Educating your children about financial management
Talking about money is something many of us often shy away from — especially when it comes to discussing finances with our kids.
The reality is that even if you are not having conversations with your children about money, your kids are still seeing how you handle wealth, how you save it, and how you spend it. As a parent, you are your child’s first teacher and who they spend the most time with in their formative years. For this reason, it’s critical you have an open and ongoing dialogue about wealth throughout your child’s life to pass along your values and help set them up for financial success.
It can be difficult to know where to start when having these conversations, but there are some basic topics you can cover with your children based on their age.
Adolescents
Talking to your children about money management is something that should happen early and often. There’s no “right” age, but typically it’s our curious children who first approach us with
questions about money — and you can keep these conversations very simple. For example, if your child receives money for a holiday or a birthday, you can have a discussion about what they
want to spend their gift on and if they’ll need to save more money toward that purchase or charity.
Setting up an allowance system for your kids is another great way to introduce them to money management. When kids are given a cash allowance, you can set parameters that support your family values. An example might be a portion for a long-term item or activity, a portion for spending now, and a portion for charity. They can watch the allowance money accumulate in the separate containers or accounts and learn how to be patient and delay spending for a bigger purchase. This will allow them to begin to develop a healthy relationship with money. They will start to understand wants versus wishes, and when their money is spent, it’s gone.
Teenagers
As your children move into their teenage years, it might be time for them to get their first after-school job. When this happens, it’s important to set clear expectations for that income and to decide how much you’re willing to continue financially supporting them once they’re getting their first paychecks. Talk to your teenagers about how much they’re saving and spending. For example, maybe 50% of the income your child earns is used toward their college savings, and 50% can be spent on fun activities or purchases. Encourage your teen to work toward savings goals and to be cognizant of what they’re spending their money on. Check in with them on how they are progressing; you may even introduce basic investing concepts as it relates to their savings portion. They will make mistakes, but this is the opportunity for you to help them learn from those mistakes and develop good financial habits. Encourage them to review their account quarterly to see where the money is being spent and how their savings balance is growing.
Young Adults
Transitioning into adulthood inevitably comes with change and more financial responsibilities for your kids. As your child starts college or enters the workforce, it’s important you are a resource for them. Several financial topics to cover with them include:
Budget— Your child’s first budget does not need to be complex. Help them list their necessary expenses each month, and determine how much money is left to be spent on other expenses. Make sure they allocate their entire paycheck, even if the extra is labeled as savings or unplanned items.
Credit— Instill the importance of maintaining good credit and how your child can do so. This may mean helping them obtain their first credit card and ensuring a plan for making payments each month. Make them read the fine print.
Debt— Particularly if your child is taking out student loans, help them develop a plan for how they will pay back their debt and reach a basic understanding of how interest works.
Retirement— Encourage your child to start saving for retirement as early as possible, whether that’s setting up a Roth IRA or contributing to a 401(k) plan to receive an employer match when entering their career. Suggest reliable resources to help them understand how and when these funds can be used.
Having open communication around personal finance will only benefit your children as they get older and start families of their own. It is important to share your family values around financial decisions and continue developing a healthy dialogue that will support future generations of wealth.
Build a Foundation for Financial Fluency
It’s a commonly accepted truth that early childhood literacy is an essential component in shaping a child’s future academic success. But it can be just as important to consider the impact of financial literacy in childhood:
- Children as young as 5 form distinct emotional attachments to money habits.
- Kids who learn to manage money early tend to be more financially responsible as adults.
The long-term impact of financial fluency cannot be overstated: Lacking knowledge about personal finances cost Americans an estimated $388 billion in 2023.
For more helpful tips about financial conversations with kids, visit: Kids Learning About Fiscal Responsibility – Trust Point (trustpointinc.com)
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