How to Start Talking to Your Kids About Money
Do you remember when your parents started talking to you about money? Whether it was because you got some cash on your birthday or you wanted an expensive new pair of shoes, you probably remember learning the basics of the dollar.
Talking to your kids about money is an important — and hopefully, ongoing — conversation that can help set them on the path to financial success. Children are perceptive and will quickly begin to pick up on how you handle money in your home. Having conversations with them early will help your kids understand healthy money management and form good habits, and there are some great ways to help them get started.
Why Money Matters to Kids
While you might be tempted to eschew conversations about finances with your little ones until they are older, starting early is best. The more understanding your children have of this universally important topic, the more comfortable they’ll be in the long run. Starting children off with a realistic, context-based, and accurate understanding of the value of money will help shape the basis of their financial knowledge, something that will be with them for life.
It’s probably pretty clear that kids will absorb any knowledge they can, especially when it pertains to things that they want. Most children are exposed to financial topics very early on in ways that might not be immediately obvious to you, and it’s easy for them to develop inaccurate understandings of how money works. Be transparent about your financial situation and experiences with your child, both the bad and the good. It’s better for them to know what’s really going on than to be in the dark, or worse, to misunderstand money.
Children are generally naturally impulsive. By teaching them to budget and delay gratification, you teach them life skills that extend beyond finances. These conversations are also tied to ones you should have about poverty and differences in income. Don’t shy away from these tough topics, as they’re also valuable to your child to understand and probably won’t be covered in school.
Start by setting good examples for your children. Your spending habits are subject to their scrutiny, even if you think you’re good at keeping them under wraps. In all financial conversations, context is key. Remember that children have a limited understanding of what cost means, so be sure to tie it all together so your child gets the big picture. Your kid might know that the shoes they want cost $50, but that doesn’t really mean anything unless they can relate that to the cost of dinner, a phone bill, or a car.
When to Start Talking to Your Child
The sooner you start having age-appropriate conversations with your kids about money, the better. Many experts say that it’s best to start talking to kids about cash by age 5. Once the topic is on your radar, it will become obvious how many opportunities you’ll find to talk to your child about finances. Grocery stores, the bank, and restaurants are all great places where your kids might tag along and where you can bring up the topic of money.
By the time your child is about 7, they’ll have learned math skills that will help them have a better understanding of spending. If you haven’t had conversations with your school-aged children about this topic, this is when it starts to become more urgent. Other kids will have had conversations with their parents by this age, so start laying the foundation of your child’s financial understanding ahead of time so they can hear it from you first. This puts more control of your kid’s perception of money matters into your hands.
Advising your kids about money doesn’t end when they’re out of the house either. Be prepared for many years of financial conversations, from when your kid gets their first job, to when they get their first credit card, and to when they have to start considering student loans. Be available to your child when they need financial advice, and help guide them in making good decisions.
Tools for Teaching Kids
You deal with finances on a daily basis. That means there are many opportunities for lessons on spending and saving with your kids. Try some of the following techniques to make sure your children get the most out of conversations about money. You can also check out our Household Finance Glossary, a great tool for learning more about common financial terms.
Coins — Coins are a great way to start teaching young kids about money. Sorting coins, explaining their equivalent values (ex.: two nickels equal one dime), and playing “store” are great activities that will help your child begin to understand money values. Piggy banks are a good way to help kids learn the very basics of saving. Consider using a clear one so your child can visualize the accumulation of money.
Allowances — Allowances help your child become comfortable with handling money and learn responsibility for keeping control of their own cash. Set expectations about how your child can earn and spend money. It’s worth considering whether or not your child’s allowance is tied to household chores: many financial advisors now recommend against tying an allowance to chores you expect your child to complete regularly, since things like keeping a clean room should be expected of anyone. On the flip side, it’s important for kids to understand that money is something to be earned. A good option may be using chores or tasks outside of daily household basics, such as chores you’d usually take on yourself, as ways for your child to earn money.
Bank Accounts — A bank account is an important first for kids. Typically, the best bet for kids is a savings account, since they won’t really need the features of a checking account. Some banks have account options just for kids. Bank accounts provide you with lots of teaching tools for your kids, and plenty of opportunities for conversations about deposits, debit and credit cards, interest, and saving money for the things they want. When your child is old enough, help them get established with their first credit card. This important piece of kid’s financial educations often gets skipped over. Low-limit or student cards are great for first-timers.
Helping your kids build a good foundation of financial understanding is an important part of parenting. With your guidance, your child will be able to navigate the road ahead of them as money becomes a bigger part of their life. Don’t shy away from having these conversations from an early age and preparing your child to confidently deal with money.
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This post was updated February 28, 2019. It was originally published June 21, 2017.