How to Teach Your Children About Money

Opening up and starting conversations about how to handle money and finances with your kids may seem overwhelming, but it doesn’t have to be. As a parent, it is your role to serve as a positive influence in their lives to get them on the right financial track. Here are some things to consider as you embark on helping your children understand the importance of being responsible with their finances. 

Start Simply, When They Are Young

Start discussing money with even the littlest ones by including them in everyday activities, such as grocery shopping or budgeting. This allows money to become a tangible concept and not some abstract thing that they cannot see. You can also ask them questions such as "We have 5 dollars to buy a treat, would you pick ice cream or cookies?". These types of conversations help children understand that there are trade-offs to any decision, and that money is not infinite.

Be Truthful

Being honest with your kids is a great first step to opening the door to discussing finances. You can share the family budget for items like groceries or entertainment, and remind them of this limit when they ask for items that don't fit within it.

Additionally, if there are things in your financial past, such as going into debt, that you are not proud of, share that with your kids. Honest moments with your kids are very valuable and will help build trust. Keep in mind that the more open and honest you are with your kids, the more open they will be with you, so being truthful about your own finances is a great place to start. 

Talk About Values 

Encourage your kids to consider what is important to them for their future. Start by asking questions such as "Do you want to own a house or rent when you grow up? or "What splurges would you like to be able to make when you grow up (travel, cars, etc)?".

The types of questions you ask will vary with the age of your children, but helping them visualize what they want for the future is a crucial component to talking with kids about money and financial goals. Talking about what they value and hope to have in their future allows them to take a long-term view, which is critical to the concepts of saving, budgeting, and paying down debts.

Establish Family Goals 

As a family, talk about your budgeting methods and your long term financial goals. It’s good for them to know what sort of things you are planning for the future so they understand the importance of budgeting. For instance, perhaps you are saving for a family trip to Disneyland. To speed up the process you set a weekly grocery limit of $150. Take your children to the store with you when you shop and have them help look for sales or clip coupons to keep your cart under budget. You can motivate them by explaining the more they help you save, the sooner you all get to go to Disneyland. Involving your children however you can with the family finances is a great hands-on way to educate them and give them a chance to see real-life examples of how their financial habits will impact them in the future. 

Offer Work and Allowance

One of the best ways to teach your children about finances is by putting them to work around the house. An allowance for performing their chores is a great way to give them hands-on experience with finances, saving, and spending. 

Categorizing work activities into chores and jobs is a good method of designing your allowance program. Lay out a set of chores that the children must do to receive their allowance. Then if you'd like to offer a bonus for them, you can outline some extra, more labor intensive things they can do called ‘jobs.’ These might include cleaning out the refrigerator, washing windows and pulling weeds in the yard. If all their chores are done, they can get started on a job and earn some extra money. 

This is just one option of many to implement an allowance program. How much you pay them for which activities is not all that important. The main thing to focus on here is giving your kid the opportunity to get paid to do work. However you decide to offer an allowance, this hands-on experience is often the best way for children to learn.

Teach Your Children To Save 

It is essential that you teach your children about saving. One way you can encourage your children to save is by promising a match. For instance, you could give them $20 for every $100 they save. Or if they want to buy a specific item, you could offer to pay half the cost if they save enough to cover the other half. These sorts of things will make your children excited about saving. Additionally, once they are old enough, explain to them the power of compound interest. This is vital. The goal is to turn them into committed lifetime savers, and the earlier you help them develop this habit, the better off they will be.

Lead By Example 

Kids tend to follow in their parents’ footsteps when it comes to money, so it’s important that you set a good example. You don’t always have to be perfect, nobody is, just remember the kids are paying attention. Also, there may be certain financial topics that you are not as knowledgeable about, and that’s okay! Take the opportunity to learn with your kids. Showing your kids that you are interested in growing your understanding of financial topics will heighten their interest in it as well. 

Talking to your kids about money may seem like a tough conversation to have if you don’t know how to approach it properly. However, broaching the subject sooner rather than later will reap many benefits for you and your kids. Ultimately, you want your kids to have the knowledge and skills they need to handle their own finances responsibly as they grow up. As a parent, it’s your job to instill this knowledge in them and to open the door to an often taboo subject so that you can help them get off on the right foot with their finances. Financial habits are formed young, so it’s critical that you start early and start the conversation today. Make your kids feel comfortable to talk about finances with you by using these tips.