (once they save up half, you’ll contribute the other half – or however much you’re willing to shell out).The ebook, Kids and Money Guide to Learning Capital details out you can set up a 401(k)-like matching grant.


Learning Capital

Learning Capital

Think of allowance as “learning capital”: your kids need to have some to learn how to use it responsibly.

Kids need to have some money so they can experience and practice using it. Basing allowance on chores, behavior or grades may accomplish some desired goals. But it also complicates and diverts the purpose of allowance as a learning tool.

Instead of basing allowance on behaviors, consider basing it on specific financial responsibilities.

Setting up financial responsibilities forces your kids to stretch out their money or face the consequences. If they had blown their cash on junk food or comic books, what happens when they need to buy a friend a birthday present, replace a broken guitar string or buy lunch at school? These are expenses you can transfer to them as part of their allowance “deal.” They will quickly learn the importance of resisting every whimsy and temptation.

You want your kids to learn how to make these trade-offs, tell themselves “no” when appropriate, and distinguish between wants and needs: three of the basic financial values they need to learn (see Financial Values).

My ebook, Kids and Money Guide to Learning Capital , shows you how to set up responsibilities-based allowance. Here’s the basic idea:

Nondiscretionary Cost Who Pays
School Lunches
Discretionary Cost Who Pays
Movies and Videos
Gifts for friends, family
Batteries for Toys



It’s no longer enough to impart financial literacy and values in your kids. To succeed and thrive in today’s uncertain world, you must also help them develop resiliency skills.

Think of resilience as the “Flubber Factor.” You know, the green gooey stuff that bounces back in the Disney movie with the same name. Bouncing back is just what you want your kids to be able to do if and when they are beset with tough times.

Prof. Sharon Danes, of the University of Minnesota’s Department of Family Social Science, wrote booklet called Change: Loss, Opportunity and Resilience.

In it, she describes five elements of resilience to help deal with change or a solve problem:

• Be positive
• Be focused
• Be flexible
• Be organized
• Be proactive

In Prof. Danes’ booklet, she points out, “How much control one has had over change can affect how one responds to it. Whether a person has had involvement in making the change also contributes to how the change is experienced.”

The basic idea is that if any of the techniques or solutions your kids come up with don’t work out at first, encourage them to keep thinking of alternative ideas. Resist the temptation to rescue them. Even if you suspect or know a suggestion may not work, let them make the mistake (as long as it won’t put anyone in danger), tell them it was a good try, and ask them, “what else do you think might work?”

I developed a series of “resilience tip” boxes throughout each of my Kids and Money Guide Books. Each resilience tip consists of a discussion starter, an activity or project you can initiate with your children to teach them not only the main lessons from the section in which each resilience tip appears, but also to take advantage of opportunities to make your children develop more resilience along the way.