The Importance of Talking to Your Children About Money

Last week, my 11- year old son decided to throw a football across his bedroom resulting in a hole in the plaster wall. This created the perfect opportunity for me to give him one of my infamous money lectures! I informed him that our local handy man charges an hourly rate of $40, and while he was there, he could probably fix a couple other “oops” blemishes on his bedroom walls. We guessed how many hours it might take to patch and paint, and then I asked him if I should take the money from his savings account or his birthday money stash in his wallet. Whoa…wait a minute, mom! I let him know that even if I agreed to pay for half of it, that still leaves less money in my account to spend on his favorite things. In the end, he agreed “we” should spackle the hole together and to be more careful going forward.

Every parent wants to instill good money habits in their children and there are many different parenting styles, but it all starts with talking about money. Some parents find this more difficult than others. According to a T. Rowe Price survey, 69% of parents have some reluctance when talking about money with their kids. Don’t make it harder than it should be. The best advice is to start now and to make it part of everyday conversation. It is never too early. Here are a few guidelines to use when talking to your kids about money:

1. Focus on values, not exact figures.

Think about what is important to you and what values you want your child to learn. It is not necessary to disclose details such as your salary and major expenses. That information is usually not relevant to them, particularly when they are young. What is important is to communicate the concepts of earning, budgeting, saving, investing, spending and giving money. Make sure they know the difference between true needs and wants.

2. Be as open and honest as possible.

Start by answering their money questions in a way that they will understand. Every child is different, but you should share personal stories with them. According to Dave Ramsey, in most cases, you should tell your kids the truth. If money is tight, share that. If you racked up some debt in college, share that. If you started investing early, and that resulted in giving you some peace of mind now, share that. They’ll appreciate your openness and learn valuable lessons to draw on when they face similar situations in their future.

3. Make your lessons age appropriate. The lesson is more effective if it is understandable and relevant to them.

When they are little, teach them to shop wisely and involve them in comparison shopping at the grocery store. Later, you can discuss how different purchase decisions are made in your house. When they are older, help them set goals for spending, saving, and giving. Encourage them to pick an item they would like to buy and keep track of their bank account as it goes up and down toward their goal, based on what they spend and don’t spend. Encourage them to give a portion to a cause that means something to them.

4. Make sure money is not invisible to them.

In this day and age of direct deposit, Venmo and Paypal, online bill payment and credit cards, it’s hard for a younger child to grasp that cash is real. Especially important when they are young, keep some cash in your wallet and make sure they have a wallet with some cash. Explain and let them experience how real cash arrives and departs from the wallet.

5. Remember that children learn what they live.

When they are young, children need to be aware, to a reasonable extent, of what goes through your mind when making financial decisions. They need to see you earn, budget, save, invest, spend and give. When appropriate, it helps to have them be both a part of the conversation and a participant.

If they see you spending money without any discussion or forethought, then that is the lens through which they will view the world. If you or your spouse don’t personally delay instant gratification, or don’t show them that there are times when you might have to wait, work and save harder to afford something, then those are the values they will espouse.

For certain financial decisions, the best learning tool is to have skin in the game. Encourage older kids to earn their own money as soon as possible. They are a lot more interested when it is money they earned! This can be effective when you are trying to shape behavior as in the football example, or when talking about automobile or education expenditures when they are teens.

Hopefully as you talk about money, you are strengthening your relationship with your child. If you don’t feel fully knowledgeable on certain topics as your child gets older, admit you don’t have all the answers. Do the research and learn together. You are laying the groundwork for future, more important and bigger, financial decisions.