As a parent, there are lots of awkward conversations that you will have to have with your kids. The “what’s happening to your body” conversation, the “what happened to Fido?” conversation, the “birds and bees” conversation, and the “you need to wear deodorant” conversation. Parenting is full of awkward moments but there is no need to make talking about money with your kids awkward. A parent’s job is to teach your kid to be a functional and well-adjusted adult and teaching your kids about money is the best way to set them up to reach their future financial goals. Here’s a helpful guide to teach your kids about money with minimal awkwardness.
Make money a comfortable conversation
Starting when they are small, make money a regular part of the family conversation. Growing up in a family where money doesn’t have a stigma means that as an adult that kid doesn’t have a get uncomfortable talking about money. Hearing parents talk about the cost of bills, budgeting for groceries, planning for a vacation, saving for retirement, costs of car repairs, and paycheck deposits are all normal parts of life as an adult and allowing children to be involved in these conversations, age appropriately of course, goes a long way in helping them become financially savvy adults. A kid that helps plan a grocery trip to stay in budget learns important life skills and gains comfort in dealing with money. When shopping for back to school clothes, give your children a set budget, talk about their needs and shopping priorities, and see what choices they make. Do they spend all of their money on one sweet but expensive pair of sneakers and a jean jacket, or do they stretch it out by shopping the sale racks or TJ Maxx and end up with several new outfits for the new school year? Teaching your children the value of a dollar and how to budget to meet your needs is a vital life lesson.
Give Kids an Allowance Tied to a Responsibility
Teaching children that the work they do results in payment is an important lesson. Children given pay-inducing chores learn that the harder they work the more pay they can receive to reach their financial goals, even if those goals are for a Barbie beauty salon. Having some of their own money teaches children the value of a dollar and its connection to work they have to complete to earn that dollar. They are much less likely to spend their money frivolously when they realize that that bag of candy is worth a half-hour of mowing the grass. A great compromise is to have some regular household chores that your children are responsible for merely because they are part of the household. Perhaps they earn a flat fee allowance from completing those basic chores. In addition, they can be eligible to do extra work for extra pay, such as raking leaves, washing the dog, or mowing grass. Then children are incentivized to both participate in household maintenance and feel the responsibility of being a part of that household, but they also can choose to work extra for some extra pay that they can then choose how to spend.
Save, Give, and Spend
When children gain some autonomy over how they spend their money, it can be tempting to put tight stipulations on how they spend it. After all, you aren’t planning to raise a spendthrift who willfully blows all their money on a single, easily breakable toy. Give your children direction and guidance, but also give them loose reins. They need to be able to make their own mistakes so that they can learn from them. One set of basic parameters for how they are to spend their money is making them allocate some of their money for saving (for whatever goal they want), some money for giving (for whatever charity they choose), and some for spending (on the candy and toys they choose). This gives them the autonomy to choose while also teaching them that the goal of money is not merely for immediate gratification now, but also to delay gratification by saving for a goal and also for thinking outside of ourselves and thinking of others we can help bless. Then watch the choices they make and help guide them to learn from mistakes. If they spend a lot of money on a single video game (that they are soon bored with) and then don’t have enough money to go to the movies with their friends, they have learned a valuable lesson. Perhaps the car needs to be washed to allow them to earn some movie money.
Teach Older Children About Compound Interest
Wow your children this holiday season and open a savings account or an IRA for them (if they are old enough to be working). Okay, maybe it’s not as exciting as a brand new Xbox but it is an even more valuable gift to teach your children about compound interest. Kids are generally focused on the here and now and it is hard to get them to plan for next year much less saving for really long term goals like retirement, but having regular conversations about the importance of planning and saving will get them comfortable with the concepts. Help them along by opening savings and investment accounts for them and show them that investing young puts the power of compound interest in their hands and gives them a major advantage come retirement, or when saving for shorter-term goals like buying a car, going to college, or buying their first home.
Monkey See, Monkey Do
Kids want to be just like their parents, so set a good example with your money. Remember, they are watching you carefully, even those surly teenagers who just want to pretend they don’t know you sometimes. Set a good example by talking with them about why you made a financial decision, whether it was a good or bad one. Show them how to write a check, balance a checkbook, create a budget, shop sales, use coupons, research and save for large purchases, set money aside in a savings account, invest in stocks, and pay your taxes. Allow them to be age-appropriately involved in these transactions and they will gain money confidence that will allow them to charge into adulthood with confidence. Talk about your family’s long term financial goals, make saving for a family vacation a family game, take them to meet with your financial advisor as you discuss your investment portfolio, and talk about the costs of college. Making teachable moments out of every-day life gives them the tools they need to make wiser financial choices, and they will be able to understand why you suggest they go to the in-state college they earned a scholarship to rather than the private out of state college that their friend is also attending.
Parenting is hard and raising smart, capable, and financially-savvy adults seems difficult, but really it is a series of day-to-day teachable moments with your kids. Start where they are and craft age-appropriate lessons that they can grasp easily to teach your kids about money. Set a good example and allow them to learn from you. Talk through financial decisions that you make, whether it is why you chose the economy size jar of peanut butter or why you are skipping the family trip to Disney World this year and instead using that money to pay off debt. Children are little sponges who absorb the world around them with surprising density, do keep talking with your kids about money, allow them autonomy to make some financial decisions, and offer guidance to keep steering them on the right path.
