Teaching Young Kids About Money
When should you start talking to your kids about money?
As parents, we know that it’s our job to teach our kids about the world. We talk to them about making friends, staying away from drugs, and looking left and right before they cross the street.
Among those important conversations, money is a subject that can get muddied. It’s tough to know what an age-appropriate money talk looks like, and so many parents opt to delay the conversation until the kids are “ready”.
But is silence really the most age-appropriate strategy for teaching kids about money?
Experts say no. Here is a quote from an interview with Rob Lieber, the author of the book aptly titled “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money”.
“Our instincts are that we should shield them from money, that money is a grown-up thing, that we want them to remain innocent of it, that we fear that they will start sizing people up, or sizing us up, on the basis of how much money we have. And as lovely and caring as that is, it is also naïve because they are thinking about money all the time anyway.”
Lieber raises an interesting point. If we assumed that kids encounter money in their daily life and are naturally curious about it, might it be possible to use that as a springboard for conversations?
In this context, talking about money is not an attempt to saddle the kids with adult-sized responsibility. Instead, it positions the family environment to provide the space for the children to practice skills and habits that will be invaluable later on – such as delayed gratification, generosity, and budgeting. Here are three critical steps to getting this right.
Step 1: Get clear about your own money issues
Very few adults have had the good fortune of growing up with perfect parental modeling around money. Therefore, it is safe to assume that the vast majority of parents brings a certain amount of sub-optimal mental wiring into money conversations. Overlay this on top of the daily stresses and hassles, and an innocent question from your kid may might trigger some fireworks. The good news is that it’s possible to learn to talk about money calmly, directly, and clearly. All it takes is intentionality and willingness to practice.
Begin by modeling honest conversations about money. Too often, we send money messages that are inaccurate. An easy example is a tired parent with a toddler in a shopping cart, waiting in the long line at the supermarket checkout register and deflecting the 4th request for a chocolate treat with an off-handed “I don’t have the money to buy it”. The real reason might be that there is a bag of chocolates at home, or perhaps it’s not a good idea to allow the child to have sweets before dinner. Honest answers may not come easily, but they will teach your kids that money isn’t a taboo subject.
Step 2: Know what’s age-appropriate
In general terms, the depth of money conversation should be guided by your child’s interest and readiness to absorb the lessons. Below are some guidelines for age-appropriate activities at different stages of childhood. Of course, these are only suggestions – trust that you know your child best!
Age 4-5: Introduce your child to the distinction between needs and wants. Explain that they need a roof over their head and food, while extra toys and ice-cream are nice extras – not necessities. This will come in handy at Kindergarten, where your kids will be getting their first rounds of exposure to peer pressure (“I need those light-up shoes because everyone in my class has them!”)
Age 6-7: Introduce the concept of allowance. There is a lot of debate about how to best structure this, so choose the strategy that suits your style. Begin by determining whether all (or a portion) of allowance will be tied to chores or grades. Determine the weekly amount that’s comfortable for your family budget. Encourage your child to spend, save, and donate some of the allowance to build good habits. Provide some guidance but mostly allow for experimentation. Brace yourself for weeks when the entire amount gets spent on a toy that loses its appeal within an hour of purchase. It’s all part of the learning process!
Ages 8-9: Show your kids what everyday household purchases cost. Involve them in co-developing a week’s grocery budget or a back-to-school shopping budget. Keep in mind that some kids love this, while others can’t get away from it fast enough. If this first exposure to hands-on budgeting seems to dampen your child’s interest in money, take a step back and wait for another opportunity to play with this concept.
Age 10-12: Consider a hands-on “monthly family budget” game with stacks of real money on the kitchen table. The idea is to withdraw the amount that makes up your household budget for the month, then arrange the money in stacks to show how much goes to cover rent or mortgage, gas and car insurance, groceries and after-school activities, etc. Ten to 12 years old is a good time frame to open a bank account for your child and to begin explaining the use and common pitfalls of credit. Talk to your pre-teens about what makes certain clothes, shoes, or other items valuable, weaving in lessons about the power of advertising and peer pressure.
Teen years: Encourage kids to make their own money. Keep in mind that while some of the money-making opportunities today are exactly the same as they were 30 years ago (think mowing a neighbor’s lawn, washing cars, or babysitting), others are brand new. Kids can monetize YouTube channels, make money through competitive video gaming or sponsorships, freelance through websites like Fiverr, sell crafts on Etsy or promote artwork on Instagram.
Step 3: Give your kids a safe space to practice (and make mistakes)
“Safe” does not mean “free from consequences”. The idea is to allow your kids to experience consequences from good and poor money decisions – while keeping those consequences within the child’s ability to handle. After all, the life-long impact of a misspent allowance is virtually non-existent, and this small-scale failure can teach bigger lessons and set your kids up for success when the stakes get bigger.
For example, allow your teen to make some budget decisions that affect her directly, such as how to spend her clothing allowance for the new school year. Offer to help by guiding her through what she will need and building a shopping list, then hand over the money and set her loose. Your goal is to get your kids in just a little over their head where they will probably make mistakes and learn from them.
Young kids and money conversations: don’t delay!
In summary, as long as you are guided by your child’s natural interest, it’s never too early to begin teaching him or her about money. On the flip side, it’s also never too late. Start the conversation, give your kids space to practice, and model what you believe is most constructive.