As a parent or grandparent, it’s important to equip your kids with the knowledge and resources to create a strong financial future. You may have begun saving for their college education or invested on their behalf, but have you had many one-on-one conversations about effective money management and critical financial literacy skills? No matter your child’s age, there is an opportunity to familiarize them with financial lessons they can carry into adulthood.
Why Talk to Children About Money?
Money management is rarely taught in school, so children tend to learn their financial skills and habits from their parents and other close loved ones – for better or worse. Whether parents have a poor or positive relationship with money, there’s a good chance their children will follow suit.
Do you want your children to adopt your financial habits? Think about the example you’re setting. And, think about what you would have done differently, given the opportunity to step back in time. Those are the lessons you’ll want to instill in your children, and it all starts with an open and honest dialogue about money – why we need it, how we earn it, and how quickly we can lose it. Key basics, such as a budgeting and saving, can be taught at any age.
How to Start the Conversation
Bring your children into your daily money-management decisions. A trip to the ATM or your next cash back request from a cashier may seem like second nature to you, but these types of situations can serve as an opportunity to teach valuable financial lessons. For instance, why are you pulling money out? How do you decide on an amount? How are you spending the money, and how does that figure into your monthly budget? What are the mechanics of using an ATM? Young kids probably think money just comes out of the magic box.
You can also find valuable financial lessons among household chores. As an example, does your kid know how you budget for groceries each month? In addition to the budgeting, there’s a spending lesson at the store as well. You can also teach financial skills when paying monthly bills or deciding which home maintenance or renovation projects to take on.
Make it Age Appropriate
Think about what will resonate most with your child or grandchild before starting the conversation. Your 16-year-old daughter will likely have more financial knowledge (and interest in learning, if she is saving to buy a car) than your six-year-old son.
With older children, you can discuss credit cards, saving for college, managing bills, and even investing basics. You don’t want your child to go off to college and get bombarded with credit card offers that can put them in debt for years.
Younger children often cannot put various amounts of money into perspective. If they get an allowance of $5 per week, they may think $500 is an astonishing amount of money. You can use your child’s allowance to teach them valuable lessons about saving for a big purchase, like a tablet or a new toy they really want. Engage them in the process by doing some simple math each time they save their allowance. How much did you have before you deposited this money? How much do you have now? How much do you need to buy the new toy?
Talk About Privacy
It’s also important to stress to your child or grandchild that money matters are personal and should not be shared with other people. Talk about who your child could potentially share financial information with, and why that person should or should not have that information.
Emphasize the importance of keeping confidential information private, especially when it comes to fraud prevention and identity theft prevention later in life. Scammers prey on those who easily share their financial information, such as bank account or credit card information.
Make it a Formal Affair
As your children get older, you can expand the dialogue about family finances with annual, structured financial planning meetings, possibly mediated by a financial planner depending on the topic. These meetings offer a forum to discuss taxes and managing large expenses such as college tuition, a mortgage, a wedding, a car, or a trip.
Further, these meetings are an ideal forum to discuss things like the appointment and role of trustees, guardians, executors, and attorneys or to create a plan if you die or experience medical issues.
It’s Ok to Not Know the Answer
If you are asked a question and don’t have the answer, it is okay to say, “I don’t know. Let’s find out together.” Depending on the question, you can turn to a variety of resources to find answers. A financial planner can be a great resource and can answer many questions related to money management. The Pinnacle team is especially skilled at making even the most confusing financial topics understandable, even for kids!
You can also turn to financial blogs and news websites for expertise and advice on numerous financial topics. However, be sure to do some research to ensure the website you are reading is a credible source.
Talking to children about money allows you to pass on your money values, whether that’s about spending less than you earn, contributing to charity, limiting the use of credit cards, or talking about the difference between wants and needs. It is never too early to talk about money in ways that are honest and provide the opportunity to learn.