Smart Money Smart Kids: Raising the Next Generation to Win With Money

by Dave Ramsey

  We start by teaching a small child to share, and we increase the sophistication of the discussion as they mature. If you can instill in your child’s heart the idea that he is a manager, not an owner, you have given him a tremendous gift. You have safeguarded him from letting wealth ruin his life.

  The Magnification Principle

  Another safeguard you should instill in your children is the principle of magnification. Money magnifies whatever and whoever it touches. Wealth exposes people for who they really are—whether good or bad. If you have a temper, wealth will make you a raging lunatic. If you are a giver, wealth will make you a philanthropist. It is vital that you teach your children that their good and bad character traits will be magnified as they grow their wealth. Once children understand this idea, it gives pause to consider how they act and who they are striving to become.

  The Community Principle

  A third safeguard you can employ to keep the power of money from hurting your children is the community principle. Surrounding your children with adults and other children who have healthy value systems safeguards their hearts. It is also great to spend time with other families who are not only winning with money but also share your value system. It’s good for your child to be friends with the son of a generous, wealthy man or for your daughter’s best friend to have a mom who is a successful entrepreneur. These adults and children become the community that further insulates and safeguards your child’s heart against wealth’s potentially harmful effects and sets up positive opportunities for wealth to be a blessing instead. You should teach your children to be kind and willing to interact with virtually anyone from any background, but the point here is to be very intentional about who is influencing your child. They become who they hang out with.

  DOING THE DETAILS

  In our Financial Peace University class that’s taught in churches and communities all over the country, families come together once a week for nine weeks to hear Rachel and me (plus other great speakers) teach them how money really works. We have lessons on saving, debt, smart shopping, giving, and all sorts of money-smart principles. But of all the topics we cover, the most important one is the budget lesson. No, learning how to do a budget isn’t much fun, and it certainly isn’t glamorous, but we’ve found the budget is the single most-important factor among people who win with money. Why? It’s because details matter. You will never win with money by accident. In the same way, you’re not going to pass on a financial legacy to your kids by accident. It takes planning, and it takes some time doing the details to get your children—and your estate—ready for the handoff.

  Having “The Talk”

  Throughout this book, we have taught you to make money-smart kid principles an ongoing, constant discussion with your children. As parents, you must strike a balance here. Don’t obsess about money with them. At the same time, don’t think your job is done because you’ve had one “money talk” with them. One money talk won’t cut it. Instead, make the discussion continuous like you do with other things you want to become part of your children’s character. Some parents are so secretive and paranoid about money that they simply don’t discuss it. As a result, their kids grow up in homes where the parents never talk about money and never talk about sex, so the kids assume the parents have neither! They are later shocked to find out their parents had both. This lack of communication leaves children completely unprepared to deal with these issues.

  Family Constitution

  I have found that many wealthy families have family constitutions stating what their families are all about—essentially their mission statements. This does not have to be a difficult or particularly detailed document. Ours isn’t. As you can imagine, ours includes working, giving, investing, and avoiding debt. Our opening line is from the Bible: “As for me and my house, we will serve the Lord” (Joshua 24:15 NKJV). If you are not a person of faith, you would start yours differently, but you can still state what your family values are. The Ramsey family crest from our Scottish heritage uses the Latin phrase Ora et Labora: Pray and Work. High-quality organizations have clear vision and clearly stated values. This is also true of high-quality families. Take the time to write a family constitution. Read it to your kids, and refer to it often. They may not understand its impact at first, but over time it will show them that your family is committed to each other and has a purpose and a mission.

  Estate Planning

  This is not an estate-planning book—not even close. But my friends who are estate planners tell me that about 70 percent of Americans die without a will. That is ridiculous, not to mention really bad stewardship. When you die without having a current will and estate plan, you leave a huge mess for your family. The mess is legal, financial, relational, and emotional. A wonderful way to say “I love you” to your family is to have your estate plan completed in detail. One of the last teachable moments you will provide your money-smart kids (once they are adults) is to show them how to plan their estates and hand down wealth generationally.

  When your will and estate plan is complete, you should have an informal reading of the will for all the adults involved, including your grown children, so everyone is clear about how you plan to handle your estate. You should walk through how the estate will be divided and what your intentions are. You can work out any potential problems or hurt feelings right then. This is to avoid the overly dramatic scene you’ve seen in too many movies where the trophy wife, the good child, and the evil stepbrother erupt into insanity after listening to the reading of the will. But that is not how life really works. Talk through your estate plan while you are alive so there won’t be a major inheritance battle later.

  Also, it’s important to remember that fair does not mean equal. If one of my grown children is doing drugs and living a horrible life, he or she will get zero from my estate. This is not an act of punishment but an act of love. What loving parent would finance his child’s drug problem? If you have a special needs child, he will likely need and get more so he is cared for adequately. If there are grown children from a first marriage and one of the parents remarried later, the grown children might get less than minor children who still need care. If you discuss your intentions with everyone involved and explain your reasoning in advance, you are doing your loved ones a great service. Way too many families waste time fighting over botched or neglected estate preparations while they are trying to grieve the loss of a loved one.

