How (and WHEN) to teach your kids about moneyBY Robert Graham
As parents, you are responsible for the upbringing of your children. You influence their behavior, their interests, their decisions, and so much more. Yet, one area that often gets overlooked is teaching your kids about money.
The truth is your kids will learn to manage money from someone. That could be intentional lessons you provide or from random observations and exposure they have. Don’t let the outside world influence your kids approach to money. Begin the conversation today, and help put your children on the right path for life before they are out the door.
Ready to begin? Here are some tips to start with any age.
Preschool – 2-5 years of age
- Teach saving, spending, and giving
- Show what things cost
It’s not too early to begin teaching your children about money, even in their preschool years.
At this age, even if they aren’t earning money just yet, you can begin teaching about the principles of saving, spending, and giving. What happens when we spend all of our money? What is the benefit of saving? And why should we give? Show them what this means in language they would understand. If you have two quarters and spend one, what happens?
And show them what things cost in real terms. Rather than just saying, “That toy costs $5,” have them grab the $5 from the cookie jar, or wherever they are saving their money, and experience handing the money to a cashier.
Also, this is a good time for parents to make sure they are setting the right example. Your kids are watching you, and as we know, actions are more powerful than words. If you want to teach your kids about avoiding debt or how to budget, you need to be doing the same thing. This is a great time to begin if you’re not on the right page yet.
Elementary school – 5-10 years of age
- Reinforce giving
- Pay for work
- Opportunity costs
- Products and services
- Needs and wants
As your kids get a little older, you can begin to advance your conversations about money.
By this age, children should be able to do basic chores around the house. What you choose to pay your children for or how much will be up to you, but it will make it easier for everyone if you have some type of calendar with chores and dates, and the children are paid weekly based on whether they completed their tasks. By instituting this principle early on, and not just giving your children an “allowance,” they will see that money comes from work.
And as they are earning their own money, continue to reinforce giving. Whether it’s church, charity, or someone in need, have them give of their own earnings. If they understand giving at this age, chances are it will remain with them throughout life.
You can also begin to teach your children about opportunity costs, meaning if they buy something today they won’t be able to get something bigger tomorrow. You can begin to set long-term goals, and avoid short-term impulses. This is also a good time to introduce the differences between products, those things your kids can touch such as books or toys, and services, which is work someone does for someone else.
Finally, explain the difference between needs and wants. Most parents have heard their kids scream, “I need this!” Chances are they didn’t need that Barbie convertible to survive, but by this age, you can explain the difference between a “need” and a “want.” Considering how many adults struggle with this today, it’s great to start with your elementary age children.
Middle school – 10-13 years of age
- Budgeting skills
- Bank accounts
By this age, hopefully your children have the basics when it comes to money and you can now move into more advanced principles they will need in their lives.
At this point, you can explain budgeting and get your kids on a simple budget. It doesn’t need to be anything fancy. Whether you are using an app or a spreadsheet, help your kids understand income and expenses. Even though they’re not paying the water bill or house note, they can begin to calculate their monthly income from working and their expenses. Help them to see early on that you always need to be bringing in more than is going out.
Your kids can also begin to learn about investing and the magic of compound interest. They should already understand the principle of saving, but this will help reinforce that and really get them excited for investing as they earn more money.
It’s also a great time to get started with a simple bank account. This will really help your children understand how to manage money, to avoid over drafting, and to see their money move in and out of the account.
High school – 14-18 years of age
- Big goals: retirement, weddings, school, travel, cars
By the time your son or daughter enters high school, they should have a good understanding of how to earn, save, and successfully manage money. At this age you can begin discussing more advanced topics.
Start with debt. Tell your kids exactly what it is. Borrowing money to pay for something that you don’t have the money to buy today. And you have to pay interest to the person from whom you are borrowing. Since we’ve already talked about budgeting and saving, the ability to avoid debt should be a natural transition.
You can also introduce inflation and taxes to your children. Both will impact them for the rest of their lives so help them have a firm understanding of how much we pay in taxes, where the money goes, and why (most) products and services become more expensive over time.
Then start teaching your kids about the big picture and how being able to handle money will impact them, either positively or negatively. A car is the first big purchase of your teenagers life. Whether you are able to help out with the purchase or not, teach them to begin saving early on. We know they’ll be ready to drive at 16 so work backwards to calculate the needed savings.
College will soon be in the future. Discourage your children from just relying on student loans. They should be working, even through college, saving, and choosing a less expensive college option. Your guidance will make a difference in whether they make a mistake and come out of school with $100,000 in debt and few prospects. And then there are other big goals ahead: A wedding, travel, and, one day, retirement. Help them see the road ahead and to make the wise decisions far enough in advance.
With a little help and planning, your child can be on the path to financial freedom from a very young age.