We teach our kids how to brush their teeth, tie their shoes and ride a bike, but we cannot forget to teach them about money. With so many modern financial exchanges made with plastic cards or online, spending money can look like magic! If you want your children to be financially sound adults and develop healthy spending habits, you need to start talking to them about money now, and explain why it’s not magic.
This can feel overwhelming. You’re teaching skills and modeling values, which is always a high-pressure task. Don’t get intimidated though, there are just two key skills to focus on. These skills are cash flow and savings. When your kid is in their late teens, you can add in debt and trading derivatives.
This skill is about income minus expenses. So, kids need to know how to earn income, and how to manage expenses. As they get a bit older, learning how to budget for things is also important. This is crucial to teach so that kids can grow up to be adults that live within their means.
This is about taking a portion of your income and tucking it away for later. This is so your kid can start to pay for bigger goals down the line. Explain this in an age-appropriate way. When your kids are young, maybe they’re saving for a video game or an expensive toy, and as they get older, it could be for clothes, a trip, or their education.
What Values Are You Modelling?
Values are very specific to your family. Different families prioritize things like independence, self-reliance, or risk-taking. One family could really value education and want their kids to focus on school. Another family could value self-reliance and want their kids to get a job at an early age. One isn’t right or wrong – they are just different.
How families define needs versus wants can be very different too. This is a very tough lesson for kids to learn. It isn’t in their vested interest to have an iPhone 12 defined as a need, but many kids see it that way.
How Do You Start?
Starting the task of speaking with your kids about finances can seem daunting, but here are some steps you can take to get them thinking in the right way:
- Integrate money talk into daily life. Find these teachable moments.
- During this pandemic, when you walk by closed stores, remark about the financial impact of the pandemic. Say something like: “That must be really hard for the owner of that store. I wonder how they’re doing?”
- In the grocery store talk to your kids about sales and deals, and when the deal is worth it.
- Have your kids do online shopping with you, and explain when something is too expensive or okay to buy.
Allowances are a great way to teach skills and model behaviour – there is income once a week, but it is limited, and they have to figure out where they want to spend it. Having your kids divide money into sections for saving, spending and donating can help them manage money early. The amount a kid receives should be age-appropriate – a 12 year old doesn’t need a Vespa! Be consistent in giving the kids money, don’t skip weeks. Finally, keep it non-judgmental – it is their money. You can ask what it is going towards and ensure that it isn’t firearms, but you want them to learn mistakes when it is safe. If they blow money on something they never use, they’ll just learn not to do it again.
How do you overcome pitfalls with your teachings? Like it is with everything, remember that every kid is different. Some kids are savers and some are spenders. Parent accordingly. Have a basic plan. Don’t rely on them to learn money skills anywhere else but your home – they won’t. And finally, let them make mistakes. This is the hardest thing of all. One of the best teachers is the natural consequence, and sometimes kids just need to mess up.
If you’re looking for more information on how to talk to your kids about money, here are some sources for you:
- Book: The Wisest Investment: Teaching Your Kids to Be Responsible, Independent and Money-Smart for Life. By Robin Taub. It is organized by age.
- Website: Talk with our kids about money.com – a treasure trove of resources for school and home.
- Tool: Gifting Sense.org – Walks your kid through a big purchase and gives them a DIMS score (“Does it make sense” score?) How much is the item? how many times will you use it? And it generates a letter for the kids to give their parents to justify their purchase.