Talking to your kids about money
Money is a central part of our adult lives. We spend time most days earning it, we need it to get by, and it funds our fun and entertainment. But it’s often a topic we don’t talk about with our kids; however, teaching children about money from a young age is key for preparing them to manage it responsibly and effectively as adults.
Ultimately, every parent hopes their children will be financially stable, and it’s a common goal to want the next generation to be better off than the last. The good news is people increasingly believe this goal is within reach. According to a 2021 Guardian study, 57% of respondents say they are more likely to have a better quality of life and a better financial situation than their parents.1
Set your children on the path to prosperity by teaching them about money, from toddlerhood to the teenage years and beyond.
Start from the beginning: Teaching toddlers about money
Even young children can be introduced to the idea of money through play. Pretend one of you has a store and the other is going shopping. Be sure to include the parts of those experiences that involve money. You can also begin to introduce them to actual money: show them all the types of coins and have them organize them by like-kind or by size.
Next steps: Talking money with a preschooler
When your child gets a little older, they’ll be more curious about money and how it works. So be open with them — discuss it when you pay bills, go to the grocery store, and balance your budget. Even before an allowance is on the table, encourage your kids to pitch in around the house. A strong work ethic is contagious, and if you’re able to instill this concept now, by the time money comes into the picture, the work part has already been taught. Plus, you can continue to teach money concepts through play.
Providing a financial foundation for young kids
Between the ages of six and eight, children can begin to take on household responsibilities and earn an allowance. This will bring the concept of earning money into their world. Teach them about short- and long-term goals and the importance of saving. Creating jars for different goals, such as saving up for a new bike or having money for the ice-cream man, will help make these concepts tangible for them. You could even consider having them earn “interest” on their allowance to teach them about growing their savings.
Make earning an exercise in choice. Look at two of their most frequently purchased items and compare how many hours of chores it would take to buy one or the other. Ask them if they could only have one, which would it be and why? Would they be willing to do more chores to earn enough for both? This also helps kids understand that money is a finite resource and there are always trade-offs and decisions to be made.
Creating interest in finances in older kids
Children between the ages of nine and 12 can understand and grasp complex concepts, so you can talk to them in more detail about setting a budget. Walk them through your family’s starting balance and how each expense deducts from the available amount to show them where the money goes. Things such as Wi-Fi and streaming services are a great way to start a conversation about how paying for intangibles is an important part of budgeting. You also can instill a sense of generosity by showing that a portion of your income goes to a cause you support.
Discussing finances with young teens
Once you have a teenager, it’s helpful to start thinking about what they want to do after high school and the costs and impacts of those options. Younger generations tend to prioritize experiences over things; helping them understand the full bottom line of a senior prom or a class trip to Spain is a great opportunity.2
Or turn it into an activity. Have your child decide what their ultimate vacation destination would be. Give them a fixed amount, say $4,500. Let them research how much flights would cost for everyone in your family, the average hotel price per night, and any other fixed costs your vacation would have. Now have them see what’s left over for food, fun, and souvenirs (probably not as much they thought).
As their lives expand and require more funding, include them in the budgeting process and encourage them to look for ways to earn money (mowing lawns, babysitting, etc.). Additionally, this is a good age to talk about credit — how credit works, how important it is, and how to build a good score.
Ready for send-off: Money and older teens
The last stretch has arrived. Many major credit card issuers allow you to add a minor as an authorized user on your credit card. This can let them practice managing a credit card and can help them establish a positive credit line on their report. Make sure to keep talking about money and work with them on managing their own budget. Help them understand the tradeoff between what they spend on today and how that affects what they can purchase in the future.
Teach by doing
Remember, actions speak louder than words. Yes, conversations are crucial, but to really show your kids how to become confident with money, model the behavior you want to see them embrace. The 2021 Guardian Study of Financial and Emotional Confidence™ identified a segment of American workers, the “confident planners,” as those who feel the most confident in their financial lives. Why? They save approximately 23% of their income, are knowledgeable about various financial products, and their financial strategy addresses retirement income — to name a few of their good habits.
If these habits aren’t already a part of your financial life, try to add them, and don’t be afraid to talk to your children about the process.
Money doesn’t have to be a taboo topic with your kids. No matter how old they are, it’s the right time to talk about it. This will help prepare them for the real world, so when they do go out on their own, they know exactly what to do.
For more tips and advice, contact one of our financial professionals today. They can help prepare you for an open conversation about money with your kids.
Disclaimers:
1 The Guardian Study of Financial and Emotional Confidence™, 2021
2Millennials and Money: Understanding What Drives Financial Confidence, Guardian, 2018
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
2023-165663 Exp. 12/25 *pre-approved content*
