Young Families Guide: Talking to Your Children About Money
They don’t teach this stuff in school. Period.
They don’t teach this stuff in school. Do you want to give your children the financial education you never got? What’s worse, your parents likely never got it either, and they couldn’t give you what they never had. It’s a familial generational pattern of financially winging it and self educating that YOU can stop by shaping how your child thinks about money at an early age. Many parents feel uncertain about when and how to discuss financial matters with their children but there’s never too early an age to work money into conversations. This goes double for San Diego young families whose children will face a high cost of living. Here’s a guide to teaching your kids about money, tailored to various age groups:
Start Early with Basic Concepts (age 3 - 10)
How to talk to Pre-Schoolers about money (age 3-5)
Main Focus: Start with the basics. Children as young as three can understand that money is something you exchange for goods. Teach them through play. Use toy cash registers and pretend grocery shopping games to introduce the concept of money. It imparts the idea of limitations, that money is finite and we can’t have everything we want whenever we want it.
How to talk to Elementary School Kids about money (age 6-10)
Main Focus: Earning and Saving. This age group is ready to understand earning and saving. Start a small allowance for chores to teach them that money is earned through work. A set number of hours for chores get a set allowance each week, or spark their entrepreneurial side and have them set up a lemonade stand. Introduce them to saving by setting up a piggy bank or a basic savings account. Encourage them to save for a specific goal, like a new toy, to make the concept more tangible.
Make It Practical (age 11 - 18)
How to talk to Middle Schoolers about Money (age 11 - 13)
Main Focus: Budgeting and Planning. As children grow, so can their financial responsibilities. Teach them budgeting by involving them in family financial planning, like grocery shopping on a budget. Show them how to compare prices and make frugal choices. You may also wish to gift them a mutual fund in a small investment account and review the performance of the fund every year. This builds familiarity and understanding around investments, explain what the fund is and how much it’s grown year to year and why. This will be a great step up over the child who associates money as this foreign idea their family never did so they naturally don’t think to pursue it.
How to talk to High Schoolers about Money (ages 14 - 18)
Main Focus: Understanding Credit and Investing. Teenagers should be educated on more complex topics like credit, debt, and investing. Explain how credit cards and loans work, emphasizing the importance of paying on time and understanding interest rates. If you're investing, involve them in the decisions and discussions. Explain stocks, bonds, and other investment vehicles. If possible, have your kid mow lawns or get a more formal job for money to contribute to buying their first car (maybe you help up to $X amount and they must cover the rest). I started my first job at 16 and it played a huge role in me understand the way the world works and the value of a dollar.
Use Tools and Resources
There are many tools and resources to help teach children about money:
- Apps and Games: Use educational apps designed to teach children about finances. Games like Monopoly or online simulators that involve budgeting and financial planning can also be effective.
- Books: There are numerous books aimed at teaching kids about money at all age levels. These can be a great way to introduce and discuss financial concepts.
- Real-life Activities: Take your children shopping and discuss how to make decisions based on the money available. Or, open a youth savings account for them and review the statements together regularly.
Encourage Questions and Be Transparent
Children are naturally curious. Encourage them to ask questions about money and be as transparent as appropriate about your financial situation. Discuss your financial decisions, such as why you chose to buy a new car or go on a vacation. This openness helps them understand the real-life implications of financial decision-making.
Teach Through Your Actions
Children learn a lot by observation. Model responsible financial behavior by managing your own finances well. Show them how you budget, save, and make spending decisions. If you make a financial mistake, discuss it with them; this can be a powerful lesson in managing money responsibly.
Make It Age-Appropriate
The complexity of information should increase with your child's age:
- Young Children: Focus on simple concepts like identifying coins and understanding what items cost.
- Middle Childhood: Introduce strategic thinking with allowances and bank accounts.
- Teenagers: Discuss broader concepts such as the implications of financial independence and personal financial responsibility.
Discuss Ethical and Responsible Spending
Teach your children about ethical spending. Discuss the importance of supporting businesses that are environmentally sustainable or socially responsible. Encourage them to think about the impact of their spending on the wider world.
Set Goals Together
Setting financial goals help children learn the value of money and the satisfaction of reaching a goal. Whether it's saving for a new game or setting aside money for college, goal setting teaches planning and discipline.
Regularly Review and Adapt Conversations
As your child grows, their understanding of and interest in money will change. Regularly review what financial topics you have discussed and adapt to more advanced subjects as needed. Keep the conversation ongoing (say on the first day of every month for example) to review your child’s progress toward their goals and train them to make it a part of their everyday life. You may find teaching your child will be a helpful reminder and way to cement these concepts for your own finances!
Conclusion
Talking about money with your children is an ongoing process that evolves as they grow. Starting early with basic concepts and progressively introducing more complex topics can set them up for financial independence. By using tools, being transparent, and modeling good behavior, you can instill sound financial habits that last a lifetime. Remember, the goal is not just to teach them how to manage money, but to empower them to make their own informed decisions as well. The concepts are important to share, but the application of those concepts is what makes it all stick.
If you’re looking for help planning your family’s future,
schedule a free 30 minute call with me here. I help young families and professionals in San Deigo (and nationwide) better understand how to grow their wealth and spend it with intention.
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