It can be tricky to start financial conversations within your family. Perhaps you don’t know where to start or feel you’re not always setting the best example. The fact is, however, even very young children grasp the concept of money. And, whether it’s talked openly about or not—all children will learn to manage money from their parents. With that in mind, we want to help you set your family on a financially healthy path.
Thankfully there is a lot of research and plenty of practical resources, apps and tools out there to support you. Seeing that your kids are going to observe and adopt much of your own approach toward earning, spending and saving, below are some age-appropriate ways to talk openly and honestly with your kids about money.
Start ‘Em Young
Preschool-age children have already formed feelings around spending money and understand that money is a way to get things they want. When they can see and touch it, they can also grasp the idea of saving, though more abstract concepts about money, such as borrowing or using checks, will still elude them. Preschoolers will perceive all money as having the same value and may assume that coins are worth more than paper.
For very young children, playing grocery store and bank teller can be a fun way to introduce the behaviors around spending and saving. Helping little ones sort different coins into piles by size or color can help them learn to distinguish them from one another. As they grow, you can set a savings goal with a piggy bank for something they want as a means of explaining how banks work.
Early elementary school children will believe that money magically appears out of an ATM and still struggle to grasp that things taken off the shelf must be paid for. Talking about jobs and taking little ones to your workplace can help them learn about income—how you work to pay for things like food and clothing. While they will struggle to control their impulses, asking them to decide between two or three treats (instead of getting all of them) helps you begin to talk about managing their impulses. As they age, you can begin to teach them about smart shopping by drawing them into helping you clip coupons, for example, and comparing prices at the grocery store.
Older elementary and middle school kids will begin to understand that all those things on the shelf cost money and that money itself is limited. At first they will struggle to reconcile the cost of things and what they must pay for them. Eventually, they can begin to use math skills and appreciate the value of an allowance, if you choose to provide one. Games like Monopoly® or PayDay® can be a fun way for the family to introduce the more abstract concepts of borrowing money and paying it back. Allowing them to take their hard-earned money to the cash register for a purchase will give them a sense of independence and pride. And when they want every toy they see but have exhausted their own spending money, maintaining your limits is a critical way to teach them about consequences.
Support Teens in Owning Their Financial Needs
By the time kids near their teenage years, most will want to have money of their own. By high school, they are likely to be comparing their financial circumstances with those of their friends (often feeling they are coming up short!)
You can help young teenagers feel financially independent by encouraging them to earn some money, say, by assisting a grandparent with yard work or walking the neighbor’s dog. Older kids may need your help getting to and from their jobs, learning how to juggle their time and setting up a bank account of their own. As they manage their own paychecks, you’ll find the opportunity explain things like taxes, retirement savings and social security.
Once kids have their own money, help them set up a budget and savings goals for something they want and make a plan for getting there. When they succeed, praise them for their self-control and celebrate their purchase. When they miss the mark, talk with them about the trade-offs between immediate and long-term rewards and remind them we all sometimes struggle to balance the two. As kids get older, talk to them about putting money into an investment account with compound interest for a much longer-term goal.
Most of all: allow kids to make their own financial mistakes. While they have watched you comparison shop and weigh your own decisions, it may take a misstep or two to learn about the relationship between quality and value, for example. We’ve all been burned by the too-good-to-be-true “deal” that was indeed not good. Let them learn early and without judgement from you.
Include Kids in Some Family Financial Decisions
We get it, you’re not about to hand over the responsibility of your mortgage to your 8-year-old. But within reason, watching you make decisions and plan for expenses will teach them how it’s done. When they grumble about, say, your less than sporty car, admit that you’d like a newer model but instead chose to spend that money on something else. It’s good for kids to see that their parents, too, have to choose between needs and wants.
To model discipline and financial planning, include your young teenagers in a family decision to cut one regular expense. Decide together whether you’ll forgo, say, a favorite family treat or a movie-streaming service. Then, each month, deposit the amount you’ve saved into a jar or a shared family account so they can see how it builds up.
Don’t be surprised if they fixate on credit cards as a magical solution to immediate gratification. Teenagers are especially attuned to their spell, but even very young children will watch you use your card with curiosity. Age-appropriate conversations on-the-spot about paying with credit will take the mystery out of the process and replace it with an understanding of the consequences of borrowing with interest.
As an antidote to the seduction of relaying on credit, bring them into the process of saving and planning for a big expense such as a pet or a family vacation. Decide together not only how to budget for the trip (“earn more or spend less?”) but also how the money will be spent (“a bigger cottage or a day-trip to zip line?”).
Far from burdening your children, talking with them about money will give them a sense of agency over their own circumstances and allow them to practice good financial behaviors early and often. Earning, spending and saving is a lifelong challenge and one nearly everyone struggles to keep in balance. When it comes to money, self-discipline, desire, disappointment and pride are just some of the emotional terrain you are asked to navigate. Let your children experience it first with you before they go off to do it alone.