Talking to your kids about money

We live in a consumer-oriented society where money is part of daily life. American kids are barraged with advertisements encouraging them to buy. Once they leave high school, young adults are often flooded with credit card offers. Yet, most lack a basic understanding of personal finance. Some are piling up thousands of dollars in credit card debt.

As a parent or guardian, you have the opportunity to educate your children about smart money management. Understanding the fundamentals will help them to become financially self-sufficient, with the knowledge to take advantage of financial opportunities. Teaching your kids to develop a healthy relationship with money can have a positive, lifelong impact — and improve your own financial knowledge, skills, and attitudes along the way.

Most kids are interested in money and recognize money management as an important step toward maturity and independence. Talking with them about personal finance will show that you recognize they’re on the road to becoming responsible young adults. By gradually transferring more financial responsibility to them, they’ll gain experience in planning, making choices, and learning to live independently. It’s never too early to begin teaching your children the basics of good money management. You can help them to build healthy, lifelong financial habits. Engage your kids in age-appropriate conversations about money. Share your thoughts with them about how you make your daily spending and saving decisions.

Here are tips for introducing your children to the fundamentals of money and personal finance at age-appropriate times.

Young Children

As soon as your children can count, you can introduce them to money — dollars and cents. When they’re old enough to shop with you, you can introduce them to the ideas of spending, saving, and how money is used to store, measure, and exchange value. You can engage your preschooler by keeping things simple and direct. Talk about the value of coins as well as everyday things, like toys and food as well as for saving for the future. Even small children are bombarded by ads, so it’s important to make sure they understand the difference between a want and a need. You can also discuss why and how financial choices are made. An important concept for preschoolers is also deferring or delaying spending.

Tweens

Include kids on the family finance team.

You can help your kids learn about money by including them in your daily financial activities and decisions:

  • Have the kids accompany you on shopping trips and help you to clip coupons, watch for sales, and compare quality, service, and price.
  • Preparing a meal together can be an opportunity to discuss the value of planning ahead and avoiding waste — concepts that also apply to money.
  • Before making a major purchase, discuss the pros and cons with the family. This will help your kids to recognize the importance of weighing alternatives.
  • If your child asks for expensive items the family can’t afford, don’t give in; stick to your family budget. Use the situation as a teaching opportunity by giving your child the specific reasons behind your decision.
  • When they’re old enough, let kids sit with you while you pay some household bills, balance your checking account, review your monthly credit card statement, or update the family budget. Give them a sense of how much it costs to cover the various monthly household expenses.
  • Explain your money management strategies and decisions to your children, whether it’s saving for a family vacation or using your home equity as collateral for a loan to remodel the kitchen.

They’ll also benefit from hearing about your past money mistakes and what you learned from them. Let your kids know they can always turn to you for financial information and advice.

Visit the bank together.

Around age 10, when children can start to understand the concept of interest, consider taking them to a bank and consider opening an interest-bearing savings account. This will help teach them how to make deposits and withdrawals, keep an account register, balance their account and use online banking to track account activity.

Teens

As your child ages, they will have different experiences, including managing a job and a credit card. You can help them learn and develop healthy money management skills by sharing your past money mistakes and what you learned from them. Let your kids know they can always turn to you for financial information and advice. To help teens learn how to manage money, a bank account may be helpful. Banks may offer In fact, teens can also open a checking account geared toward teens (which may require an adult co-owner). Be sure to ask about account details such as minimum balance requirements and monthly fees. Guide your children to use their accounts responsibly.

About jobs and pay.

Having a part-time job can be a good way for young people to learn more about earning money and how to manage it. However, be sure that school remains their top priority. Research suggests that education and training has a major impact on future earning power. Continually monitor whether working is causing schoolwork to suffer. Also, evaluate whether the environment and values of the employer are positive and healthy influences for your child.

Start slowly with credit cards.

Credit cards can provide financial flexibility and convenience, but many young adults get in trouble with credit card debt by carrying high balances and by only paying the minimum due. One option to consider is applying for a low-limit credit card for your teens while still in high school. (Age limit rules will apply. Check with your credit card company or your banker.) You can teach them how to manage a credit card account, including how to save receipts, check their monthly statements, and charge only what they can afford to pay off completely each month. By learning to be responsible with credit early, your children may be less likely to have debt problems in the future.