  Get Organized

  In our Legacy Journey class, members are given a wooden box that holds files and fits into a file drawer. We call it the Legacy Box. This box, or just your file drawer, should be the go-to place for all the paperwork that will be needed upon your death. Your spouse or children should be able to simply open that drawer and find the insurance paperwork, you and your spouse’s wills, titles, investment statements, financial statement, and all other important papers necessary to manage your estate after your departure. There should be no mystery, no hidden documents, and no need for a metal detector in the backyard looking for buried jars of money. Completing your estate plan—including compiling a Legacy Box with all your important documents—and discussing your intentions while you are alive are two of the most loving acts you can do for your family and your grown money-smart kids.

  Honoring Broke Parents

  Grown children often ask me what their responsibility is to parents who are broke. A lady named Renée recently called my radio show, torn about what to do with her mom. Her mom was fifty-eight years old and had mismanaged money and overspent her entire life. She couldn’t hold down a job because she didn’t want to work, and when she did work, she went in late and was hard to get along with. Renée’s mom was also a travel agent for guilt trips, telling her daughter that it is her biblical duty to support her. She often quoted “Honor your father and mother” to her.

  The biblical mandate to honor your father and mother does not mean to finance their bad behaviors. If your dad is using cocaine, how does giving him money honor him? Y
ou can honor the person and the role of parent without being required to finance bad behavior. I certainly don’t mind if you help with some basics, but even then, you need to be very careful to avoid enabling. You have to define what is really helping them and what is throwing money at them to get them to shut up.

  On the other hand, there is the mom who has been faithful. She has been a good person, but she simply never made or saved much money. Obviously, this is a much more attractive person than Renée’s mother, and it makes the decision to help much easier. Your first obligation is always to your own household and children, but helping parents when they truly need assistance is a fulfilling thing. A friend of mine has a wonderful father. This is a good man who has worked hard and has saved money, but he never made much, so he still had a mortgage going into retirement. It was a lot of fun to watch my friend pay off his dad’s house. I’m pretty sure neither this father nor his son thinks wealth is evil.

  The Greatest Investment

  Managing wealth and passing it down generationally takes hard work and discipline. It also takes time—time to teach your kids the money-smart principles in this book. It doesn’t happen overnight. Early on, you may have as many mess-ups as you have wins. That’s okay. Keep at it. Put in the time, and use every opportunity you can to create teachable moments. If you do, eventually you’ll see the fruit of your hard work. You’ll get to watch as your grown kids go out on their own—confident, money-smart, and ready to take on the world. And you will know all that hard work was one of the greatest investments you ever made.

  EMBRACING THE RESPONSIBILITY

  RACHEL: “Mom, are we rich?”

  I was a little girl when I asked that question. Mom and Dad’s bankruptcy was a decade or so behind them, and they had done an incredible job moving past it and building a new business. Dad’s radio show was taking off, and his Financial Peace University class was growing nationwide. He had two New York Times best sellers by then, but his best-known book, The Total Money Makeover, was still just an idea knocking around in his head. It was definitely a time of transition for our family, and as I watched the financial stress of the last several years drain out of my parents, I had a sense that our money situation was changing.

  Growing up, the Ramsey kids never had any idea how much money our parents made. I’ve told you what life was like for us when I was young. I was raised on second-hand, consignment-store clothes. Mom was the coupon queen. Dad was a master at flea-market bargaining. Our favorite restaurant was Sharon’s Kitchen. Mom and Dad both drove cars with squealing brakes and torn interiors. Dad worked all day every day and several nights a week. Then, gradually, things began to change. You wouldn’t notice it if you weren’t really paying attention because the changes were so subtle. Dad was home more at night. The cars got nicer. We ventured outside our own kitchen for dinner occasionally. Our vacations had more sights to see than just our old tent and campgrounds. There was never a time when I thought, That’s it! We’ve finally made it. We’re not broke anymore! Like I said, it was a slow shift in what we were able to do. Our conversations about money didn’t change, and how we handled money didn’t change, but what we were able to do with our money did.

  Flash forward another decade later. I was twenty-one, and I’d only been married a few months. College graduation was a month or so away, and I had already decided to move back to Nashville and join Dad in his crusade—our crusade—to spread the message of financial peace around the world. My husband and I walked into my parents’ house and joined my brother and sister in the living room. Family meetings were not uncommon growing up in the Ramsey house, but when Dad called this particular meeting, we all had a feeling it was going to be a little different. We knew Mom and Dad had been doing some planning for the future because we’d already had a few conversations about their wills and estate plan. But tonight was different. Tonight, I was going to learn everything.

