Raising Financial Savvy Kids

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Many parents shy away from talking about money with their kids. It’s deemed a “grown up” topic, and sharing your family’s financial situation with children can feel awkward.

But understanding finances is a crucial life skill. Earning, saving, taxes, budgeting, investing, and bill paying are all things kids need to understand as they get older. Jen Hemphill, AFC (Accredited Financial Counselor) and host of the podcast Her Dinero Matters, explains why parents can be hesitant to talk to their kids about financial matters. “They are unsure how to approach the topic,” she says, “or they feel guilty about their own financial decisions over the years.”

But Hemphill believes parents are selling themselves short. “Kids need to learn about finances and parents are in the best position to teach them,” she says. “Even if the parents themselves have made mistakes, they can teach their kids to avoid some of the pitfalls and prevent them from making the same mistakes.”

What Age Should You Start Talking About Finances

“As early as the toddler years, kids understand that people use money to pay for items,” says Nicole Arzt, LMFT, author of the book Sometimes Therapy Is Awkward. “They also see how their parents use different forms of money to spend (i.e., cash vs. card).”

When kids enter elementary school, they start learning basic math, tools that help in understanding how money works. “By age 9, most kids have a solid concept about the idea of saving money versus spending it,” Arzt says. “After about age 10, kids can learn about how investing and budgeting work. There are valuable opportunities to teach your child about money during each of these stages.”

Everyday Teachable Moments

Rather than sitting down with younger kids for an economics lesson, find teachable moments in real life.  At the grocery store, for example, talk about what each item costs and how many things can be bought if you have budgeted X amount of dollars to spend.

Allowance can be a helpful learning tool as well. “Giving children autonomy over their money helps them with problem-solving and future planning, which are essential for higher-level critical thinking,” Artz says. (Whether allowance should be tied to chores is up for debate and depends on the child and family.)

School bake sales and book fairs are also great opportunities for kids to practice money management skills. “Even if they make a mistake and go overboard,” Hemphill, “it will be a small one.”

Artz advises getting in the habit of doing money-related tasks in front of your kids like paying bills and creating budgets. When appropriate, bring kids into conversations financial decisions and choices. For example, let’s say you want to take a family trip to Disney. “Explain to your kids that a vacation is something we must save up money to do,” Hemphill says. “If your child knows what the family is saving for, they may be inclined to say, ‘Let’s skip that trip to McDonalds and put that towards our vacation.’”

Needs Vs. Wants

“Conversations about needs versus wants can help children understand the concept of delayed gratification,” Artz explains. She suggests using money-neutral statements like, “That’s not in our budget right now,” or “We aren’t buying any toys at the store today. If you see something you like, we can talk about it for your birthday.”

If your child wants something that isn’t in the family budget, suggest that they save up their own money from allowance and gifts to buys something they want. Or parents can offer to put X toward the item and then brainstorm with their child how they can come up with rest of the money by doing additional chores or finding a babysitting job.

“Don’t feel guilty about having to say no to some of their requests,” Hemphill adds. “You are teaching them valuable life lesson about choices and financial responsibilities.”

Set A Good Example

Beyond what you say to your kids directly about money, remember that they are always watching your behavior. Be cognizant of your own spending habits. As your child gets older, introduce concepts such as investments, retirement funds, taxes, and charitable donations.

While it’s good to be honest with your kids about financial matters, Artz says it’s rarely helpful to give exact numbers, especially with young children. “It’s also not helpful to complain about money problems in front of your kids, as that can exacerbate their anxiety,” she says.

If the family is having financial issues, be honest but thoughtful. “If you have lost your job, you are going to be stressed out,” Hemphill says. “If you say everything is ‘fine’ but they see you are upset, they may not trust you and will worry more.” Instead, be truthful but optimistic. Tell them you will be looking for a new job but, in the meantime, the family may need to cut back on some spending. “Most important, reassure your child that everything is going to be okay, and they have nothing to fear.”

RANDI MAZZELLA is a freelance writer specializing in parenting, teen issues, mental health, and wellness. She is a wife and mother of three children. To read more of her work, visit www.randimazella.com.