Dr. Val Farmer
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Rural Mental Health & Family Relationships

How Farm And Ranch Kids Learn Money Management

December 3, 2007

Many rural children will be operating a family enterprise someday. Farms and ranches are big businesses that operate in a high risk economic environment. An essential management tool for farmers is financial management - capital investment, marketing, debt management, savvy purchasing, managing cash flow, accurate record keeping, income taxes etc. Farmers have to also reduce the inherent risks that go with every farming season.

Children and young adults won't automatically know how to do this without handling money and decision-making long before they reach management levels. Often they are taught farming skills and practices but left in the dark about business finances.

As young adults returning to the family farm, they may not understand the cost of new ideas or the risks involved. If adult children understand money management, they make better partners. Management philosophy is shared instead of being a point of conflict.

Learning to be comfortable with risk taking develops when children take part in decisions, share in the risks and experience rewards and adverse consequences of their actions. When parents take all that on themselves, the next generation can feel paralyzed with fear when they eventually take over. Many farming operations fall apart in succeeding generations because parents have been too controlling and haven't shared decision-making of dollars and cents financial management.

What are some common mistakes? Don't give children too much. Some parents buy new vehicles and fancy clothes for their children so that they experience the rewards of life without earning them. The farm becomes a big piggy bank they get to raid once and a while. A tax write-off for a new pickup isn't worth the inflated sense of value and expectations it creates.

Growing up feeling entitled to the best of everything is a set up for future disappointment. The children want to maintain their parent's standard of living right from the start and go into debt to do so. Parents with considerable means have to be especially wise about what to give to their children. They must make a connection between risk, work and reward.

Another big mistake happens when parents bail their children out from paying for their own traffic tickets, car accident repairs, breakage, lost items or other expenses incurred by their own negligence. Children don't learn to take responsibility - both personal and financial - for their actions.

When do you start teaching money management? Early - the younger the better. Let them handle and spend their own money. Let them deal with limited budgets where they have to make choices. When it's gone, it's gone. They learn the first rule of finances - don't outspend your income.

Let them earn money for extra work beside their regular family duties. Their pay should be in line with community standards for certain jobs so they get a connection between the world of labor and the cost of things.

Allowances can help children get a start on money management until they reach an age when they can be rewarded for meaningful chores.

Some families cover only necessities and expect their children to pay for perks with their own money. Parents often strike deals with their children so that when children earn a percentage of something expensive, the parents will make up the difference. Help them see how to shop sales and make their money go further. They also need to be savvy about the dangers of credit card interest.

Encourage regular savings. Let them have their own checking and savings account and encourage them to save toward future goals. Part of money management is learning to be generous, give gifts and use money to do good.

Be a role model by living within your means. Plan for purchases, save and make the purchases with cash on hand. Talk about what is smart and what is dumb - the hard times and the good times. Talk about examples in the community.

Give them a stake. Teenagers should be allowed to participate in family business discussions, hear the decisions being kicked around, learn about financial hazards and understand the big picture. Even if they don't have much to say, they will absorb information and learn about real risks and how decisions are made. They will learn to reason with you about business and money matters.

If feasible, let them work for someone else. They will learn about fair wages, how to deal with other employers, meet schedules and take responsibility. Working for someone else will help them develop the work ethic and see their own farm a bit differently. Mom and Dad's expectations about work and money will then be seen in perspective.

Caring and managing for their own livestock and other farm enterprises teaches entrepreneurial attitudes and skills. They see how farming works and how income is generated through buying and selling, breeding, good health practices, and about absorbing mini-enterprise risks. The proceeds will help them pay for their college education.

Projects in FFA and 4-H are great tools for teaching money and enterprise management. The cost of input and labor are calculated and learned. They will see the payoff and learn the downside too - good training for a future partner someday.