By Kathleen Grace
Teaching your children about money is really the same as good parenting. There are two important things you need to do to increase your likelihood of raising a financially savvy child. First and most importantly, model good financial behavior for your children. From a very young age, your children begin emulating what they see you doing. This is as true with money as it is with speaking, mannerisms or anything else.
Second, have conversations about money with your children. Money should not be a taboo topic in your household. These conversations should parallel the behavior you’re already modeling and should get your kids thinking about the role money plays in their lives. We offer five things to keep in mind as you have these conversations with your children.
1. Start Young, Reinforce For a Lifetime
By age three, children are ready for an introduction to money. In fact, they’ll often begin to play with coins and toy cash registers if given the opportunity. Join your children and use this play as a way to begin discussing the value of coins and the purpose of money.
As your children get older, you will have the opportunity to expand these lessons from the very basics to complex issues, such as prioritizing goals and budgeting to save for wants and needs. The conversation between you and your children should continue throughout this period, and new lessons should reinforce and build upon the lessons taught previously.
For preschoolers, begin by giving them different valued coins and a piggy bank or jar to put their money in. Discuss the coins, how much their worth and how the amount adds up as they save more coins. By age 10, kids can learn about financial goal setting and smart purchase decisions. Set up exercises or games to encourage them to save for a special purchase. With teenagers, it’s time to talk about using credit and living on a budget. They are approaching full-time employment or college, and will soon have to manage their own money.
2. Share Your Financial Situation, But Not Your Anxiety
It can be a great idea to speak with your children about your financial situation, including how much you earn, how you choose to make financial decisions and what long-term financial plans you have made. However, a grade-school age child doesn’t have the emotional maturity and aptitude necessary to properly understand and process significant anxiety and fear. So, while sharing your financial situation is important, it is equally critical to know what not to share.
For example, talk to your children about how you prioritize spending between food or other necessities versus discretionary items, such as new toys. Help them understand that the decision to purchase one item may preclude the ability to buy the other. But it is not a good idea to share with them that you’re fearful that you won’t be able to make a mortgage payment. It is equally important for spouses or partners not to argue about money in front of children. These emotions do not teach a lesson because seeing and feeling your fear or anger will cause them to associate money with stress.
3. Three S’s – Spending, Saving (Investing), Social Good
As you prepare to teach your kids about money, it can be helpful to focus on three primary areas: spending, saving & social good. All three are connected in many ways, as they related to budgeting and prioritizing use of money, but can be addressed independently with your child. A wonderful tool to illustrate this is The Money Savvy Pig piggy bank, which includes four savings slots: Save, Spend, Donate, Invest.
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Whether you are discussing your own financial situation or helping your child make spending decisions about a sum of money they have, spend time helping them understand how you make spending decisions. Discuss wants versus needs. Explain what you look for when purchasing a product or service. Explore the difference between price and value, and that sometimes a higher price does not mean a better value.
On the flip side of spending, discuss saving with your children. Help them understand the importance of both short- and long-term savings goals. A great way to do this can be by discussing saving for a family vacation. Explain what a vacation costs, and how you go about setting a budget and saving to pay for that vacation. Your children probably already look forward to vacations, and may even want to help in the process. If so, offering them a small allowance that they can choose to save for a vacation fund for themselves can be very powerful. And you can reinforce that message by offering to match their savings if they have been diligent savers.
The final “S” is social good. Helping your children understand charity and helping others can lead to, not only wonderful financial lessons, but also a lesson in compassion. When discussing social good, help your children understand that there are many ways to contribute. Providing financial assistance to charities and those in need is one option. But also volunteering time to help or offering other resources can be equally beneficial and rewarding.
4. Money Teaching Tools and Games
There are a variety of tools and games to help teach your kids about money. Playing games with your children offers a great way to begin money discussions in a fun and productive way.
Using cash when shopping with your children can offer a powerful learning experience. Even young children can quickly learn the mechanics of paying a certain amount of cash for an item of a certain value, then receiving change back for the difference. Let them hold the bills and coins, and hand them over to the cashier. Using credit or debit cards, however, does not offer this. The entire transaction becomes too abstract for a child to learn from. Use these shopping trips to talk to your children about purchasing value rather than brand. And always shop with a list.
The most basic tool for teaching your kids about money is offering an allowance. This may provide children their first opportunity to handle their own money and begin to learn the difference between wants and needs. An allowance also opens the door for a discussion with your children about money. And many tools exist to help your kids manage their allowance. One online tool to help your kids manage their allowance is ThreeJars.com. This website offers an allowance tracking system whereby your children’s allowance is held “on credit” with you until they request money for a purchase. You then give them the money they have requested and earned. The website provides three “jars” for allowance money to be saved in: spending, saving and sharing.
With older children, it can be beneficial to have them role play setting up a savings and checking account, budgeting for food and other expenses, paying weekly expenses, purchasing a car, and even buying a house and applying for a mortgage. These types of role playing exercises can help children learn the complexity of financial decision-making and get them interested in managing money.
Other games that can be helpful include: Cashflow 101, Monopoly, The Game of Life, Charge Large board games, and the iPhone/iPad app Save! The Game.
5. Small Mistakes
One of the real benefits of beginning money lessons with your children young is the opportunity to allow them to make small mistakes. As parents, we have a compulsion to stop our children from making mistakes. However, these small mistakes can be wonderful learning experiences. Allow your child to buy the junky toy out of the $1 section with their own money even though you know the toy will most likely break or disappoint within a few days. This $1 mistake today can offer a lesson worth thousands of dollars in the future. And resist the urge to say “I told you so.” Your child is going to get the message on their own. Allow them to talk with you about the frustration with the toy, and help them recognize the importance of buying “quality” and the lesson inherent in it.
Whether you’re sharing your own financial situation or participating in advance money management games, it’s really about having conversations on how to make better financial decisions. Teaching your kids about real life financial responsibilities will help them build a solid foundation in money management that will last throughout their lives.