Despite it being a taboo subject in many homes in the past, today, there’s little debate on the view that kids need to understand how finances work before they’re faced with major financial decisions in their lives. The big question relates to timing. When should you approach these subjects with your children so that they’ll understand the basic as well as the more complicated aspects of their finances?
Every child is unique, with particular strengths and weaknesses. Some excel at math. Others may be articulate from a young age. Some may have inventive and endless imaginations, while others prefer the logic that’s right in front of them. Children grow in different ways and develop at different rates. Because of this, it may be difficult to determine the best time to begin teaching your child about where money comes from and how to handle it wisely.
Start with the Basics Early
Toddlers and adolescents are just starting to discover their worlds. They’re inquisitive by nature, so it’s the ideal time to introduce the concept of money.
Children love coins. Their colors, textures, pictures, sizes, and weights make them fun for toddlers to stack and sort, and learn to differentiate them from one another and eventually count them and add them up. As soon as you know your child isn’t going to pop one in his or her mouth the moment you look away, you can begin teaching the differences between coins.
Young children also love to mimic their parents and other grown-ups they see. When they see you making responsible decisions with your money, they’ll inherently mimic that behavior.
As your children begin school, they’ll learn how much coins and dollars are worth, so it’s a good time to explain what money is and how we use it to buy the things we want or need.
Teens and ‘Tweens
Once kids hit actual grade school, they’ll be introduced to some topics related to money, or at least how to count it. This is the ideal time to build upon that foundation with further knowledge as it relates to family finances.
This is when they’re learning more about money in school, and they’ll inevitably have questions. Answer them in terms to which they can relate. Additionally, ask them why they’re asking the question. During this time, they’re spending their days with other kids at school, and they’ll begin comparing their possessions and their lives to those of their classmates. They may wonder why the other kids have or do things that they don’t. It’s a good time to introduce budgeting and teach them how to live within their means. This is also a good time to explain why things cost what they do and why some things cost more than others do.
Introduce simple money concepts. What’s banking? If they don’t already have a bank account, now would be the perfect time to help them open one. They may be able to get their first job when they’re 16, so it’s good to understand how banks work and develop some smart financial habits before they do.
At 14 and 15, your child may begin asking for the more expensive clothes that their friends are wearing. Explain the value of well-made clothes vs. trends that go as quickly as they come. When your child continues to want the more expensive, trendy clothes, encourage him or her to get a job in the neighborhood mowing lawns, walking dogs, doing yard clean-up, or babysitting.
Explain the ins and outs and the dangers of using credit. Have your child open a checking account. Most employers these days require direct deposit; thus, your child will need one for a first job. A debit card will offer the opportunity to prove he or she can use plastic without the danger of going into debt.
At 16, many kids get their driver’s licenses. This is a monumental step, and a huge responsibility. The thought of their children driving around in the world on their own prompts many parents to give their child a credit card for emergencies. The best way to do this is by making your child an authorized user on one of your credit card accounts. As an authorized user, your child will begin to develop credit when the credit reporting agencies begin to report information on the account. Even if he or she doesn’t use the card, your on-time payments will usually help.
At this time, your child is thinking about college, and if you’re lucky, he or she has an intended degree choice. This is the time to begin talking about student loans, as well as how they can help your child pay for school, if necessary. Be sure to mention that these loans can take up to 10 or more years to pay back. Help your child start searching for ways to avoid taking out student loans, such as applying for grants and scholarships, living at home instead of in a dorm, attending a community college, partaking in work-study programs, or taking a gap year to earn money.
Give an Allowance Early On
Giving your kids an allowance for doing age-appropriate chores is one of the best ways to teach financial responsibility. It teaches your child how to get money by working for it. It teaches the concept of money growing when you don’t spend it. By letting kids spend their own money, they learn its real value.
Introduce an allowance when your child has mastered dressing. Your child has to earn the allowance to begin understanding how people make money, so offer a small weekly amount for picking clothes up off the floor after dressing. You’ll have to remind your child, but what it means to work for money will begin to sink in, and it’ll lead to a great feeling of accomplishment. Don’t forget to let your child spend some of that money when enough has built up. It’ll demonstrate how the whole process works.
As your child gets older, begin to give chores that increasingly require more work. Your child will want a higher allowance, so make sure you get your money’s worth! If the chores aren’t done, then don’t pay the allowance. The chores are the agreed-upon job; you wouldn’t be paid for not doing your job, would you? Remember, the chores can certainly help you, but the main goal is to teach children the value of the money they earn, and the value of making good financial choices. When kids spend their own money that it took them time and hard work to earn, they’ll consider their purchases more carefully.
Encourage your child to save a portion of the allowance. Saving helps curb the need for instant gratification, and it’s a lesson that’s important at any age in life, even in adulthood.
When your child spends money, allow mistakes. If you know that $20 toy will only be played with for a week and then forgotten, give your opinion stating such. However, let the decision be your child’s to make. Mistakes help kids learn to make better decisions with their money next time.
By starting at a young age, you’re doing so much more than arming your child with financial knowledge; you’re keeping the subject of money from becoming taboo. More importantly, you’re letting your child know that you welcome questions and concerns. Having a supportive family that’s open and honest about finances may help your little one (or not so little) avoid getting into financial trouble in the future, and avoid sticking his or her head in the sand if it does happen.