  Dad walked us into the kitchen, and we noticed neatly prepared, meticulously organized folders at each seat around the table. I’ll admit I was a little nervous. The first thing Dad said was, “Do not look ahead in your folder. This conversation will be a progression, and I don’t want you to jump to the end.” Then Dad talked about how much God had blessed our family, and he reminded us how difficult those early years had been for us. He talked about the sacrifices he and Mom had made and how committed they had been to handling money God’s ways. He told us that money didn’t have morals of its own; instead, it takes on the characteristics of the person holding it. He stressed how money magnifies everything, so it can make a generous person incredibly generous and a selfish person unbelievably selfish. He said money can be a blessing or a curse, and it all depends on our attitude and behaviors with money. He spoke of all the good we could do with money—for both our own family and the whole world—if we saw it as a tool to be used for the good of others. Finally, he said, “God’s ways of handling money work. They worked for our family. But whatever you see in your folder isn’t ours; it’s God’s. He’s the owner, and we’re the managers. We’ve been having these conversations with you kids your whole lives. Your mom and I know you can handle the responsibility we’ll leave you one day. So it’s time to take a look at what you’ll be responsible for.”

  With that, we started looking through our folders. It was a full estate plan, showing every detail. For the first time in my life, I knew everything. As we were going through the folder, I was surprised by the fact that every single page, every number in every column, felt like a responsibility, not a sum of money. That weighed on me. I didn’t want this responsibility to come between me and my husband or my siblings. I didn’t want to mess up what Mom and Dad had done such a great job of building over the past two and a half decades. Sure, it was amazing to see a record of God’s faithfulness and blessings, but the atmosphere around the kitchen table that night was serious. We weren’t laughing and playing. This was a circle of adults who, together, were responsible for managing a portion of God’s resources. The thing is, though, I wasn’t scared. My parents had been preparing me for this my whole life. I knew how to handle money. I knew how to work, spend, save, and give. I don’t know if you could say I was born for this, but I know without a doubt that I was raised for this. As we sat there going through everything that night, I thought back to that question I had asked my mom so many years before: “Mom, are we rich?”

  “Yes, Rachel,” she had replied. “We’re rich in love.”

  Choose Life

  “Rich in love”—that phrase has been ringing in my ears most of my life. When I was born in the middle of my parents’ financial crash, I’m sure they didn’t feel “rich.” When Mom used coupons for every purchase and bought all our clothes at consignment shops, and when Dad had to work fifteen hours a day to put food on the table and pay off all their creditors, they didn’t feel “rich.” Even years later, as they built wealth and were able to afford nice things, they avoided the trap of feeling “rich” with money. Instead, they always kept their focus where it mattered: They determined that, no matter what, our family would be rich in love.

  That was their decision, their commitment to handle money God’s ways and to teach their children to do the same. It’s the same decision you’re facing right now. Deuteronomy 30:19 says, “I call heaven and earth as witnesses today against you, that I have set before you life and death, blessing and cursing; therefore choose life, that both you and your descendants may live” (NKJV). As we wrap up this book, I want you to think about all the ways we’ve discussed preparing your kids to win with money. You won’t always get it right, but you have the power to pass on a legacy of blessing or cursing—life or death—to your children. If you’re reading this book, it’s clear which one you’ve chosen for your child. You chose life.

  CHAPTER TWELVE

  I Was That Dad . . .

  DAVE: I was that dad. At the beginning of this book, you read about the fabulous debt-free screams that occur in our lobby and are broadcast on The Dave R
amsey Show. Rachel described a typical family who visits our lobby, and she talked about how she saw herself in one of those little girls. She was that little girl whose parents had made mistakes but decided to make better decisions about their future, setting themselves free from debt. She was born the year we filed bankruptcy, so it is more than ironic that she has been called to teach this material.

  I was that dad. I was the dad who made every financial mistake imaginable. Whatever you have done wrong, I have done it with zeros on the end. I was that dad who was broke and broken. I was that dad who did not have everything figured out. I was that dad who did not practice the money-smart principles in this book perfectly. Yet I was also that dad who won in spite of all my imperfections and mistakes.

  Now you are that dad or mom. You don’t have to be perfect in your handling or understanding of money to teach these concepts to your children. There are no perfect parents. We all know that, so give yourself some grace. But be in the game. Be in the fight to win your child’s heart to money-smart principles. We were not perfect parents in the Ramsey house, but we kept at it. When we dropped a pass, we didn’t quit the game and walk away. Instead, we threw the pass again and again, so that at least sometimes it was caught.

  Teach It Like It Really Matters

  There is a story in the Bible where Jesus teaches about the cost of discipleship. While walking along the road, He says to a man, “Follow Me.” The man answers, “Lord, let me first go and bury my father.” Jesus’ response is kind of strange. He says, “Let the dead bury their own dead” (Luke 9:59–60 NKJV). The first time I read that verse, I thought Jesus actually told the man not to go to his own father’s funeral! Then I heard Larry Burkett, a Christian financial teacher, offer a plausible explanation for Jesus’ radical demand. Larry said that in Jewish tradition, on the day a man reached retirement age, he turned over all his wealth and possessions to the control of his oldest son. The oldest son then had the responsibility to take care of his parents, minor siblings, and unmarried sisters with that money. Larry suggested that the man’s father had probably not yet died; he was simply ready to turn over his wealth to his son. So this son may have been saying to Jesus, “I will follow you, but first let me run home and pick up my dad’s wealth.”