Teaching Kids Financial Responsibility
Luke Durham Reflects on New Approaches
SEASON 1 | EPISODE 26
We all know proper money management skills are crucial in our lives, so why not equip our kids with these tools early on? In this episode of Being Different, host Liz Durham dives into her personal journey of teaching her kids about money and finances.
Liz reflects on her own desire to go beyond traditional approaches to instill invaluable lessons about credit scores, responsible credit card usage, and how to steer clear of overwhelming student loan debt. Liz shares why she thinks there are ways to foster financial literacy at any age.
Plus, find out how Liz introduces piggy banks with a twist - teaching her kids the art of saving, spending, and giving.
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Being Different with Liz Durham is a Palm Tree Pod Co. production
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Liz Durham 0:00
Some common misconceptions that people tell their kids all the time are, if you pay your bills, you will have good credit. That's not true. If the bill you are paying is a liability, meaning somebody loaned you money, and you are paying them back. If it's reported to the credit bureaus, then yes, that will help you to build a credit score. But if you are just paying a utility bill or paying rent or paying a phone bill or something like that, those bills don't go to credit reports. And so I thought growing up, like, Oh, if I pay my Verizon bill on time, every month, I'm going to have good credit. Wrong. Verizon doesn't report to the credit bureaus unless you go into collections with them, which is a whole nother thing. But I think that parents need to make it really clear to their kids, like, just paying your bills is not going to give you get credit. And unfortunately, in the country that we live in the whole credit system is jacked, but it's how it works. And in order to buy a house or a car, or any other thing that you want to leverage, you've got to have a good credit score to do that. All right, hello, everyone, and welcome to another episode of being different. Today. It's just me, and I wanted to talk about money, and how we talk to our kids about money, and how they learn about money. I was a mortgage loan officer for 10 years. And what that means is that I do home loans for people. And so I learned about credit, and risk, and liabilities and assets and taxes, all sorts of things and doing that job. And I don't think I had a clue about money. Until I really got into that job. I understood some things, but not really how it works in the world. So that's had me thinking about how am I going to talk to my kids about money. So that when they get to the real world, they're prepared. We all see these like memes on Instagram and Facebook about like, oh, it'd be nice if they would have taught us about taxes in school instead of, you know, trigonometry, or whatever. And it's funny, like people joke about that. But I think there's a lot of truth to it, because money is something that impacts our everyday lives. And so I think it's really important to understand at least the basics of credit and how it works. So what I've been thinking about a lot, Mack, my son is almost four, and he loves to talk and ask questions, and he's very spoiled. And so I've just been wondering, like, have I been doing a good job of teaching him about money? Or have I done him a disservice and what I've taught him so far. And I think that I give myself like a C, he understands that money is a medium of exchange that you use to purchase things that you want. So if he gets that he doesn't understand where the money comes from, though. And I think that you know, a lot of kids at age three, they probably don't fully get it. But could they get it? Probably, I think that we just don't really teach them where it comes from. So one thing that I've been thinking about is, I make them do chores, and their little chores, like you know, pull the dumpster back to the house, down the driveway, we're gonna go pick up sticks in the yard, you know, for 20 minutes or something like that. Just little odd jobs around the house. And by chores, I mean, jobs that I'm not expecting them to do every day that they're going to get paid for, like, I'm not going to pay them for making their bed, but they will be expected to make their bed every day when they are capable of doing that. But there are other jobs that are outside the scope of like, regular housework that I will pay them for like picking up sticks and things like that. And so
I had Mac picking up sticks one day, and I think I told him I would pay him like a quarter an hour or something like that. It was a very small amount of money for the labor that he was doing. And he was actually carrying a fair amount of sticks. And my brother in law Dean said, Well, why don't you give him $1 an hour for every year of his age? And I was like, Okay, that seems fair. He's like, because of inflation, right?
