Parents tend to be their children’s natural first choice to go to for help on anything confusing or frustrating to navigate entirely on their own—such as finances. While traditionally thought of as a taboo topic to talk about, discussing financial matters with your children can help them to develop healthy habits early on and set them up to become financially independent.
Many might consider leaving the intricate money talk to their kids’ formal education. However, fewer schools than you might think offer courses in financial literacy or basic financial concepts, such as how to budget, how to manage debt, and so on. In 2016, only 20 states required high school students to take a course in economics and only 17 states required high school students to take a course in personal finance.1 This shows that without the guarantee of kids learning these topics in their formal education, teaching your kids financial issues at home is even more relevant.
Teaching your kids how to manage financial matters may seem like a mundane, insignificant thing to discuss with your 4- or 9-year-old. However, here are three significant reasons to introduce these topics:
1) It can help instill in them the value of money and the vast impact it can have on experiences, relationships and more.
2) It will prepare your kids for when they will have to make their own independent financial decisions.
3) It can provide them with better opportunities and help to enhance their experiences both now and later in life.
Figuring out how to go about this process can be tricky. As parents, you have control over interpreting what works and what doesn’t for your kids. While the best solution involves starting early and weaving in lessons often to reinforce your message, here are a few ideas:
Making and sticking to a budget later in life is considerably more difficult without learning how to do so and why it is important previously. If your child wants a specific toy, videogame or book, teach them how to keep track of their earnings (maybe from an allowance, birthday or holiday money they receive, or more) and how to save up for what they want. While they may grow impatient, once they’re finally able to make the purchase, they’ll feel proud knowing they earned that item on their own. When your child is a little older and gets their first job, encourage them to track their spending and savings more meticulously. With each paycheck, teach them to immediately put aside some for savings, some for investing or saving for a longer-term goal (such as college), and some for spending. By immediately setting aside their money, it will create good habits and lessen the temptation to spend more.
If you decide to give an allowance to your children, develop rules or guidelines along with it. For example, if you tie an allowance to chores, designate which chores earn a monetary reward and which don’t to avoid kids that choose not to make their bed or do their dishes without receiving money. While opinions on allowances differ, they do allow kids to learn the value of money early on by earning their own money and subsequently choosing what to do with it.
Whether your child is receiving an allowance, a steady paycheck, or the occasional birthday or holiday money, they’ll likely need a place to store their savings. If your child is of a young age, have them save their money in a place where they can watch it grow, such as a clear jar, piggy bank, or something else around the house. The visual aspect of watching their money grow can help explain the value in saving and waiting, rather than spending immediately. When your child is a little older, help them open up a bank account to deposit their money into to illustrate that they are now mature and responsible enough to do so. Encourage them to start creating their own longer-term financial goals and to keep up with their budgeting.
Talk about philanthropy and the significance of giving back early on. Have your child select a cause that is important to them—maybe their school, an animal shelter, their favorite park, church, etc.—and encourage them to give back to that. Giving back can be as frequent as they’d like but by simply introducing the concept and explaining the importance of supporting other causes, it will instill the habit in them and encourage them to keep it up.
Keep an open-door policy on your kids asking financial questions or addressing concerns. While you may not want to overshare on complex financial topics to especially young kids, helping them learn by answering their questions can prove to be very beneficial. A fun exercise might be to bring your kids along to a meeting with your financial advisor, where the advisor could explain their role and the financial matters that they can help with. Encourage your child to ask questions and get involved in the conversation. Lastly, be mindful that what your kids see and hear you doing over the years will have just as much of an impact on them as what you teach them. By providing a good example, you’ll be showing them how to navigate financial topics instead of just talking about it.
You don’t need to have a strict, sit-down talk with your kids to talk about money. Whether your kids are in preschool or about to leave for college, take some time to discuss finances with them in a matter best suited for your family.
Learn more on how to teach your kids about finance by speaking with your financial advisor on their thoughts on how to start the conversation. Find an advisor in your area here.
Written by North Star Resource Group.
1”Survey of the States.” The Council for Economic Education. Councilforeconed.org. Published January 2016.