Financial education is a lifelong process and it’s never too early to start talking to your kids about money.
Finances are a major part of every adult’s life, but it’s not often a subject that is addressed in schools’ curriculums. Fortunately, there are some states, like New Jersey, that have made the move to mandatory financial education, but for many kids, there is no formal program to teach them about money. So, it’s your job as a parent to teach your kids this valuable life skill.
If you have younger children, you might think it’s too soon to start teaching them about finances, but it’s really not. You don’t have to do a deep dive into investing with them, but you can teach them the basics, starting with saving, giving, and spending.
Once you start talking to your children about money at a young age, you need to keep the conversation going throughout their young lives. At each new phase of your child’s life, you want to approach the ‘money talk’ differently. Here’s how you can talk about finances with your child at different stages of life.
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You might be thinking, ‘why would I need to teach my toddler about money?’ Although they might not start comprehending things right away, it’s a good idea to start slowly introducing money into their lives. Toddlers learn by example and the example they’re seeing the most is their parents. They learn to pick up your habits whether you notice it or not.
Teach your toddler about money by setting a good example. Create a budget and stick to it. Now they might not fully understand what a budget is, but there are ways to show them. For example, if you bring your child to the grocery store and they want an item that you didn’t budget for, you can use this as a teaching moment. Explain to them that the item they want costs money and you didn’t set aside the money for that item on this shopping trip. This will help them understand that what they want costs money and some things are more important to spend money on than others. This will also help hold you accountable when it comes to impulse shopping. When you discuss your decision-making process with your toddler, they’ll learn how to make better decisions for themselves.
Preschoolers and Kindergarteners
When your child starts going to school they start learning so many new things. This is a great opportunity to really start introducing money into their lives. They might not understand the value of money yet, but they should understand the need to pay for items they want and need. When you’re teaching children of this age about money, it’s important to stay away from cards and focus on more tangible dollars and coins.
At this age, your children are starting to learn to count. You can help them with their counting and money skills by teaching them the values of different coins and bills, explaining to them how much each is worth. You can also start explaining to your kids how something must be given up to make a purchase and money can only be spent once. A way to teach kids this is to give them a dollar to spend in the store. Have them focus on choosing an item they really want and have them hand over that dollar to purchase the item. This will help them experience the exchange of goods.
Starting at age 6, children begin to understand cause-and-effect relationships, and that changes the way they perceive money. By this age your child can start to see that money is directly tied to items and parents have to work for their money. Your child now knows that in order to buy the items you own, you have to spend money on them. Therefore, this age makes it a good time to start implementing chores and an allowance into your child’s life.
Now that your child understands if they want something they have to earn money to pay for it, they’re going to want more money to get the items they want. Having chores and an allowance is the first exposure your children have to earn money and can shape their attitudes around money. At this age, you can start by having them do small chores and earning a small amount of money for it. To entice them to actually do their chores, have them pick out an item they want and show them the price. Let them know they need to earn that amount of money to buy their item. Have a chore chart with different chores and different amounts of money they can earn from different chores. This is a great way to encourage your child to help around the house and earn money at the same time.
Elementary school is not only a great time to introduce earning into your child’s life, but it can also be a great time to introduce saving money.
If your child is going to be making money from chores, it’s good to encourage them to not spend their money right away, but to save it instead. A classic way to start teaching your kids about savings is a piggy bank. Even in the age of credit and debit cards, a piggy bank is still an awesome tool to help teach your children how to save. Encourage your children to fill up the piggy bank with dollars and coins until there is no room. Show them that the piggy bank is for saving money for the future and that the more they save, the more their money will grow.
Since you started teaching your child about earning and saving at a young age, you can now move on to bigger money topics. For the next stages, focus on expanding on those basic concepts with income and budgeting. Young children are always asked what they want to be when they grow up. By the time your child has reached middle school they might have a legitimate idea of what they’re interested in doing with their adult life. Take this opportunity to have a real conversation about the need to find a career that will support them for a lifetime. Help them explore different job options and discuss both their responsibilities and their paycheck. By opening up this discussion with your child, you’re also opening up the discussion about the breakdown of what a salary is. Use this time to explain taxes, social security, insurance, and other deductions from your paycheck.
Budgeting is a skill that you need to use your entire adult life. Introducing budgeting at the middle school age is a great time because your child will already have basic finance skills under their belt.
Your child won’t need their own budget at this age, but it’s a good idea to learn how to set one. As a parent, the best way to do this is to include them in your budget. When you’re ready to do your monthly budget have them sit down with you so they can see what goes into a family budget. You can help include them in decision-making by asking for input on financial decisions, such a meal planning for the grocery budget.
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High school-aged kids always want to be independent, and soon they’re going to be on their own. This stage of life is crucial when it comes to teaching finances because they’ll be experiencing real-life financial decisions firsthand. This is a great time to start introducing personal checking accounts, savings accounts, and credit cards.
If you currently have a teenager, they won’t need to learn how to balance a traditional checkbook like you might have had to. Although they might not have a physical checkbook, they’ll still need to learn how to balance a checking account. So many banks offer great apps that show you a detailed breakdown of all your purchases on your debit card. Make sure your teen knows to check their account regularly for any errors. They should also check regularly to keep track of what they’re spending. While you’re opening a checking account for your teenager, you should also open a savings account for them. They only really need a checking account, but having a savings account is a good idea so they can include deposits to both accounts in their budget and see the impact of compound interest.
A good way to explain credit card interest is to look at the interest a bank pays you on a savings account versus what a credit card charges you to use their money.
Most people have a credit card. Credit cards a great tool to help you build credit if they’re used properly. Credit cards are so easily accessible now that it’s more crucial than ever to teach your child the importance of credit. Teach them to only make purchases on their credit card they know they can pay off at the end of the month. To start building credit, tell them to only put one purchase a month on their credit card. This will ensure that they’re able to pay off their balance in full at the end of the month. A good way to explain credit card interest is to look at the interest a bank pays you on a savings account versus what a credit card charges you to use their money.
You might not want to have your teenager open their own credit card right away, but there are alternatives to help them build credit. You can make them an authorized user on your credit card which means their name will also be on your credit card and they can build credit through the purchases made on it. This also means that you will be responsible to pay off any of the purchases your child makes on your card. You can also investigate student credit cards for your child. Research different kinds of student credit cards together to learn which one is right for your teen.
Financial education is not a topic that’s usually taught in schools. Therefore, it’s your job as a parent to teach your kids about money. Learning about money is a lifelong process that lasts way beyond your youth. There are some money-related topics that most adults don’t even fully understand. By teaching your child good financial habits at a young age, the more likely they are to find financial success. Don’t wait; start having a conversation about money with your kids today!