So MCAS three, and I was like, okay, $3 an hour is fair, because clearly a toddler's not going to work for very long, maybe 2030 minutes is all we have intention span for but I am going to start doing that with little jobs around the house that need to be done because I want him to understand where the money actually comes from. Right now. He understands that we go to a store or you know things Just show up, and we use a credit card. So he does understand that and I've actually made him like, you know, put the credit card into the machine and complete the transaction and everything, but he doesn't understand what's actually happening. And so I want him to understand like, here are dollars here are coins. This is what money actually is, this is what one hour of work equates to. And I think that he can comprehend that at this age. And that's something that I have not done a good job of is teaching him where the money actually comes from, we talk a lot about Daddy goes to work every day. And he makes money, but I don't think they understand what's actually being done. Why want them to understand money is because they're growing up with a lot more than I grew up with. And so when I was younger, I very quickly learned like, I wanted things. But my parents didn't have the means to just go out and buy those things for me. And I think that that taught me very quickly, like, oh, well, somebody's gotta go earn this money. If I want it, I'm either gonna have to earn the money, or I'm gonna have to figure out a way to get my parents are in the money. So it made me start thinking about that at a very young age, I think that was a good thing. When you go without something it makes you want it and figure out how to get it. My kids have been so spoiled, because I've bought them way too much. And my husband has bought them way too much. And grandparents have bought them way too much everybody has that they just think like they say I want and then things appear. And that's not good. That's that just like teaches kids to be spoiled. They don't understand the value of $1. And that's how they ended up being entitled. And I do not want to have entitled brats and I see a lot of that behavior my kids right now. And I'm like, Well, clearly, I'm doing something wrong, we've got to do something to change this. So I think that actually making them work for money where you hand them money, and then they put it in a piggy bank or a wallet or wherever you store it. And then you say, Okay, what are we going to do with this money. Um, when we were kids, we had these little savings banks, and they had three parts to them. One was for saving money. One was for spending money, and one was for giving. And so charity, your church or you know, whatever it may be. And I very vividly remember those banks. And I remember being like so annoyed that we couldn't, that we had to give money away have successed in GE at a young age, I guess. And that we couldn't spend it all that we had to put it in savings to like, why. But I remember that really stuck with me. And I'm trying to think of the percentages, I know for sure that my mom made us for the giving part do 10% of whatever the money was, I think the savings was like 80%. And the spending was 20%. I'll have to get with her to clarify what those percentages were, that whatever the breakdown was, it was really good. And kind of I think the basic principle behind it was like, you know, Dave Ramsey's theory, you know, you use your money, you earn the money, and then you can spend the money, you're not going to borrow money to buy things that you haven't earned the money to buy. So anyways, I think that was a really, really good thing for me, as a kid was actually seeing whether, you know, it was like pennies and dimes and nickels going into these piggy bank slots. That actually taught me like, Okay, this is the amount of money that I've received for said tasks that I've completed. And now I get to decide where I'm going to put it, which at the time I thought my mom was like being a jerk by making us put it into three pots. But with the spinning, we could do whatever we wanted with it. And I think that that's really good because it does give your child some autonomy, they can decide what they want to buy, what matters to them. And then they can decide that if said thing that they have chosen, which my son right now is really hung up on dump trucks. You know, if they had to work for hours to obtain this dump truck, is it really worth it. And so you can really start teaching kids, little things like that at a young age that will stick with them the rest of their lives. One thing I think is really, really good to teach kids like don't borrow money until they are at an age where they can understand it. You know, when a kid turns 16 And they're going to buy a car? Do they really understand what getting a loan is to buy a car? Because they probably don't have you know, five or 10 grand or whatever it's going to be to buy a car it's a lot more than that nowadays, but that's what it was when I was growing up. Um, but do they also understand that if they sign on a loan if they Make 130 day late payment, that that's going to wreck their credit. I don't think they understand that as some kids probably do, but some don't. So I guess you just have to like judge the maturity of your 16 year old. But I assume some common misconceptions that people tell their kids all the time, are, if you pay your bills, you will have good credit. That's not true. If the bill you are paying is a liability, meaning somebody loaned you money, and you are paying them back, if it's reported to the credit bureaus, then yes, that will help you to build a credit score. But if you are just paying a utility bill, or paying rent, or paying a phone bill or something like that, those bills, don't go to credit reports. And so I thought growing up, like, Oh, if I pay my Verizon bill on time, every month, I'm going to have good credit. Wrong. Verizon doesn't report to the credit bureaus unless you go into collections with them, which is a whole nother thing. But I think that parents need to make it really clear to their kids, like, just paying your bills, is not going to give you good credit. And unfortunately, in the country that we live in the whole credit system is jacked, but it's how it works. And in order to buy a house or a car or any other thing that you want to leverage, it's, you've got to have a good credit score to do that in order to get a good interest rate. And so I think that it's important to teach kids like, yes, you should pay your bills, and you should pay them on time, because you know, you're receiving a service or, you know, have a place to live or something like that. And so that's what you should do, but that's not impacting your credit. However, if you don't pay your bills, when the creditor or the person collecting the bill send you to a collector, a debt collector, they can report those collections to a credit agency, and that will absolutely wreck somebody's credit. My first husband, when we were buying our first house, I just thought, Oh, he's gonna have excellent credit, he doesn't have any debt. His credit will be great. And it turned out he had horrible credit. And it wasn't his fault, because he had paid cash for everything his whole life, which is what his parents had told him to do. That's a good philosophy. But he also had one collection. And it was a silly medical bill. And it was from he had had a knee surgery or something like that. I don't think he ever even saw the medical bill got sent to collections, it was for a very small amount of money. And it tanked his credit. And I think that's something that he was shocked by I was shocked by his parents were shocked by. But it's something that happened all the time, I used to see it on loan applications day after day after day, is people would have like a $28 collection to something that they hadn't paid, they either forgot to pay, or they moved in thought they turned off the account and hadn't or a doctor bill had been sent to a wrong address, like there could be any number of reasons, collection doesn't get paid. And then your credit is wrecked, and you don't have any other debt. So I think that it's really important to teach your kids at a young age, at a young age, probably when they're teenagers.
