Five Tips For Talking To Kids About Money

Start Early

Financial habits begin forming around ages 7-9. What isn’t taught in youth becomes a problem later on. For example, young adults pay three times more in banking fees than older generations. Good advice and habits are more important to teach than ever.

Teach Equitably

Everyone needs financial literacy. Gender is not a qualification nor exception in finance. The idea that boys and men are better suited to handling money because it involves math is wrong. Unfortunately, that idea is still hovering around. Women, on average, actually outperform men as investors and are less vulnerable to market timing. Kids have everything to gain as adults from learning how to handle money and budgets.

Use Allowances To Teach Decision-Making

Emphasize opportunity cost - going without a small treat every week lets you save up for something bigger at the end of the month. This could also mean an allowance leads to poor decisions or small impulse purchases, and that’s okay. Regret is another way to learn opportunity cost, which is when you give up one thing you want for another. For example, an allowance spent on in-app purchases for a videogame could mean going without snacks at a movie or baseball game. A small money mistake early in life can become a lesson in “wants versus needs” that pays off over decades.

Assign Math On The Go

Ask your child to keep a running total of the grocery bill as you pick up food. They can try to do the math in their head or bring a calculator. Tell them a maximum amount you are allowed to reach. As you begin to reach that number, talk about how to choose one option over another. Could something be replaced with a cheaper brand in order to afford something else? Did they remember to include tax? The goal is not to add up a cart’s worth of prices perfectly, but to be aware of costs and find opportunities to save.

Use Real Numbers and Experiences

Children learn well from real-world examples that affect them. For example, with allowance, you might enforce a habit such as “save $1 for every $4 earned” and watch how that reserve cash builds up. Better yet, offer to add a percentage to that every month as interest. When your child wants something unexpected, they will remember how automatically putting some money aside helped out. You can use yourself as an example without revealing all your finances. Did you ever have a surprise expense that cost more than you were ready to pay?

You can find more topics about kids and money at financial journalist Beth Kobliner’s blog.

Thomas M. is a Certified Financial Education Instructor℠ (CFEI®) and has previously blogged about Finance Games and Guides For Teens as well as recommended reading for learning about investing.