While everyone has different views about money, it’s important to have “money talks” with your kids about the basic concepts at an early age. You don’t want these conversations to be heavy-handed or hour-long lectures, but aim for brief observations whenever opportunities come up. My husband and I are regularly on the lookout for teachable moments to talk about money with our two kids – especially since we know that our oldest is a “saver” who hates to part with even a penny, and our youngest is a “spender” who will spend every penny she has and then ask for more. We hope to teach them about finding a balance between the two. Here are five important tips for helping your children learn to use money wisely today and throughout their lives.
Use Your Spending Choices for Show and Tell.
Discuss with your children the choices you make with your money. For example, how does your caring for others affect how you save, spend, and gift? Why do you sometimes wait to make certain purchases? What does it mean to you to be responsible with your money? Be sure to talk with your children about why you make spending choices based on more than just affordability.
The goal is for your children to understand your values and that material possessions are not the source of happiness and fulfillment. Use language like “We’re not going to spend our money that way because…” or “It’s not a good value because…” rather than just saying, “It’s too expensive,” which may give the impression that you would buy it if you could afford it. Help your child start thinking carefully about making purchases and learn the difference between wants and needs.
Do Talk about Saving Money (Safely) Early.
Bring your kids with you to the bank. If you’re making a deposit in a savings account, talk about the importance of saving “for a rainy day.” When kids have a little money of their own, you can introduce ways in which they can store their money safely, be it in a piggy bank or a financial institution such as a bank or credit union.
When Kids Start To Earn Money, Explain Saving in Categories.
Once kids start earning money, whether through an allowance, a job, or even financial gifts from family and friends, you can introduce ways in which they can divide their money into three to four categories or ‘buckets.’
- Bucket one is for immediate, short-term rewards. It can be for snacks, going to the movies, buying a pair of earrings - whatever they want to spend 30% of their money on (let them choose).
- Category two, which also would get 30% of earnings, is for saving for mid-term goals—something they may want to buy in the next three to six months because they don't have the money for it today. An expensive game system, for example.
- The third category, also with 30%, is for saving for things they may want two, three, or even ten years out. And all but the very youngest kids do get that concept. They say: I want to buy a car, travel, get a laptop, or go to college. (For very young children who receive an allowance, you can add this 30% long-term bucket to the second category to keep things simple until they have a better grasp on time.)
- The last category, with 10%, is for charity; to give to a need or cause they feel a strong empathy for. Coincidentally, this can give kids a chance to explore something they're passionate about and could lead to a career choice in the future.
Let Them Shop By Themselves, with a Budget.
For younger kids, let them help shop for the back to school clothes; explain that there’s a budget for shopping that you need to stick with. Make sure they know what a budget is and that it’s important because it allows money to be used for other important things like the family’s food and their allowances.
For older kids (but still in school) – let them shop for themselves; they’ll realize quickly that if they want those designer jeans they may not be able to afford any other new clothes to go with them.
Talk With Your Kids About Money Early And Often.
Many adults don't talk to each other about money until there's a crisis, they lose a job, or they get a divorce. Why not save your children from that? If you can talk about money concepts when they're children, they will be financially literate and much less likely to be blindsided by a financial crisis when they're older — and better prepared to handle the rewards of putting your money to work to help you achieve life goals.
The FDIC provides two free instructor-led Money Smart curriculum products to teach young people, Money Smart for Young Adults (ages 12-20) and Money Smart for Elementary School Students (ages 5-8).
Check out the money pages at www.kids.gov, a federal government Web site for children and educators.
Money as You Grow – Kids and Money
Developed by the Youth Subcommittee of the President's Advisory Council on Financial Capability, materials and activities are grouped by age and grade level.
Christina Ubl, CFP® CDFA™ of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm and registered investment advisor that provides strategic financial and investment planning for individuals and small businesses in the Lake Champlain Valley region. Clute Wealth Management and LPL are separate entities. The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations. For a list of states in which we are registered to do business, please see below.