You need to learn how to use credit properly. So if that means getting a secured credit card, or going on a credit card with a parent or something like that, you get the credit card, you don't spend more than 10% of the available credit limit. So even if they approve you for $10,000, you do not spend more than $1,000 on that card, and then you pay it off. And so if you keep it at that 10% or less, and then you pay off every month, then you're gonna have good credit. And then you have to monitor your credit as well. So like, you know, there's tons of agencies online that monitor credit now. So you can see if a collection or something like that, you know shows up and if it does, you probably need to get an attorney involved because if you just pay off the collection, although it will show the collection as a zero balance. So that will help your credit a little bit, it's still going to show that you had a collection on there. So if you can try to get an attorney involved, write a letter, see if you can get that collection actually removed totally from your credit report. And that's the only way to fix the credit if a collection happens. Um, this is a lot of technical information, but it really does matter. The next thing that I've been thinking a lot about and this is something that my husband and I disagree on greatly. I won't pay for my kids college, my parents didn't pay for my college, I had scholarships and worked my way through. They helped me here and there with books and stuff when they could, but they didn't pay for my college. I think that student loans are the biggest crock. And I know that a lot of people are like, Oh, well, there's no way to get through school without them. Yes, there is. School is increasingly more expensive, expensive. But there are tons of grants and scholarships out there. If you don't have parents that are willing to pay for your school for you, you can work your way through school. No, that's not a popular thing to say. But I did it. I mean, it can be done. If you come out of school with hundreds of 1000s of dollars in debt. First of all, we do have to count those when it when you go to buy a house for the first time, we have to count those in your debt to income ratio. And especially if you didn't get a high paying job right out of the gate, which most people don't they have hundreds of 1000s of dollars in student debt and then some worthless job. You're never going to be able to buy a house. So it's like why would you tell your kids go out and get all these student loans, it's almost better if there's no way around getting a student loan. If you can borrow money from a family member or something like that, to where it's not showing up on your credit or something that would be a much better route to go than getting a true student loan from the federal government. I can't tell you how many student loans that I've seen that have wrecked deals, people always say like, Oh, I'll pay them off, I'll pay them off. And they are 40 years old, and they still have these damn student loans hanging over their head for the rest of their life. And I think that one thing that is so important to me being somebody that put a lot of people on debt, because they were getting mortgages, you know, it's funny to say this, but like, debt makes you a slave. And I don't ever want to be a slave to anybody. And so I know that a lot of people say like, oh, Dave Ramsey is crazy for saying you should pay cash for everything, you should pay cash for everything, you shouldn't get a mortgage, all of that. I agree with him. I do think that with a house, because of the cost of housing, now you do have to get a mortgage. But like he says, If you can do a 15 year mortgage it's way, way, way better than a 30 year mortgage. But yeah, I don't want to teach my kids to be slaves to anybody. And so although I want them to know and understand credit and how it works, because I want them to have a good credit score. I don't want them to rely on it. And I think that that's something that we are really really, really screwing our kids, by every time we go to the store, just pulling out a credit card or a debit card and sticking in a machine because kids don't get it, they don't understand the difference between a debit card and a credit card, unless you're talking about it with them all the time. But even still, they still don't get it unless they have a job.
And even then they still don't really get it. And so I think that it's really important to show them like the cash aspect of things. And that's something that I've been really convicted about about I'm just need to every month, go to the bank and get out set amount of cash. And that's what my kids see me use when we go to buy groceries or whatever we're going to do, they need to see the cash exchange hands so that they understand. If we buy something expensive, it's going to cost more money.
