U.S. parents recently revealed one of their biggest regrets in a study by Empower. More than half (57%) said they regretted not having more money conversations with their children as they grew up. And 60% said that if they could turn back the clock, they would’ve made teaching financial literacy a priority.
When you have kids, you do your best to set them up for success. Talking to them about money is a huge part of that. Here’s how you can ensure your kids understand the ins and outs of personal finance.
Start the conversation while they’re young
You don’t need to wait long to talk to your kids about money. Experts widely agree that you can start doing this when kids are anywhere from five to seven years old. Some even recommend doing it with children as young as three.
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With young kids, start with the basics. Explain how money has value, we earn it by working, and we use it to buy things. A good way to make this interesting is to involve your children in basic financial decisions. For example, at the grocery store, you could ask them to pick out a snack and give them a spending limit, like $5 or $10.
The Consumer Financial Protection Bureau (CFPB) has published a great guide to age-appropriate financial topics. You can find it on the CFPB’s Money As You Grow page.
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Let them manage their own money
Kids can start receiving an allowance as early as four or five years old. This is an important part of teaching them to manage money and spend it responsibly. You can explain to them that the money is theirs to spend how they want, but if they spend it all, they won’t be able to buy anything else until they get their next allowance.
Make sure to lay out rules for how your kids will earn their allowance, to give them an idea of what earning money is like. You could pay them a certain amount every week if they behave well.
Or, their allowance could be tied to chores, and the amount they earn is tied to the chores they do. My parents did that with me, assigning a certain value to each chore. It worked well, although I did learn how to game the system. I found out which chores were most profitable, based on the time they took and how much they paid. Then I pretty much only did those and ignored the ones I didn’t enjoy, like washing the dishes.
Introduce more advanced topics as they get older
As your kids reach their preteen and teen years, they’ll be ready for more advanced topics. Here are some of the most important things to talk about at this stage:
- How people keep their money safe by putting it in bank accounts: This is also an opportunity for them to open their first checking and savings accounts.
- The importance of saving a portion of their earnings: Explain the reasons why they should do this, including to be prepared for emergencies and to save up for future purchases.
- How borrowing money works: By the time your kids are teenagers, you can teach them about loans, credit cards, and the cost of borrowing money. You could also set them up as an authorized user on your credit card. They can learn about managing credit and start building a credit score this way.
- How investing works: Teach them that investing is a way to grow your money over time. You could also show them your investment accounts and even help them start investing. Many stock brokers offer custodial accounts that a parent can set up for a minor.
Remember that they’re always learning from you
The money messages we get from our parents stick with us. It’s important to remember that your kids aren’t just absorbing these messages when you sit down to teach them about finances. They’re always learning from how you talk about money and your own financial behaviors.
For example, if you frequently make expensive purchases on credit cards and talk about paying them off over time, your kids will internalize that. When they’re adults, they could get into the habit of carrying credit card debt. On the other hand, if you explain to them that credit card debt is expensive and they should always pay off their cards in full, they’re more likely to understand how important that is.
Whether your kids have a positive or negative relationship with money will largely depend on you. What you don’t want to do is treat money like a taboo subject and avoid it. Parents who do this often regret it later. If you help your kids learn about money and build good financial habits, they’ll be better off for it.
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