What should you teach your kids about finance?
The list of what to teach your children about finances is probably infinite, but the following provide wonderful starting points:
Be a Good Role Model. Children are observant. If budgeting, saving, investing and giving are important to you, they’re more likely to be important to them. My 5-year-old recently said, “It’s OK if we run out of money because we always can use credit cards.” Funny but scary. I used this as an opportunity to explain that we only use a credit card if we have money to pay the bill. He also is now well-versed in the concept of points!
Be Honest. Parents want to provide ‘the best.’ They also feel pressure to do so. It’s OK to tell your children you can’t do something because it’s too expensive (even if they briefly don’t like you or it feels embarrassing). Talk to them about priorities. Explain the difference between wants and needs. If they are old enough, encourage them to look for small jobs to pay for those ‘wants.’ Even if you can afford them, make a conscious decision to let your children experience disappointment or some hard work—society will thank you!
Emphasize Starting Early. High school is the perfect time to introduce your children to your financial adviser. Let your adviser explain compounding interest, the cost of waiting and the importance of budgeting. It’s also good for your children to see that you take your finances seriously enough to to enlist the services of a professional.
Regardless of your children’s ages, the first step is communicating what money means to you. From there, focus on familiarizing your children with the concepts of earning, spending, saving, investing and giving.
As early as age 2, you can begin teaching the basics of how money works through pretend play like ‘store.’ During the preschool years, introduce the concepts of opportunity cost and delayed gratification by focusing on smart spending and distinguishing wants from needs.
Around first grade, introduce an allowance and open a savings account. Tie the allowance to completion of certain tasks or academic achievements to establish effective goal setting. As children age, build on the idea of saving by tracking spending, discussing the time value of money and illustrating the power of compounding.
When your children are teenagers, refine their understanding of needs vs. wants (I need jeans, I want designer ones.), set a budget for your child, practice comparison shopping, and consider using birthdays as an opportunity to make donations and discuss the importance of giving.
Teaching your children about money management doesn’t happen overnight. It’s the example you set by what you say and do each day. We encourage children to participate in conversations about financial planning and tax and investment advice, and we regularly produce video and literary content to educate families and offer ideas on how to discuss financial concepts with children of all ages.