Anyways, that's just what I've been thinking about. I've seen a lot of people that have done really, really well in life. And I've seen a lot more people that have done really shitty in life with their finances. Most people don't know anything about them. And a lot of my clients, it was interesting, because a lot of them you know, a credit score is an indication of your character, air quotes there. Um, but it is like if you pay your bills on time, if you pay your creditors on time, that means that you honor your word. You know, and you, you do what you say you're going to do, and that's something that you want to teach your kids. Now obviously there are times that life events happen that you can't control, like you get cancer or something like that. And you know, the bills pile up on you and there's not much you can do about it. And obviously that's just a outlier circumstance. It's not the everyday thing. But I do want to teach my kids like, you want to have good character, you want to pay your debtors, if you are in debt, but you don't want to be in debt because you don't want to be a slave. So it's a lot of rambling. I do think that the credit part is really important. I also don't think that people understand. So having high credit balances really, really, really drags down your credit score a lot, you shouldn't spend more than 10% of the available credit limit. And then also the other thing besides collections that really hurt your credit tremendously, or late payments. So if you have a 30 day or 60 day or a 90 day late payment, you can have 130 day late payment, and it's from five years ago, and it's still impacting your credit score. And so you've got to make sure to pay your credit cards on time, all of your debts on time, just because those late payments, they kill you. And it's kind of interesting, because people are like, well, I couldn't pay off my credit card. And I'm like, well, it's not the system says it's not about paying off your credit card, you just didn't make the minimum payment. So if the minimum payment was $17, you've still got to make that on time, regardless of whether you can pay off the card or not. The commonalities that I've noticed with people that had really shitty credit, that couldn't qualify for a lot of loans, is that they had tons of credit cards, they usually had flashy things like nice cars, we always saw, you know, a person would be applying for a double wide trailer, and then they would have $100,000 car sitting in the driveway, it's just stupid, don't do that. Buy a car that you can actually afford. Um, and, you know, there were a lot of rich people that I did loans for that had debt, but they knew how to use it. And so people are always like, Oh, I'm not going to pay off my mortgage, because I have such a low interest rate. And I could leverage that money elsewhere. And although that's true, if you're savvy enough to know how to do it, most people are not savvy enough to know how to do it. So if you have the money to pay off debt, whether that be credit card debt, carta mortgage debt, if you're just the average person, you're not somebody who's just killing it in business, who really, really knows what they're doing, pay those things off, don't sit on debt and pay interest unnecessarily if you have the money to pay it off. Because you say that you'll invest it wisely, elsewhere. And that's just not what I saw happening with most people's money. And I would also recommend that once your kids get to the age of I don't know, done with college or you know, adulthood, recommend to them like, don't have a huge wedding, like use the money that you would do on a huge wedding as a downpayment on house, and buy your first house young. And then once you are in that house, you know live there for a year, make it a cute house, whatever, then sit, keep saving your money, like you're going to, you know, need a downpayment for the next house, buy the next house and turn that first house into a rental. And you can do that over and over and over again. And it builds wealth. And people that know how to work the system and make it worked for them do really well with it. And you don't have to start out with a lot of money to do that. But I think most people just don't understand how it works at all. And so they end up living in, you know, one house at a time for their entire life. And they don't learn how to make the debt work for them, per se. So that's what I've been thinking about. As far as money goes with kids, I'm going to start showing my kids cash more regularly. And give them jobs to where they can start earning their own cash and allow them to spend their spending money on what they want to but also teach them the importance of savings and giving charity. And then also, when they are ready and of age, teach them about how to use credit appropriately. Get them a credit card, teach them to monitor their credit. It's also a good idea if you have little kids to freeze their credit when they're young. Because credit you know, identities can be stolen so easily nowadays. So you can call LifeLock or different companies like that, and they can help you do that too. But that's what I've been thinking about this week. Just some random thoughts. If anybody has any mortgage questions, I'm not doing a ton of mortgages right now, but I can help you with them. And at least at a basic level and tell you how the system or the game works and how to make it work for you not so that you are a slave the rest of your life. All right, we will talk to you guys next week and check us out at Liz Durham. dot com is the website and being different with Liz Durham on Instagram. We'll see you next time. Being different with Liz Durham is a palm tree pod CO production it's produced and edited by Anthony Palmer. Thanks to Emily miles for digital support. The content for this episode is created by me Liz Durham.