Buying a house, getting a new car, or paying for your oldest’s education: these all have high price tags. But they’re also opportunities to model good financial decision making to your kids.
Turning big ticket purchases into life money lessons isn’t just a matter of leading by example through your own responsible decision making. It’s also about how to frame the conversation about that decision making process with your kids. Here’s how it can work when you are considering purchasing a car:
- Explain the goal of the purchase.
- List decision factors your kids can understand.
- Draw attention to factors that you’re intentionally not as invested in.
- Make the connection to actual dollar amounts—on a micro level.
- Talk about how you’re saving up for the car in advance.
Do you want a used car? A brand new model? What type of car are you shopping for? Is this your family’s second car? And if so, why is it important to have two? To drive them to school in the morning while the other parent drives to work? The same way you wouldn’t walk into the grocery store without an idea of what meals you’re making for the week, starting with a defined goal will help keep the conversation focused.
Jumpstart the financial education of your kids by demonstrating how decision-making can affect whether you reach financial goals.
Will one car cost less in fuel than another? Are you trying to buy a car with more seats for your growing family? Pick easy-to-understand pros and cons for this conversation.
Some people care a lot about flash: the color of the car, style of interior, tinted window. But, many people are more focused on function or price. Explain how focusing on the key factors likely means saving money by spending less on things you don’t care about. Following the status quo isn’t always the best decision, financial or otherwise. (This is a great time to emphasize the “you don’t have to keep up with the Joneses” lesson. If your neighbor or their friend’s parents just bought the same item, but bigger or fancier, talk about why your family isn’t taking the same route.)
Be explicit about your family’s budget for the purchase. Talk about how many extra months you’ll have to make a car payment for if you go over budget. And, share what else you could spend the spare cash on if you end up under budget. Try using a small difference—$x extra for a certain color as an example, rather than weighing multiple factors at once, to keep it simple.
Though you may have to take out a loan for a big ticket item, you’re probably making a small up front payment. This money didn’t appear out of thin air, so go into detail about how you made this saving possible. Did mommy or daddy get a raise at work? Did you skip the family vacation this year? How long did you have to save for? Set an example for your kids. Show them that you have to wait and save up to buy something you really want.
A car may be an easier concept to understand and follow for young kids. The price tag (and the differences in price for car options) isn’t totally beyond their understanding. A house, however, costs much more than they’ve ever considered spending. A $200 extra for a car feature might be easier to grasp. But don’t hold back from having this discussion if your family is considering a big purchase item like buying a new house, or spending big time on an older sibling’s college education. You can also apply these strategies to talk about smaller purchases! This is a conversation you can have over and over again to drive home the point.